Policy, Trade, Economy
Economic
Brazil is the world's ninth largest economy as measured in purchasing power parity with GDP. Agriculture is a major sector, representing 5.5% of GDP, and it is paramount for the country's economic growth and foreign exchange. Brazil is the largest producer of sugar cane, coffee, tropical fruits, and frozen concentrate orange juice. It is also an important producer of soybeans (second only to the United States), corn, cotton, cocoa, tobacco, and forest products. Brazil has also one of the most advanced industrial sectors in Latin America, which represented 28.7% of the GDP in 2008. In addition, it has a sophisticated services industry, which in 2008 represented 65.8% of the GDP. The primary services are mail and telecommunications, followed by banking, energy, commerce, and computing.
Brazil's economy has been growing at approximately 5% for the past few years. However, in 2009, as a result of the global economic crisis and credit crunch, analysts predict that Brazil will experience an economic contraction of approximately 1.3%. The economy is expected to recover in 2010, growing by a modest 2.2%. Unemployment has been on the uptick reaching 9% in April 2009. The government stimulus efforts aimed at injecting money back into the economy have included tax cuts to benefit key industries (automobile and appliances), lowering interest rates, a $72.5 billion package to domestic banks, and rising public works spending to help create jobs.
Inflation rates have hovered around 4-5%. The IMF predicts it to be 4.8% in 2009, declining to 4% in 2010. As a result of Lula's economic policies, combined with a benign international environment, in early 2008 Brazil received an investment grade credit rating for the first time from Standard & Poor's and shortly thereafter from Fitch Ratings.
Export promotion plays a key role in the government's economic growth policy. Another important aspect of that policy is the Growth Acceleration Program, known in Brazil as PAC, which was a package of infrastructure investments and tax incentives designed to boost Brazil's economy. The government leverages its PAC investments by engaging the private sector in public-private partnerships.
Trade and Investment
The U.S. goods trade balance with Brazil went from a deficit of $1.0 billion in 2007, to a surplus of $2.5 billion in 2008. U.S. goods exports grew 33.6% in 2008 to $32.9 billion. U.S. imports from Brazil grew 18.8% to $30.5 billion. Brazil is currently the ninth largest export market for U.S. goods. Nevertheless, Brazil announced in February that China had overtaken the United States as Brazil's largest trading partner. U.S. foreign direct investment (FDI) in Brazil was $41.6 billion in 2007 (latest available), up from $33.1 billion in 2006. U.S. FDI in Brazil is concentrated largely in the manufacturing, finance/insurance, and nonbank holding companies sectors. 197 of the Fortune 500 Companies are direct investors in Brazil. The Brazilian affiliates of U.S. direct investors employed 429,500 people in 2006 and their value added contributed 2.3 percent to Brazil's GDP.
Brazil's import tariffs range from 0 percent to 35 percent, with an average applied tariff rate of 11.5%. Brazil's average bound tariff in the WTO is significantly higher at 31.4%. Given the fact that there are large disparities between bound and applied rates, U.S. exporters face greater uncertainty because Brazil has the ability to raise its applied rates to bound levels in an effort to manage prices and supply. Brazil is a member of the MERCOSUR common market, formed in 1991 and comprised of Argentina, Brazil, Paraguay, and Uruguay. MERCOSUR's Common External Tariff (CET) averages 11.7 percent and ranges from 0 percent to 35 percent ad valorem. Brazil applies federal and state taxes and charges to imports that can effectively double the actual cost of importing products into Brazil. Brazil applies a 60 percent flat import tax on most manufactured retail goods imported via mail and express shipment by individuals that go through a simplified customs clearance procedure called RTS (simplified tax regime). Goods with a value of over $3,000 cannot be imported using this regime.
Political
Brazil earned its independence from Portugal in 1822 and it became a Republic in 1899. In 1930, a military coup placed Getulio Vargas, a civilian, in the presidency where he remained until 1945. From 1945-1964 Brazil was a democracy, but unfavorable economic and political developments culminated in a military takeover in 1964. The country was ruled by senior military officers until 1985. Between 1985 and 1989, Brazil underwent a political transition and in 1989 the population chose its president for the first time in almost three decades. The elected president was Fernando Collor de Mello, who was forced to resign in 1992 after a major corruption scandal. Collor's vice president Itamar Franco governed the country for the remainder of his original term. On January 1, 1995, Fernando Henrique Cardoso took office and implemented a robust and ambitious economic reform plan. He was re-elected in 1998 for a second four-year term.
Luiz Inácio da Silva, known as Lula, was elected president in 2002, taking office on January 1, 2003. He was re-elected for a second term in 2006. President Lula is a former union leader and a member of Brazil's Workers Party (Partido dos Trabalhadores - PT). When he was first elected, there were concerns about how he would conduct his economic policy. Those concerns were, for the most part, eased by his efforts to implement prudent fiscal and monetary policies.
Brazilians will go to the poll in October 2010 to elect a new President. By Brazilian law, Lula cannot seek a third consecutive term.