The Brazilian economy entered the 1990s with declining growth, runaway inflation, and an unserviceable debt of $122 billion. As the largest Latin American economy with 162 million consumers, it had one of the most highly regulated economies in the world.

In 1990, Brazil’s first democratically elected government in nearly three decades initiated broad reforms designed to open the economy, curb inflation and attract investment. Additional measures promoting economic stability and the establishment of a new currency, the “Real,” in July 1994 were successful.

President Fernando Henrique Cardoso (former Finance Minister) took office on January 1, 1995. His reforms continue to build on previous ones.

Brazilian Trade Barriers Are Down — Imports Are Up

Reduced trade barriers and other factors prompted an import surge last year, up 90% from 1994. In response, the Brazilian government significantly raised import tariffs in March 1995 on a number of goods, including automobiles. After receiving pressure from the World Trade Organization, Brazilian barriers declined.

In 1995, U.S. exports to Brazil climbed to $10.8 billion, registering a U.S. surplus of $1.8 billion. And Florida’s exports to Brazil jumped 104% in the first half of 1995, compared with the same period in 1994.

In a major new development, a law was recently introduced allowing Brazilian companies to pay for imports in advance of receiving them. This is anticipated to further increase imports across the board.

Risk Factors to Consider

On the road to greater prosperity, Brazil reduced its monthly average inflation rate from 50% in June 1994 to less than 2% today. Real gross domestic product reached 4.9% last year. And constitutional and tax reform is well underway. Some analysts, however, believe the current banking reorganization can lead to severe economic problems. Others feel the Real is overvalued and may undergo a correction.

Consider a Joint Venture, Licensing Agreement or Acquisition in Brazil

Establishing a joint venture or licensing agreement is common—and a means to bid on Brazilian government contracts or deal in regulated sectors. Direct investment in a new or existing company has proven by many to be profitable. In 1994, U.S. foreign direct investment reached $19 billion. Principal recipient sectors include electronics, transportation, chemicals, petroleum distribution and capital goods.

Mercosur Adds Additional Benefits

An improved economic climate coupled with lower trade barriers have made Brazil an exciting export and investment destination. And new opportunities presented by the Mercosur trade area, comprising Brazil, Argentina, Uruguay and Paraguay, further enhance this. Through Brazil, preferential access to these countries is ensured—offering more benefits.

This article appeared in October 1996. (BB)
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John Manzella
About The Author John Manzella [Full Bio]
John Manzella is a world-recognized author and speaker on global business, competitive strategies and the latest economic trends. He also is CEO of World Trade Center BN, chair of the Upstate New York District Export Council, and founder of The Manzella Report and Manzella Trade Communications Inc. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.




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