Profile Brazil\'s recent economic history çan divided into a series of chunks Fr
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Profile Brazil's recent economic history çan divided into a series of chunks From the end of wW2 to the mid 1960s, the Brazilian economy was characterised by a period of heavy import-substitution especially in the area of consumer goods. At times, the governmentfaced balance of payments crises due to an over-valued fixed Currency As the government relaxed the peg, they also increased their support uch as transport equipment chemicals and electrical eqipment- industries such as texties and food products From the late 1960s through to the mid 1970s, Brazi's growth was rapid and impressive as the economy modemised, and exports to skilled workers became much the increasingly rich USA shot up. However, Brazil's gains wereiunequaly richer,but other areas such as distributed-areas with highly Brazir's north east remained stagnant, further depressed by a harsh climate and weak property rights rom 1974 to around 1986, Brazil's government again focused on a strategy of import-substitution and exports of manufactured goods. At the start of this period, Brazil suffered the efflects of the huge increase in oil prices which raised the the cost of imports. Undeterred promoting import-substitution of goods such as petro- set chemicals, fertilisers and steel Supporting these industries, howeve led toa of public sector debt, and an increase in the rate of inflation. Jh the,early 1980s, international markets began to realise that Brazil (along with Argentina and Mexico) nable to repay their debts Consequently, the IMF fbrced Brazil to restructure its deots alongside imposing hefty austerity the Structural Adjustment Programmes" or SAPs) In the tollowing decade, income per head in Brazil plummeted, and many people turned to crime and prostitution to make ends meet Eventually the economy started to recover By 2010, however, things were taking a turn for the worse.Demand for Brazilan exports fel, its currency to rise, unemployment rose,In December The government was 10% by 2015, and bribery scandals were surround g Petroba.a a peste owned ol comp an.Bazl s strugging to grow. Brazilian companies spend an average of 2600 hours per year grappling with the complex tax law (compared with just 356 hours for South American on average). People can retire at the age of 55 and receive huge pensions, equivalent to the minimum wage. Brazil's con itt nprevents cuts from being made to 90% of pubic spedrg. Many beleve rat Brurs government s ust to large and unwieldy to be an eflective allocator of resources. Despite its own huge debts, in 2013 Brazil decided to cancel the nearly-$1bn debt owed to it by 12 Atrican countries, including 2ambia and Tanzania, in an attempt to boost the economic ties between Brazil and Africa, giving Brazil better access rights to African minerals and commodities depreciated causing inflation 2015, Braills bonds were downgraded to junk status by international ratings agencies facing charges of hiding the re sze of tr ludget dett hich increased fr 2% of GDP i 2010 to over Issues to consider 1 Government intervention a Explain the possible reasons why the Brazilian govermment might have chosen toisupport some industries.butinot others in the post-WW2 period b Assess the impact on growth and development of govemment financial support for certain industries. c Discuss the view that Brazil's public sector is currently too large 2 Debt relief a Research and summarise the nature of the Structural Adjustment Programmes deployed by the IMF in the 1980s in Latin America b Assess the likely overall impact on a) Brazl and bj Zambia of Brail's decision to cancel the debt owed by Zambia in 2013. c Assess the view that all debt owed by LEDCs should be cancelled by MEDCS 3 The hunt for minerais in Africa a Research and summarise the advantages to sub-Saharan Altrican countries of the inwards FDI as a result of the commodity boom b Research and summarise the disadvantages to sub-Saharan Atrican countries of the inwards FDI as a result of the commodity boom c How couid the government of a sut-Saharan Atrican courty ensure that their country has a net gain from the search tor commodities in their countryExplanation / Answer
Answer)
a. From period end of World War 2 to the mid 1960s, the Brazilian economy was characterised by heavy import substitution especially in the field of consumer goods. The government faced balance of payment deficit due to overvalued fixed currency. After some years, the government relaxed the peg and it drew support to other industries such as transport equipment, chemicals and electrical equipment. Brazil's growth was impressive as exports sector grew at a massive rate. However, this led to unequal distribution of gains from trade resulting into areas with skilled workers getting richer and other areas like north east remained stagnant due to harsh weather and weak property rights.
b. From 1970 till 1986 , Brazil government again focused on the policy of import substitution and export promotion of manufactured goods. Due to the Oil Shock , Brazil suffered high cost of imports . The government trying to change Brazil's comparative cost conditions, started promoting petroleum and crude oil industries which led to huge amount of losses and deficit in Balance of Payment. This was complemented by high rate of inflation which worsened the economy.
c. Brazil's public sector is currently too large . This has caused huge public debt as Brazil like India spends too much on its bureaucracy. This is also because of the existence of large grey economy or informal sector in Brazil. Brazilian government is too large and unwieldy to be an effective allocator of resources. Brazil has a very irresponsible government because it was charged for hiding the true size of budget deficit. The budget deficit of Brazil increased from 2% of GDP in 2010 to around 15% of GDP in 2015.
2. Debt Relief
a. When in 1980s Brazil witnessed the consequences of Oil Shock and Stagflation , it was understood that Brazil would not be able to pay back its debt. Consequently, IMF forced Brazil to restructure its debt alongside imposing hefty austerity programme known as the Structural Adjustment Programme ( SAP). There was favourable outcome in the following decade. However, after 2010 , things were taking a turn for worse. The negative im pacts were Demand for Brazilian exports declined and and its currency depreciated causing both increase in inflation and unemployment. In December 2015, bonds of Brazil were labelled as junks adding to the problems.
b. Despite Brazil's own huge debts, in 2013 it has decided to cancel nearly $ 1 billion debt owed by 12 African countries like Zambia and Tanzania in an attempt to boost economic ties between Brazil and Africa. It will also give Brazil a good and greater access to African minerals and commodities.
c. It is a very positive and strong view that all debt owed by LDCs should be cancelled by MDCs. Such act can promote good and healthy relationship between two neighbouring countries and such other countries fostering common brotherhood .
3. The hunt for minerals in Africa
a. FDI is associated with higher growth in Sub- Saharan Africa as it is home of vast natural resources. The continent is the net exporter of primary products in the world. By adopting sound macroeconomic policies over the past two decades and sector reforms , many African countries have shown how they can have economic growth with commodity boom. The continent has become the second most attractive destination for investment in the world after North America. FDI has hit with $ 60 billion, more than five times that it was in 2000. For example , in Ethiopia total FDI inflows accounted for 2 percent of GDP . Investors in Africa has nearly tripled their share of FDI projects since last decade from 8 percent in 2003 to 22.8 percent in 2013.
b. The decline in world commodity prices has taken with it African economic groth rates. This shows the need for African nations to pursue the policy of industrialisation. Africa needs to invest in training and education for women and youth to industrialise . growing of private sector and achieving sustainanble development.
c. The government can ensure that Africa still have net gains from commodity booms by diversifying their economy and improving productivity levels. The government should adopt policies to aid the poor and remove inequality. It should also help in making conducive investment environment in the economy.
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