The Economy: Brazil Pushes Markets To The Edge Essay, Research Paper

It may appear strange that the problems facing the Brazilian economy effects the U.S. as well. The financial depressions of Brazil bring the wealth of the nation down in turn. Brazil is the largest economy in Latin America, accounting for almost half of the continent’s total output, and it is the eighth largest economy in the world. Yet, it is still developing. Brazil possesses major agricultural, mining, manufacturing, and service sectors, Brazil’s economy enlarges its presence in world markets. In the late eighties and early nineties, high inflation obstructed economic activity and investment. So a plan was made to destroy inflationary expectations by targeting the US dollar. It was called the Real Plan, and it had three basic objectives. 1) Keep inflation on a downward trend 2) Long-term growth in output, investment, employment, and productivity. 3) To balance social inequalities. Inflation was decreased greatly, but not fast enough to avoid real exchange rate gratitude during the shifting phase of the plan. This gratitude meant that Brazilian goods were now more expensive relative to goods from other countries, which contributed to large current account deficits. However, no shortage of foreign currency came about because the country’s restored interest in Brazilian markets. Inflation rates stabilized and the debt crisis of the eighties faded from memory. The protection of large deficits by surpluses became difficult as investors became more risky. A fiscal program was established and vowing progress on a structural change. In January 1999, the Brazilian Central Bank announced that the real would no longer be fitted to the US dollar. This analysis helped control the decline in economic growth in 1999 that investors had expressed concerns about over the summer of 1998. Brazil maintained tight fiscal and monetary policy despite a rising currency. Tight fiscal policy is when taxes are high, and government spending is lower. This leads to a decrease in consumption, which decreases demand. Monetary policy is among interest rates and the money supply. As interest rates rise, loans become hard to obtain because they are expensive. Therefore, savings rises and consumption falls. Decreasing aggregate demand. The economy is expected to push growth up to 3% in 2000. In the long-run, reforms in social security, tax, and administrative systems, laid the real foundation for economic stability.

Bibliography

http://www.fazenda.gov.br/ingles/real/islide30.html