Brazil's Political Factor in Business

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Political factor by ashraful islam

Trade Policies in political factor

Brazil's economic history has been influenced remarkably by foreign trade trends and policies. Successive cycles of export booms in such commodities as sugar, gold and diamonds, rubber, and coffee played major roles in Brazilian development before World War II. In the 1930s, the collapse of coffee prices signaled a turn inward, resulting in a nascent industrialization. In succeeding decades, industrial development was fostered deliberately through restrictive trade policies, making Brazil a relatively closed economy by the mid-1960s. Only in the early 1990s did Brazil begin significant liberalization of its trade policies, and even these reforms were modest by comparison with those in a number of other Latin American nations.

Government intervention in foreign trade has a long history in Brazil, reaching back to the colonial period when Portugal forbade Brazilian trade with other nations. Following independence in 1822, Brazil opened its ports and expanded its trade with other nations, particularly Britain. Extensive government regulation of trade continued, however, with tariffs providing over half of the government's revenue before World War I. Other forms of intervention in trade included the 1906 coffee price support plan, which was a sophisticated attempt to exploit Brazil's monopolistic position in the world coffee market. Before World War II, trade policies were used mostly as a source of revenue or as a response to specific groups such as the coffee producers, rather than as a means of achieving national economic goals. In the early 1950s, Brazil began to use trade policy in a more deliberate way to promote industrialization. The forced reduction in Brazilian imports after 1929 had resulted in the first major industrial growth in Brazil, centered in São Paulo. Heeding this apparent lesson, policy makers in the 1950s argued that measures that deliberately reduced imports would stimulate domestic production, thereby encouraging technological development and increasing employment in activities that were regarded as more "modern" than Brazil's traditional agricultural and extractive activities. The steep rise in world oil prices that began in late 1973 soon ended Brazil's move toward greater trade openness. The approximate balance between imports and exports in the early 1970s became an unprecedented US$4.7 billion deficit in 1974. Although record levels of external capital flows financed this deficit, Brazilian policy makers responded by restricting imports. In June 1974, import financing for many products was suspended, while tariff rates on more than 900 items were doubled. Over the year, restrictions were increased further, and in 1975 the government required that imports be paid for in advance with deposits that did not earn interest or any correction for inflation. On the export side, further measures were taken to promote exports, especially for manufactures. Despite these measures, Brazil's trade balance remained in deficit for most of the 1970s. The combination of tightened import controls, real depreciation, and the fall in domestic demand induced by the restrictive macroeconomic policies of the early 1980s resulted in a sharp adjustment in Brazil's external accounts. The magnitude of the adjustment appears to have surprised even many of its proponents, both in the Brazilian government and among creditors. After 1983 the massive trade surpluses averaged more than 3 percent of GDP, compared with negative or negligible levels through most of the 1968-82 period. In 1984, as the full effects of the adjustment program were felt, exports were about double imports, and Brazil's trade surplus reached an unprecedented 6.1 percent of GDP, far exceeding the comparable shares in other important economies such as Japan (3.5 percent of GDP) and West Germany (3.8 percent). By 1984 it was clear that the successful external adjustment had a...
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