Economic history of Brazil
[2] Blocked from the lucrative hinterland trade with the Far East, which was dominated by Italian cities, Portugal began in the early fifteenth century to search for other routes to the sources of goods valued in European markets.
[4] Indeed, during this period, the Portuguese royal family and the noblemen who had established themselves in the territory, started many reforms which developed the educational, cultural and economical sectors of Brazil.
Hence, while the population did expand at a rapid pace (nearly 2 per cent per annum), the country's efforts to improve its performance in per capita terms were largely frustrating until the start of the twentieth century.
It was neither possible to restructure the sugar industry very quickly, nor easy to promote large-scale inter-regional migration flows, although a large number of slaves did move from the north-east to the south-east.
[6] An entrepreneurial class established in Rio de Janeiro during the mining surge was able to induce the government to help create basic conditions for the expansion of coffee, such as removing transportation and labor bottlenecks.
[6] From the area near Rio de Janeiro, coffee production moved along the Paraíba Valley toward São Paulo State, which later became Brazil's largest exporting region.
[6] The cultivation of coffee farther away from ports required the construction of railroads, first around Rio de Janeiro and into the Paraíba Valley, and later into the fertile highlands of São Paulo.
[6] The main rail link between São Paulo's eastern highlands and the ocean port of Santos allowed for a rapid expansion of coffee into the center and northwest of the state.
[6] However, by 1840 Brazil was already under pressure to abolish slavery, and a series of decrees were introduced, making it increasingly difficult to supply the new coffee areas with servile labor.
[6] During the first three decades of the 20th century, the Brazilian economy went through periods of growth but also difficulties caused in part by World War I, the Great Depression, and an increasing trend toward coffee overproduction.
[10] Despite the economic difficulties, the income maintenance scheme of the coffee support program, coupled with the implicit protection provided by the external crisis, was responsible for greater industrial growth.
[11] Getúlio Dorneles Vargas (president, 1930–45, 1951–54) was overthrown, democratic rule was reestablished, and the foreign-exchange reserves accumulated during the war made possible a reduction of trade restrictions.
[11] This, combined with persistent inflation and a repressed demand, meant sharp increases in imports and a sluggish performance of exports, which soon led again to a balance of payments crisis.
[11] Early in the 1950s, however, convinced that the only hope for rapid growth was to change the structure of the Brazilian economy, the government adopted an explicit policy of import substitution industrialization.
[11] Between 1957 and 1961, the government made several changes in the exchange-control system, most of which were attempts at reducing its awkwardness or at improving its performance with the advance of import substitution industrialization.
[11] For this same purpose, the government also introduced several complementary measures, including enacting the Tariff Law of 1957, increasing and solidifying the protection extended to domestic industries, and offering strong inducements to direct foreign investment.
[12] Moreover, political troubles negatively affected expectations and precluded the formation of a coalition to back the introduction of tough measures to control inflation and the balance of payments crisis.
[12] The regime gradually introduced incentives to direct investment, domestic and foreign, and tackled balance of payments problems by reforming and simplifying the foreign-exchange system.
[13] The combination of a harsh climate, a highly concentrated land-tenure system, and an elite that consistently resisted meaningful change prevented the Northeast from developing effectively.
[14] The expectation was that the combined effects of import substitution industrialization and export expansion eventually would bring about growing trade surpluses, allowing the service and repayment of the foreign debt.
[16] At the beginning of the 1980s, however, the foreign-debt problem became acute, leading to the introduction of a program to generate growing trade surpluses in order to service the foreign debt.
[16] However, toward the end of the decade, with the acute shortage of foreign exchange, the government forced state enterprises to borrow unnecessarily, increasing their indebtedness markedly.
[18] The plan's immediate results were spectacular: the monthly rate of inflation fell close to zero, economic growth surged upward, and the foreign accounts remained under control.
This meant their productivity was far lower than people in countries who had already been using computers for one or two decades, and who had, for example, already made the transition from typing and re-typing drafts of documents on manual typewriters to simply entering print commands into word processing software.
Finally, the policy of restricting imports of foreign computers was also blamed for causing Brazil to fall far behind in adopting many lifesaving technologies made possible by modern microprocessors, such as anti-lock brakes.
Brazil ended the old policy of closed economies with development focused through import substitution industrialization, in favor of a more open economic system and privatization.
[23] Major difficulties with the stabilization and reform programs were caused in part by the superficial nature of many of the administration's actions and by its inability to secure political support.
[23] The president appointed a determined minister of finance, Fernando Henrique Cardoso, and a high-level team was put in place to develop a new stabilization plan.
[23] Once this realignment was achieved, the new currency would be introduced, accompanied by appropriate policies (especially the control of expenditures through high interest rates and the liberalization of trade to increase competition and thus prevent speculative behavior).
However, no shortage of foreign currency ensued because of the financial community's renewed interest in Brazilian markets as inflation rates stabilized and memories of the debt crisis of the 1980s faded.
