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Volume 53 / Social Sciences

ECONOMICS: BRAZIL


JOHN H. WELCH, Federal Reserve Bank of Dallas
MELISSA H. BIRCH, Associate Professor of Business Administration, University of Virginia
RUSSELL E. SMITH, Associate Professor of Economics, Washburn University


THE BRAZILIAN STRUGGLE TO STABILIZE high and stubborn inflation has slowed the other important task of implementing structural reforms. Although current works reflect the continuing concern with inflation stabilization, many of them have launched into evaluating needed structural change in the Brazilian economy as well. In many cases, the structural problems originated with import substituting industrialization policies implemented before 1964 and sustained, in one form or another, since then. These problems include increasing income inequality, large-scale migration from rural to urban areas, and the lack of labor absorption by industry, but additional problems also developed during the subsequent debt-led growth period from the late 1960s to the early 1980s and the period following the onset of the debt crisis in the early 1980s. The main pre-condition to any lasting systematic resolution to these problems, however, is inflation stabilization; as expected, much attention has been given to inflation stabilization in Brazil, especially to the now failed "Collor Plan."

Implemented in March 1991, the Collor Plan combined trade and investment liberalization with a more radical inflation stabilization policy predicated on decreasing the government's internal debt service burden. The architects of the plan hoped to accomplish this by "freezing" the liabilities of the government, especially those rolled over in the overnight market. The theory behind such a plan was originally outlined in Kandir (item bi 91017736), Zini (item bi 90013864), and Giambiagi (item bi 90011649). A number of works critical of the program appeared shortly after its implementation, such as those by Longo (item bi 91025150), Bresser Pereira (item bi 92010856) and Simonsen (item bi 91025155). These critics assumed that the Plan's expectations regarding future inflation and government default were myopic: if the government were to not adjust its fiscal position immediately to perfect balance, it would only borrow money at extremely high interest rates with a significant risk premium to compensate investors for the possibility of future moratoria. Furthermore, a government does not gain policy credibility by reneging on commitments. The short term gain in cash flow would soon turn into an even more explosive growth of internal debt and higher inflation. These prophesies proved correct: by the time the government released the frozen cruzados eighteen months later, Brazil had moved back to a hyperinflationary environment and internal debt was growing extremely quickly. Most accounts find this part of the Collor Plan an abject failure.

Lesser noticed aspects of the Collor Plan involved trade liberalization and privatizing in addition to policies that would enhance Brazil's technological capabilities and protect intellectual property rights. In a certain sense, the failure of the macroeconomic side of the Collor Plan hindered progress on the structural and microeconomic fronts. Most studies do not deal with specific aspects of the Plan. Instead, they describe the pattern of trade protection and policy at the beginning of the period and gauge the effects of liberalization. A good example is the work of Braga, Santiago, and Ferro (item bi 90010773), which seeks to quantify the levels of effective trade protection across different sectors. The literature therefore takes a decidedly outward view of trade policy. A popular example is Ohlweiler (item bi 91017703), but more formal studies include Conceiç˜ao Sampaio (item bi 88002532), Conceiç˜ao Sampaio and Barrantes (item bi 90010788), Zini Júnior (item bi 90010772), Brand˜ao and Carvalho (item bi 93001973) and SEADE (item bi 91021061). In addition to this research on unilateral trade liberalization, regional economic integration has gained attention once again. Going well beyond the old attempts at extending and consolidating import substitution on a sectoral basis, the new regionalism encouraged freer trade in all sectors (items bi 91021084 and bi 91024215), even before the North American Free Trade Agreement negotiations and Enterprise for the Americas program.

Delays in implementing adjustment have left many areas of the economy with unresolved problems of backwardness and lack of competitiveness. These sectors include infrastructure, but especially education (item bi 91017613), rural and agricultural development (item bi 91017715), savings and capital market development (items bi 90013866, bi 92015926, and bi 92003455), steel (item bi 91021056), and defense (item bi 92005679). Tigre (item bi 91021093) and Dantas (item bi 91021066) examine Brazil's highly controversial policy of protecting the domestic computer or "informatics" sector. Brazil's Confederaç˜ao Nacional de Indústria undertook an ambitious study of the overall competitiveness of Brazilian industry, including a survey of its members and an assessment of the effects of Brazilian economic policy on industrial performance, with recommendations for policy reforms to enhance industrial competitiveness (items bi 91017499 and bi 91017614). Rocha et al. (item bi 91021075) present another study of industrial performance from a managerial point of view, while others emphasize workplace and labor relations: Prochnik takes a critical view toward the adoption of Japanese management techniques in the Brazilian shoe industry (item bi 92003453); Cabral de Castro evaluates the role of labor committees in the Brazilian automobile industry (item bi 91017707); and Neder et al. examine how technology, workplace organization, and the Brazilian labor movement interact in S˜ao Paulo's industry (item bi 91017747). In general, this literature focuses on identifying the problems in many sectors of the Brazilian economy and the difficulties involved in improving the situation.

The ultimate goal of stabilization and restructuring is higher economic growth and development. The reemergence of economic growth in mainstream economics has formally incorporated the concerns of development by incorporating the political and institutional conditions for making growth sustainable. This "new" theory is now referred to as "endogenous growth," and the next volume of the Handbook is sure to include numerous studies along these lines. In the meantime, studies have concentrated on a less general approach to the problem. But from the recent experiences of Chile, Mexico, Argentina, and Venezuela, one clear pattern has emerged. In countries such as Venezuela, where many perceived that the recovery has benefitted only a few, growth has stalled. The remainder of these countries have channeled resources to the elderly or the poor by using the proceeds from privatization or through direct programs. So far, recovery has continued in these countries, but Brazil has not fared as well (items bi 91021059 and bi 88003266). The effects of economic adjustment on employment (items bi 91017734 and bi 91013705), wages (items bi 91025202, bi 91017734, and bi 91006276), and income distribution (items bi 91021063, bi 91017619, and bi 91017751) have also been studied.

This introduction would not be complete without mention of regional studies. Books and articles about the Amazon region proliferate while many more examine the Brazilian Northeast. Henrique Rattner's book is the most thorough and scholarly study of the Amazon basin (item bi 91021069). Several studies focused on the large investment projects so central to the Brazilian development strategy over the last thirty years. Magalh˜aes Filho's book is the most ambitious work; it analyzes many of these projects in an even-handed way (item bi 91021073). Cota examines the Carajás project (item bi 91021092) while Carneiro looks at the Jarí Project, Daniel Ludwig's floating pulp mill (item bi 91021102). Turning to the economic development of the Northeast, Guimar˜aes Neto offers a general overview (item bi 91021072), and the CONDEPE volume gauges the success of federal government fiscal incentives in spurring industrial growth (item bi 91021067). Works on Minas Gerais (item bi 91021065) and Goiás (item bi 91021095) are notable contributions on regions that have received relatively little attention.

For those having difficulty finding good sources of data, the contributions by CEPAL (item bi 91021063), Maia (item bi 91021095), Guimar˜aes Neto (item bi 91021072), CONDEPE (item bi 91021067), Silva (item bi 91021080), and the Ministério do Trabalho (item bi 91021054) are good sources of raw data.


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