brazil's economic final

8/3/2019 Brazil's Economic Final

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BRAZILS ECONOMICBRAZILS ECONOMIC

TURNAROUNDTURNAROUND


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BRAZIL ECONOMY Defined as a middle income economy with a strong

sense of nationhood.

Sixth largest economy by Nominal GDP.

Eighth largest economy by Purchasing Power Parity.

Expected to be Fifth largest economy in decades to

come.


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COMPARISON WITH USAComparison with United States of America.

Both Countries similar in terms of Size, Talented

Manpower and Abundant Natural Resources.

USA has emerged as a Economic Superpower, Brazil

has struggled.


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THE YESTER YEARS


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1968 - 1973

Between 1968 to 1973 the growth of GDP jumped to11.1%

Leading sectors were Consumer Durables, Transportation

and Basic Equipment.

Amazon basin provided Hydro Power and Timber.

Industrial Sector experienced not only Growth but alsoModernization.

Value of imports rose to US $ 4.4 billion.


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1970sCountry suffered drastic reductions in trade during

1973 Oil Shock.

This led to sharply higher import bill.

Countries foreign debt was US $ 54 Billion in 1980.

Government adopted development plan to increase selfsufficiency , expansion of economic infrastructure and

promote trade.


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1985 ONWARDSReform process started in Fiscal Sector.

To control Inflation and restore public sectors capacity

to invest.

Rise in CPI had escalated from 86.3% to 2485%

annually.

Plan was soon in trouble owing to large wage

adjustments, increasing aggregate demand and

inflationary pressures.


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CARDOSO AND LULA


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F

ERNANDO CARDOSOPrivatization program was launched.

Landmark lowering of Inflation from 31.2% in 1994 to

7.2% in 1997.

Major reforms in executive branch such as Tax System

and Social Security.

Rise in debt from 30% to 55.5% of GDP.


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LULA DA SILVAPresided over the country during a period of

significant Economic Crisis.

Pressed ahead with Social and Economic Reforms

Fastened countries growth through Financial Markets

and targeted Social Groups.

Exports were encouraged and new Trade Alliances

were formed.


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Renewing all agreements with IMF.

Achieved budget surplus in first two years.

In late 2005 Government paid off debt to IMF.

Risk indexes fell to around 250 points.

Country became net Creditor in 2008.


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COUNTRYS ECONOMIC WOES

In Oct2002govtdebtwas$250bn,around56% ofBrazilsGDP

Largerpartwasshorttermdebt

$82bnwasforeigncurrencydenominateddebt(tiedtoshort

terminterestratesorrealinterestrates)

PressureonBrazilianfirmstorepayloansindollars($96 bn

foreigncurrencydebt)

91% ofexportearningswasusedtoserviceforeigncurrency

debt


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CONTD..

Mismanagementoffinances

15% ofGDPonsocialprogrammes

Morethan5% ofGDPonpensionfunds($19 bndeficit)

Reasoncitedwaslabourlaws(retirement


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CONTD

Lackofinvestmentininfrastructuredevelopmenthadcreated

bottleneckfordev

Brazilhad 1.5mn kmofroadsofwhichonly 11% werepaved

req investmentof15bnreasis

Electricitywasanotherlackingarea

Ithadelectricityonlytill2008,req investmentof20 mn reasis

Povertydueunequalincomedistribution

Assaults,crime,corruption(20-30% ofpublicspending)were

rampant


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TURNAROUND MEASURES

Lulasworkerspartyleftorientedandopposedtoliberal

globalization

Once

in

power

,accepted

IMF

guidelines

Accepted$30 billionloan

Increaseddomesticfundfrom 3.75to4.25%

Topprioritytocontroldebtandreduceinflation


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Measurestaken

reducesocialsecuritydeficit

Rewritingtaxcode

Relaxinglabour laws

Empoweringthecentralbank

Setagrowthratetargetof3.5%


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Butdebtwasgrowing,lulasgovttightenedthebudgetbeyondIMFspecs

Federalspendingreduced

Govtemployeeswerelaidoff

Fewministrieswereshutdown

Armedforcesprocurementlawswerechanged

Allgovtpurchaseweremadeonlinetoreducecosts

Minimumwageincreasedby 8%


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Pensionreformswerealsopushedthrough

Worldbankproposalwasaccepted

Retirementageswereraisedforbothmenandwomen

Taxstructurechangedfromcascadetovalueaddedstructure

Proposalswerealsofloatedtogivecentralbanksfull

autonomy


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Contd..

Governmentrealizedthatforeconomicgrowthprivate

investmentsarenecessary

FDInormsmodified

Banonimportsofhardwareandsoftwarehadbeenremoved

TheFreeTrade ZoneinManausandstateslikeBahiaand

Pernambuco wereencouraging

industriesbyofferingthem 10 yearstax - holidays


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LulafoundedtheG20 grouptoopenfarmtrade

In2003,Brazilexportedtransportequipmentironore,soyabeans,footwear,coffee,autosworth$73.08billion

WiththefalloutoftheUSmarketsduetorecession,Brazilfoundatradingpartnerin China

TheothermajortradingpartnersincludedUS(22.4%),Germany(5.1%),

TheNetherlands(4.4%),Mexico(4.2%)andArgentina(4.1%)


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ThetotalexportstoIndiain2003 werevaluedat$550 million

BrazilwasalsolobbyingforapermanentseatinUNSecurity CouncilandFTAA

Thegovernmentundertookmajorreformstoincreasepubliccontroloverjudiciary

Bymid-2004,economicgrowthhadbeenvisible


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Future Challenges

Dependenceonforeignfunds.

ProjectingBrazilastheasafeinvestment

destination.

Inflationandunemployment. Reformprocessinjudiciaryandlaborlaws.

Taxationrelatedissuesbetweenthefederaland

stategovernment. AssociationwithFATAA(Free Trade Area of the

Americas )


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BRAZILS GOVERNMENT DEBT (1983-2003)

Particular 1983 1993 2002 2003

External Debt & Resource

Flows

(US$millions)

Totaldebtoutstandingand

disbursed

98,525 1,44,104 2,28,662 2,36,245

IBRD 3,628 6,575 8,585 8,588

IDA 0 0 0 0

TotalDebt Service 13,304 10,883 51,636 56,793

IBRD 507 1858 1518 2010

IDA 0 0 0 0

Compositionofnet

resourceflows

Officialgrants 16 59 0 -

Official Creditors 1576 -1033 916 -


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Contd..

Private Creditors 2659 10073 -9541 233

Foreign Directinvestment 1609 1292 0 -

World BankProgram

Commitments 2067 636 1276 1217

Disbursements 1204 471 1384 1291

PrincipalRepayments 270 1279 1063 1633

NetFlows 934 -808 322 -342

InterestPayments 237 579 456 377

NetTransfers 698 -1387 -134 -719


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CENTRAL GOVERNMENTS TAX REVENUES

AS % OFGDP FOR SOME COUNTRIES (2001)

0

5

10

15

20

25

Brazil Southkorea Thailand Mexico Argentina India


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BRAZILS INVESTMENTS & GROWTH (1983-2003)

Particular 1983 1993 2002 2003

STRUCTUREofTheECONOMY

(% ofGDP)

Agriculture 10.9 7.6 5.8 5.8

Industry 44.0 41.6 20.6 19.1

Manufacturing 33.2 25.0 12.4 11.4

Services 45.1 50.8 73.5 75.1

Imports ofgoodsandservices 9.0 9.1 13.4 13.1

1983-93 1993-03 2002 2003

(averageannualgrowth)

Agriculture 2.4 3.9 5.0 5.5

Industry 1.2 1.8 2.6 -1.0

Manufacturing 0.0 1.4 1.4 2.7

Services 3.0 2.5 1.6 -0.2

Imports ofgoodsandservices 5.9 4.0 -12.3 -1.9


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FEWFACTS ABOUT LUIZ INACIO LULAFDA

SILVA

Luiz inacio lula da silva isfromtheleftwingworkerspartybutwoos

foreigncapitalassiduously

Wasametalworkerwhostudiedonlytillprimaryschoolandisa

skillednegotiator

Isanexperttacticianwhohasgotthebackingofcentristpartieson

criticalreforms

HasstraightenedoutBrazilsprecariousfinancesandearnedrare

praisefromtheIMF

BelievesthefuturelieswithcountrieslikeIndia,BrazilandSouth

Africa


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ANALYSISANALYSIS


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BACKGROUND & PRE-REQUISITES

AllthetimeindepthduetoloansfromForeign Countries & IMF.

Thiswasmajorconstrain,whichcreatedabottleneckintheinfrastructuresector.

-Roads

-Industries-Ports

WaitingforaMessiah,Governmentincontrolduring Cardosoaswellas Lulahandicapped.

PensionPlans,TaxStructure,MonetaryPolicies,FiscalPolicies,Exchangeratemechanism,Tradenotmanagedinarequired

method & everytimetheyhadatradeoff. Corruption, Law, Crime & unabletofullfillpromiseswerefewBE &

CGconcerns,alongwiththereformsundertakenbytheGovernmentinpar.


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Financesofthecompanyweremismanaged.

Pension @100% ofthesalary,retirementagelimit50 years.

Unorganizedsectorforwork. HighTaxStructure TaxEvasion.

Bottleneck lackofinvestmentinInfra

HighDebtService & PayBack Lionsshareof

Govt- FedRevenues. UnequaldistributionofIncome

Law & OrderalongwithIncreasein Crime.


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CONCEPTS COVERED

3 branchesofEthics:-

Meta-ethics

NormativeEthics

AppliedEthics


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META-ETHICS

In philosophy, meta-ethics isthebranchof ethics thatseeksto

understandthenatureofethical properties,statements,

attitudes,andjudgments.

Accordingto RichardGarner and BernardRosen, therethree

generalquestions:

Whatis

the

meaning

of

moral

terms

or

judgments?

Whatisthenatureofmoraljudgments?

Howmaymoraljudgmentsbesupportedordefended?


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NORMATIVE ETHICS

Itisthebranchof philosophical ethics thatinvestigatestheset

ofquestionsthatarisewhenconsideringhowoneoughtto

act,morallyspeaking.

Itexaminesstandardsfortherightnessandwrongnessof

actions


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NORMATIVE ETHICAL THEORIES

VirtueEthics focusesontheinherentcharacterofaperson & not

specificactions.

Deontology - decisionsshouldbemadeconsideringthefactorsofone's

dutiesandother'srights

Consequentialism - moralityofanactioniscontingentontheaction's

outcome

Pragmaticethics - moralcorrectnessevolvesoverthecourseofmany

lifetimes


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APPLIED ETHICS

Itisatermusedtodescribeattemptstouse

philosophicalmethodstoidentifythemorallycorrect

courseofactioninvariousfieldsofhumanlife.

Forexample:-

Bioethics (euthanasiaisethicalornot)

Businessethics (thedutyof'whistleblowers'tothe

generalpublicasopposedtotheiremployers)


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REAL LIFE EXAMPLE:COMPARISIONWITH INDIA

Country Brazil India

Capital Braslia NewDelhi

Inflation(CPI) 6.97% 9.39%

Population 190,755,799 (5th) 1,210,193,422 (2nd)

GDP (PPP) $2.5trillion $4.47 trillion

GDP (Nominal) $2.3 trillion (7th) $1.88 trillion (9th)

GDP Growth Rate 7.5% 8.5%

Education(2011)

90% ofAdult

Population

74.04% ofAdult

Population

Received FDI (2009) 12th 22nd

Foreign Exchange Reserves (2011) 6th 7th

Exports (2010) 22nd 17th

Imports (2010) 20th 11th


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PROBLEMS/DILEMMAS

HugeDebts

InfrastructureDevelopmentandElectricity

PensionFundsTaxStructureandExpenditureofTaxes

Poverty

CorruptionJudiciary: Law & OrderSituation


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ALTERNATIVE OUTCOMES

InvestmentinInfrastructure & Education

ReductioninExpenditure

StricterPensionRules

Re-definingTax Laws

EncouragingFDI

ImportandExport

Outsourcing

TieupwithNations

BetterJudicialsystem


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INDIAN CONTEXT

INDIA BRAZIL

PublicdebttoGDPRatio 43.7419 57.5282

ExternaldebttoGDP

Ratio

23.3439 20.1689

5-yearsplanisthemainbackbonefortheIndianeconomy.

InIndiainfrastructureandindustrialdevelopmentaretheprioritysectors

ininvestments.

TaxratesarecomparativelylowertoBrazilthatwhichattractscompanies

establishinIndia.IndiaisnotmuchdependentontheFDIsforthebasicdevelopments.

Indiaisrichintermsofskilledandknowledgelabours,mineralsand

resources.


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INDIAN CONTEXT

SimilaritiesbetweenIndiaandBrazil:-

Similarpoliciesbetween 1950-1980 (ImportSubstitution,trade

barriers,etc.)

Startedtheirliberalizationprocessatapproximatelythesame

time(early 1990s)

Cardosos bosolo escolaprogrammethebaseofIndianGovt.sfreeschoollunchprogramme

Gainingimportanceontheworldstage.

Poverty:Accordingto 1998 Statistics,22% ofthepopulationwas

belowpovertylineinbrazil.

Corruption:Thiswasdevouring20-30% ofpublicspendingin

brazil.

Similareconomicfundamentalsexceptforbudgetsurplus.

Capitalinflow:HotMoney


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Problems:-

Highinflationrates:Higherfiscalburden & exposureto

commoditybasedindustries.

Infrastructure

:Poor

interconnectivity

between

town

villages & city.

SocialandEconomicinequality:50% ofpooraccounted

for 10% ofgdp inbrazil.

Rigidlabourlaws

Lackofpoliticalwill


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ButIndiadiffersdueto:-

5-yearsplansarethemainbackbonefortheIndian

economicdevelopment

Taxratesarecomparativelylower andmoresimplified

thanBrazilthatwhichattractscompaniesestablishinIndia

Astrongdomesticmarket

Indiaisrichintermsofcheapandskilledlabour


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=Basicinfrastructure

=Economicreformation

=Availabilityofmarket

=Securitization

= Labour wagesmanagement.

ConclusionConclusion


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ThankYou

brazil's economic final

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