BRAZIL

Federative Republic of Brazil

República Federativa do Brasil

COUNTRY OVERVIEW

LOCATION AND SIZE.

Located in South America, Brazil is the fifth largest country in the world, after Russia, Canada, China, and the United States. Brazil has an area of 8,511,965 square kilometers (3,286,482 square miles), extending 4,320 kilometers (2,684 miles) from north to south and 4,328 kilometers (2,689 miles) from east to west, and a total coastline of 7,491 kilometers (4,655 miles). Brazil borders all the countries of South America except Chile and Ecuador. Brazil's capital city, Brasília, is located in the country's midwest; its largest cities, São Paulo and Rio de Janeiro, are located in the southeast.

POPULATION.

The population of Brazil was approximately 172.86 million in July 2000, which was an increase of 17.7 percent from the 1991 population of 146.83 million. In 2000 the birth rate was estimated at 18.84 births per 1,000, and the death rate at 9.37 deaths per 1,000. The population growth rate declined by an average of 1.9 percent annually between 1980-1990, to 0.94 percent in 2000, reflecting the effect of birth control programs developed by the Brazilian government during the 1990s. It was forecasted that the population would reach approximately 190 million by the year 2010.

Brazil is the most populous country in Latin America and the fifth most populous country in the world. The highest concentration of Brazilians live in the Atlantic coastal region. Of the total population, the states of Minas Gerais, Rio de Janeiro, and São Paulo contain approximately 41 percent; the states of Rio Grande do Sul, Bahia, Pernambuco, and Ceará contain about 23 percent; and the remaining states hold about 36 percent. The population is extremely urbanized with 78 percent of the population living in cities. Approximately 29 percent of the population is between 0-14 years old, 66 percent is between 15-64 years old, and only 5 percent is over 65 years old.

About 55 percent of the Brazilian population is comprised of whites, the descendants of Portuguese, German, Italian, Spanish, and Polish immigrants; 38 percent are mixed white and black; 6 percent are blacks of African descent; and others comprise 1 percent. Immigration was a major determinant of the population structure in Brazil. During colonial times, Portuguese and Africans immigrated to the northeastern region of Brazil. During the period between 1821-1945, approximately 5.2 million Europeans immigrated to Brazil, settling in the southern agricultural regions. After World War I, the Japanese community in Brazil grew to become the largest expatriate Japanese group of the world, with more than 1 million immigrants.

OVERVIEW OF ECONOMY

Before World War II Brazil was the leading world producer of many agricultural goods. Sugar, rubber, and coffee were important exports. However, price variations in the world market for these commodities left the Brazilian economy vulnerable. After the war, the government succeeded in rapidly industrializing the economy in order to diversify and decrease its dependency on imported goods. Brazil became one of the only industrialized nations of South America and an important exporter of manufactured goods. Industry and agriculture are today the country's major economic sectors. However, the country's growing prosperity was offset by the inflation caused by budget deficits .

Brazil is unable to produce enough oil to meet domestic demand, and needs to import most heavy industrial machinery and equipment. The government provides incentives for domestic petroleum production, and gives legal and fiscal incentives promoting foreign investment in heavy industry. Multinationals dominate Brazilian industry, followed by government-owned companies. The biggest government-owned company is Petróleo Brasileiro, or Petrobras, an oil drilling and processing company. Brazil has oil reserves located on the coast and in the Amazon Basin. The geography and topography are also extremely beneficial to agriculture. Most of the country has either a tropical or subtropical climate. Extensive water reserves provide for the growth of grains, which are extensive enough to meet domestic consumption and allow for substantial exports.

Government external debt more than doubled during the 1980s and 1990s. Total outstanding and disbursed debt grew from US$61.3 billion in 1979, to US$114.5 billion in 1989, and to US$221.8 billion in 1999. The increase in government debt was due mainly to increased interest paid to its lenders and the borrowing of new money to implement economic and social plans in the country. However, because the new loans were used ineffectively, the debt service increased significantly. By making bigger payments to offset the debt, the government was left with few resources to carry on its own economic and social development plans. Total debt service (the interest paid on loans) increased from US$11.3 billion in 1979, to US$14.1 billion in 1989, and to US$73.7 billion in 1999.

The Brazilian government follows International Monetary Fund (IMF) economic, fiscal, and social objectives in order to receive funds. Brazil started a structural adjustment program at the request of the IMF, receiving a US$41.5 billion financing package in November 1998. The privatization policy adopted by President Fernando Henrique Cardoso decreased government participation in industry, and brought in much-needed foreign investment. In 1999, Brazil's debt-to-GDP ratio of 48 percent beat the IMF target. After the currency was devaluated by more than 60 percent in 1999, Brazil negotiated with the IMF on adjustments to the 1999-2001 economic program. Lowered economic targets were agreed upon in January 1999, when the debt-to-GDP ratio was set to fall below 46.5 percent by the end of 2001.

POLITICS, GOVERNMENT, AND TAXATION

The Brazilian Constitution, created in 1988, supports a democratic government with universal suffrage by direct and secret ballot. Voting is compulsory for literate persons between 18 and 69 years of age and is optional for persons who are illiterate, over 70 years of age, or 16 and 17 years of age. There are 3 branches of government: the executive, legislative, and judicial. The president exercises executive power, and is elected by direct ballot to a 4-year term. Legislative power is exercised by the bicameral (2-chambered) National Congress comprised of: the Federal Senate, or upper house, whose 81 members are elected by a system of proportional representation for 4 years; and the Chamber of Deputies, or lower house, whose 513 members are elected for 8 years by direct ballot, and whose districts are proportional to the size of the population. Each state has a directly elected governor and an elected legislature. The municipalities are governed by directly elected mayors and an elected legislature.

Judicial power is exercised by the Supreme Federal Tribunal, whose judges are appointed for life and who are elected by their own tribunal members. Brazil's judicial system plays an important role in the Brazilian economy. It is responsible for compliance to laws regarding the economy, which are determined by the constitution. Any government decision affecting the rights of the individual is contested and supported by an independent judicial system. Therefore, radical changes in legislature regarding the economy are almost impossible if the judicial system disapproves.

Brazil went through decades of military dictatorship. The military overthrew the left-wing regime of President João Goulart in 1964 and ruled Brazil until 1985. The Brazilian military exerted complete control over the economy, politics, and popular media. All mass communication, art, and popular opinion were censored by military intelligence. Many leftist politicians were arrested and exiled to other countries during these dark years. However, in 1985, popular pressures and a recession led to peaceful democratic elections and indirect elections for the presidency. The legislative election of 1985 resulted in the formation of the democratic regimes of the 1980s and 1990s, and the military lost its power and influence in the economy. Since then there have been military, navy, and aviation ministries in the Brazilian government, but their influence has not been felt in the most important economic and political decisions.

A coalition of the Party of Brazilian Social Democracy (PSDB), the Liberal Front Party (PFL), and the Party of the Brazilian Democratic Movement (PMDB) has held power since Brazil became a democracy. This coalition is opposed by the coalition of the Worker's Party (PT) and other smaller parties. The PSDB and the PT were the strongest political forces during the 1990s, directly opposing each other in the national congress and throughout the states.

The Democratic Workers' Party (PDT), led by Leonel Brizola, criticized the military dictatorship of the 1970s. The Brazilian Democratic Movement (MDB), which later turned into the PMDB, also opposed the military regime. The PFL represents the conservative front of Brazil with alliances to the winner of the 1989 presidential elections. The Communist Party of Brazil (PC) represents extreme opposition to the government and has alliances with the organizers of the Landless Movement.

Brazil had its first democratic presidential elections in 1989 after decades of military dictatorship. Luís Inácio da Silva, also known as Lula, represented a coalition of worker union parties (including the PT), but lost to Fernando Collor de Mello who represented a liberal, pro-business party. In the democratic elections of 1994 (the second since 1960), Lula fell again to Fernando Henrique Cardoso. Cardoso developed a strong economic policy, cutting inflation, and decreasing government spending in order to meet IMF targets and receive loans. The Brazilian real was then tied to the U.S. dollar and forced to maintain a constant exchange rate . Inflation stabilized, but the cuts in government expenditure generated a recession in the country. In 1997 Brazil's congress approved a constitutional amendment enabling Fernando Henrique Cardoso to run for reelection in 1998. He was reelected for a second term, beating Lula again and continuing his economic policies.

Brazil's government plays a large role in the economy, controlling many sectors of the economy that are considered strategic, including power generation, oil extraction, mining of natural resources, water supply, and telecommunications. Fernando Henrique Cardoso began to adopt policies to end these monopolies . The policies include privatization of state-run companies, and deregulation of the energy and mining sectors.

Nearly 61 percent of government revenue comes from tax payments. Personal income tax rates are progressive, with a maximum rate of 25 percent. The income tax rate on corporations and other legal entities are also progressive, with a maximum of 30 percent. Profits are taxed at up to 50.5 percent and capital gains at 25 percent. A value-added tax that ranges from 10 percent to 15 percent is payable on sales and transfers of goods in accordance with the nature of the production. Apart from personal income taxes, government taxes are applied on corporation income, turnover , sales, financial operations, minerals, fuels, electric power, real estate, municipal service, and urban real estate. Tax evasion is rampant in Brazil, but this crime came under attack during 2000. The Central Bank of Brazil and the Ministério da Receita (Ministry of Income) compared their records in order to determine which Brazilians had not filed income taxes.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

Roads are the primary method of transportation in Brazil of both passengers and freight. With an estimated 21.31 million passenger cars and 5.5 million commercial vehicles in 1998, the highway system is inadequate and poorly maintained. There are approximately 1.98 million kilometers (1.23 million miles) of highways in Brazil, but only 184,140 kilometers (114,425 miles) of these roads were paved in 1996. A study by the World Bank shows that in the early 1990s 28 percent of the country's highways were in poor condition. Furthermore, the lack of proper maintenance increased transportation costs in Brazil by nearly 15 percent over the same period. The government implemented road construction plans in order to integrate the industrialized south with the less developed northeastern and northern areas. This integration enabled agricultural producers to move goods to ports located in the coastal areas for exportation. The railway system in Brazil is very limited. There are only 27,882 kilometers (17,326 miles) of tracks in Brazil (excluding urban commuter lines) and this number is in decline as track falls out of service.

In contrast, Brazil's air transportation is well developed with 48 main airports, 21 of which are international. In 1998 about 31 million passengers used Brazilian airlines, traveling a total of 27.39 million kilometers (17.02 million miles). The total weight of airline freight was equal to 602.74 million metric tons and Brazilian airlines carried freight over 2.2 billion kilometers (1.36 billion miles). Guarulhos International Airport at São Paulo and Galeão International Airport at Rio de Janeiro are the most important and active international airports of Brazil.

Hydroelectric plants generate most of Brazil's electrical power, responsible for 91 percent of the total production. Secondary sources include fossil fuels and nuclear energy. Only state companies are allowed to supply electrical power to the population, producing a total of 316.927 billion kilowatt-hours (kWh) of electricity in

1998. Domestic production falls 20 billion kWh short of domestic need, causing Brazil to import electricity from neighboring countries such as Paraguay. Power supply is reliable most of the time, and shortages and blackouts are infrequent in urban areas.

Telecommunications services are well developed. Privatized in 1999, telephone service is provided by a number of privately held foreign capital companies. The country has approximately 19 million main lines in use (1997 est.) and 8 million mobile cellular phones in use (1998 est.). There are 138 television broadcast stations (1997) that are sent to 316 television sets per 1,000 people (1998). Computer access is still limited, evidenced by the number of personal computers (30.1) and Internet hosts (1.84) per 1,000 people recorded in 1998.

ECONOMIC SECTORS

Brazil's major economic sectors are all well developed. The agricultural sector of Brazil represented a larger percentage of the gross domestic product than industry until 1945. At that time, the government supported industrialization and direct investment in industry, with subsidies and trade protection for Brazilian industrial products. Industry was almost 3 times more valuable than agriculture as a percentage of gross domestic product by 1999. In the agriculture sector, Brazil is one of the world's largest producers of soybeans and coffee. International competitors watch Brazil's weather to determine the success of the soybean and coffee season, setting international prices based on Brazil's harvest. The agriculture sector represented 8.4 percent of the gross domestic product in 1999 and employed 31 percent of the workforce.

The government uses import taxes to protect many Brazilian industries against international competition. These industries include textiles, shoes, chemicals, cement, lumber, iron ore, tin, steel, aircraft, motor vehicles and parts, and other machinery and equipment. The footwear industry is the most important finished good exported from Brazil. Government-owned Petrobras and Brazilian Aeronautics Enterprise are important companies headquartered in Brazil that produce oil and aircraft, respectively. The industrial sector represented 31.7 percent of the gross domestic product in 1999. Twenty-seven percent of the employed workforce was in the industrial sector.

The third most important developed sector of the Brazilian economy is the services sector. It represented 59.9 percent of the gross domestic product in 1999. Tourism has increased rapidly with an estimated 4.82 million foreign tourist arrivals and receipts of US$3.68 billion from foreign tourists in 1998. This represented an increase from 2.67 million foreign tourist arrivals and receipts of US$2.47 billion in 1996. Forty-two percent of the employed working force was in the service sector.

AGRICULTURE

Brazil has been the world's second largest exporter of agricultural goods since 1977. With the exception of imported wheat, Brazil is self-sufficient in food. In 1993, 48.9 million hectares (121 million acres) of land was available for agriculture in Brazil, the fifth largest agricultural area in the world. In 1999 agriculture accounted for 8.4 percent of the total GDP, a decrease from 11 percent in 1979. Average annual growth of agriculture as a percentage of the total gross domestic product was 3.4 percent in the 1979-1989 period, and 2.9 percent in the 1989-1999 period. Annual growth of agriculture as a percentage of gross domestic product leapt to 9.5 percent in 1999, due to the expansion of the export sector. This expansion occurred because the Brazilian government de-valued its currency by nearly 60 percent in 1999, making Brazilian agricultural exports extremely cheap. Brazil is the largest producer of coffee, oranges, and sugar in the world; and is a primary exporter of coffee, cocoa, soybeans, orange juice, and sugar. The country imports rice, wheat, and barley.

Livestock, dairy, and poultry production play an important role in Brazilian agriculture. Since the 1940s, cattle have become one of the country's major sources of income. The area devoted to open pasture in 1994 was equal to 185.5 million hectares (458.38 million acres). This area occupied more than one-fifth of the total country. The government provided incentives to stimulate production, food conservation, and a more effective distribution of meat and dairy products.

COFFEE.

Brazil's coffee production increased from 1 million metric tons in 1995-96 to 2.14 million metric tons by 1998-99, more than doubling in 4 years. However, production decreased slightly to 1.85 million metric tons in 1999-2000. The decline in production for 1999-2000 was linked to an agreement of the Association of Coffee Producing Countries (ACPC). ACPC developed a program to reduce the world supply of coffee in order to increase its price. The volume of coffee held back by each country is set at 20 percent of exports. However, Brazil still remains the largest producer and exporter of coffee in the world.

SOYBEANS.

Soybean production in Brazil increased considerably for the 1999-2000 harvest. The average production of soybeans for 1994-99 was 28.23 million metric tons and for 1999-2000 alone was 32.5 million metric tons. The increase in soybean production for the 1999-2000 harvest was equivalent to 15 percent over the 1994-99 average. This increase was due to favorable weather in the southeast area of Brazil, where most of the farms are located. Another positive effect was that the world market increased imports from Brazil after the currency devaluation. The increase in soybean exports was equal to 24 percent, from 8.93 million metric tons for 1998-99 to 11.16 million metric tons for 1999-2000. Brazil is the second largest soybean producer and exporter (after the United States) in the world. The total area used for soybean production is equal to 13.4 million hectares (33.16 million acres).

ORANGES.

Brazil is the largest producer and exporter of oranges and orange juice in the world. Brazil's total production was equal to 1.1 million metric tons in 1999-2000, or 47 percent of the world total. Orange juice consumption in Brazil is very small, only 18,000 metric tons for 1999-2000. The remainder is exported, at 1.16 million metric tons for 1999-2000 (including tangerine juice). Brazil's orange production and export volume declined from 1998-99 levels by 19 and 11 percent, respectively, in 1999-2000.

SUGAR. Since the time of Portuguese colonization, Brazil has been the largest producer and exporter of sugar in the world. Sugarcane production is concentrated in the northeastern area. Brazilian companies process sugarcane into sugar and alcohol. Sugar is mostly exported to the rest of the world while alcohol is mostly used as fuel for passenger vehicles. Passenger vehicles in Brazil are powered by either a combination of oil and alcohol, or solely alcohol. The Brazilian government developed research and financial incentives for utilization of alcohol in passenger vehicles after the world oil crisis in 1973-74. Brazil's sugar production in 1999-2000 was equal to 20.1 million metric tons. Sugar exports for 1999-2000 were equal to 11.3 million metric tons.

TOBACCO.

Tobacco is another major agricultural product. Brazil is the third largest producer (after China and India) and largest exporter of tobacco in the world. During the 2000 calendar year, 493,100 metric tons were produced and 350,000 metric tons of tobacco were exported from Brazil. Tobacco production in Brazil increased from 365,000 metric tons in 1996 to 493,100 in 2000, an increase of 35 percent. Tobacco exports in Brazil increased from 282,500 metric tons in 1996 to 350,000 in 2000, an increase of 24 percent.

COCOA.

Cocoa production in Brazil has suffered the effects of mixed weather patterns and infection by the witches-broom fungus since 1989. Despite these problems, Brazil is the third largest cocoa producer and exporter in the world (after Côte D'Ivoire and Ghana). Cocoa production for 2000 was the lowest in 30 years, decreasing by 21 percent, from 159,119 metric tons in 1999 to 125,290 metric tons in 2000. Exports, however, increased by 3 percent, from 93,295 metric tons in 1999 to 96,100 metric tons in 2000. Brazil's chocolate consumption rose 89 percent from 1988-89 to 1995-96, from 62,700 metric tons to 118,500 metric tons. Cocoa imports in 2000 increased by 67 percent, setting an all-time high, from 50,350 metric tons in 1999 to 84,100 metric tons in 2000. The government tried to develop new cocoa strains resistant to the fungus, and to use pest management systems, but without success.

CORN.

Brazil is the third largest producer of corn in the world (after China and the European Union). Corn production for 1999-2000 yielded 31.6 million metric tons, a decrease of 2 percent from the 1998-99 production of 32.35 million metric tons. Consumption after 1996-97 was higher than production, generating a need for imports. Corn imports were small, amounting to only 1.79 million metric tons in 1999-2000. It is expected corn production will surpass consumption in the future due to government production incentives.

BEEF.

Brazil is the world's second largest producer (after the United States) and third largest exporter of beef (after Australia and the United States). Beef production for 2000 was 6.3 million metric tons, an increase of 4 percent from the 1999 production of 6.05 million metric tons. Beef exports for 2000 were equal to 650,000 metric tons, an increase of 18 percent from the 1999 export of 550,000 metric tons. In 2000 the mad cow disease in Europe helped boost beef exports from Brazil. In 1999 the European Union was the market for nearly 70 percent of Brazilian beef exports. However, Brazilian exporters expanded to other existing markets (such as the United States) and to new markets (mainly in Asia). Even though exports to the United States rose 50 percent in 1999 to 50,376 metric tons, the United States joined Canada (its NAFTA partner) in temporarily banning all imports of beef in 2001.

DAIRY.

Brazil's dairy production is the sixth largest in the world (after the United States, India, Russia, Germany, and France), but all of its production is consumed domestically. Total production of fresh cow's milk was equal to 22.8 million metric tons in 2000.

POULTRY.

Brazil's poultry production ranks third in the world (after the United States and China). Broiler meat exports from Brazil also rank third in the world (after the United States and Hong Kong). Broiler production has increased significantly throughout the last 5 years. Broiler meat production increased from 4.05 million metric tons in 1995 to 5.45 million metric tons in 2000, an increase of 35 percent. Broiler meat exports went from 424,000 metric tons in 1995 to 850,000 metric tons in 2000, an increase of 100 percent in only 5 years. Most of the increase in exports happened in the years of 1999 and 2000, when the devalued real boosted broiler meat exports. In 2000 the mad cow disease in Europe helped to increase broiler meat exports. Poultry exports increased 26 percent in 1999, and 20 percent in 2000. The European Union increased its imports of Brazilian poultry by 50 percent in 2000.

OTHER.

Brazil's pork production was equal to 1.95 million metric tons in 2000, mostly for domestic consumption. Fishing is limited, and lamb and sheep are not raised in Brazil due to the tropical weather.

INDUSTRY

Peak industrial growth was achieved in 1973, when the manufacturing sector grew by 15.8 percent. In 1999 the industrial sector accounted for 31.7 percent of the total gross domestic product, decreasing from 40.6 percent in 1979. The average annual industrial growth rate was 2.3 percent during 1979-1989, and 2.1 percent during 1989-1999. Industrial growth decreased 1.3 and 1.7 percent in 1998 and 1999, respectively; however, industry grew by 6.5 percent by the end of 2000. The industries that developed most in the year 2000 were the automobile (18.9 percent), parts and machinery (18 percent), mining (11.9 percent), electrical and communications (11.9 percent), and metal processing (7.6 percent) industries. Industry in Brazil employed 27 percent of the work-force. Industrial products included iron and steel, automobiles, petroleum, chemicals, and cement.

MANUFACTURING.

The manufacturing sector contributed 22.7 percent of the gross domestic product in 1999, engaging 11.8 percent of the workforce in 1998. The manufacturing sector decreased as a percentage of gross domestic product from 31 percent in 1979 to 29.5 percent in 1989, and 22.7 percent in 1998 and 1999. This was caused in part by a lack of foreign investment and inflationary problems during the 1980s and 1990s. The instability generated by inflation and uncertain government policies caused tremendous fluctuations in manufacturing growth rates. Major products in the manufacturing sector are televisions, VCRs, telephones, and computer chips. There are a few national companies that are domestically oriented, such as Consul and Brastemp. There are also companies that are primarily export oriented, such as Nokia, Intel, and Compaq.

State participation in manufacturing occurs in the production of textiles and clothing, footwear, food, and beverages. These industries comprise a large proportion of the manufacturing sector, but there are also new industries that have been developed in the last few decades with government aid. Machinery and transport equipment, construction materials, sugar cane and wood derivatives, and chemicals are important manufacturing industries. Direct government participation is noticed in the oil processing industry and passenger jet aircraft industry through partial ownership of such companies. Indirect government participation is noticed in the textile industry and machinery industry through export subsidies and low interest loans.

TRANSPORT VEHICLES.

Automobiles are the most important manufactured items in Brazil. Brazil's passenger automotive production was approximately 1.25 million passenger car units, 350,000 commercial vehicles, and 17,000 tractors in 1998. Machinery and transport equipment were the biggest exports from Brazil, accounting for US$12.6 billion in 1998, or 25 percent of total exports. Brazil has manufacturing plants for General Motors, Volkswagen, Ford, Fiat, Honda, and Toyota. Workers are highly unionized, receiving the highest salaries among the manufacturing industries. In 1998, 292,290 people were employed in the industry.

STEEL.

Crude steel production in 1998 was 25.76 million metric tons. Vast reserves of ore and high domestic demand for steel products have helped the industry. Brazil exported US$3.67 million in steel and ore in 1998.

TEXTILES.

The national textile industry is responsible for 3 percent of world production. Total sales average US$19 billion per year; exports were US$2.9 billion in 1998. Brazil has the largest textile operating facilities in Latin America. The textile industry is also labor intensive, employing 1.43 million people in 1998. Fibers and leather are used to produce clothing, shoes, and luggage. Brazilian shoes are exported mainly to Europe, where they are famous for their quality. The Brazilian textile industry was comprised of 44,478 mostly small producers in 1998.

PAPER.

The Brazilian paper and pulp industry was responsible for the production of 273,000 metric tons of newsprint in 1998. The industry consisted of approximately 200 companies, employing approximately 80,000 people directly in their processing operations and 60,000 people in forestry operations. Pulp and waste paper exports were US$1 billion for 1998.

MINING.

The mining sector was protected by the 1988 constitution against foreign majority participation of direct mining companies. This was a setback for the development of the mining sector because domestic investors lacked the capital for extensive mineral exploration. Private Brazilian investors and Brazilian corporations own the majority of the mineral industry. The participation of foreign capital is very limited due to Brazilian mining laws. However, in 1995 the Congress approved an amendment to the constitution allowing private companies (including foreigners) to participate in the mining industry through joint ventures , deregulating investments, and the privatization of state-owned mining plants. Shortly afterwards, the state-owned Companhia Vale do Rio Doce was privatized.

In 1999 mining contributed 0.6 percent of the gross domestic product of Brazil. The country is the world's largest producer of bauxite, gemstones, columbium, gold, iron ore, kaolin, manganese, tantalum, and tin. Major exports are iron ore, tin, and aluminum. The states of Minas Gerais, Bahia, and Goiás, located in the midwest of Brazil, have deposits of diamonds and other precious and semiprecious stones. In 1991 production of diamonds accounted for 1,500 carats, sixth in the world. Reserves of petroleum in Brazil were estimated in 1997 to be at 657 million metric tons.

Brazil's iron ore reserves are estimated at 20 billion metric tons. Mining operations started in 1942, extracting iron ore from the state of Minas Gerais, located on the country's Midwest. With the help of foreign investments, iron ore production increased to 59.4 million metric tons in 1974, and by 1985 output was 186 million metric tons. In 1981 Brazil became the world's leading exporter of iron ore, exporting 131 million metric tons in 1985, mostly to Japan and Germany.

SERVICES

The services sector accounted for 59.9 percent of the gross domestic product in 1999. Government participation in this sector was extremely high, with interests in land, air, and water transportation; postal, telecommunications, and financial services; and research and development. Approximately 42 percent of the workforce was employed in the services sector. The service sector's contribution to gross domestic product was 48.3 percent in 1979, 48.8 percent in 1989, and 59.9 percent in 1999. Average annual growth was 1.9 percent for the 1979-89 period and 2.7 percent for 1989-99.

TOURISM.

The number of tourists that visit Brazil increased considerably during the 1990s. In 1994, 1.8 million foreign tourists visited Brazil, generating receipts of US$1.9 billion. In 1999, 5.1 million foreign tourists arrived, spending over US$4 billion. Argentina ranked first with 1.5 million visitors in 1999, American tourists ranked second with 0.6 million visitors, and Germans ranked third with 0.3 million visitors. The average annual income of visitors in 1999 was US$37,000 and they spent an average of US$79 per day, excluding expenses of international airfare. Brazil has over 10,000 hotels and other forms of accommodation. Approximately 63 percent of the existing hotel rooms were occupied in 1998. Hotels generate over 1 million jobs and pay over US$400 million in taxes.

Tourists are attracted to Rio de Janeiro for its notable sights: the Pão de Açúcar (Sugar Loaf Mountain), with its cable car; the Corcovado, with its statue of Jesus Christ the Redeemer; and Copacabana Beach, with its beautiful people and mosaic sidewalks. The historic city of Ouro Preto in Minas Gerais, and the churches of Bahia also attract many tourists. Ecotourism is developed in the Amazon Valley cities such as Belém and Manaus, the Iguaçu Falls in the south, and in the flooded areas of the Pantanal located in the western central region. Brazil is most famous for its Carnival, that usually takes place in February. Rio de Janeiro's Desfile das Escolas de Samba (Samba Schools Parade) attracts millions of tourists every year.

Foreign and government investments in tourism are important to the economy. The Inter-American Development Bank (IDB) and the Brazilian government invested 1.2 billion in the northeast region, starting in 1994. Investments in that region were responsible for renovating airports, improving public sanitation, preserving natural ecosystems, and restoring cultural practices. These investments rapidly boosted the tourist economy in the northeast, and foreign investment helped with the construction of multimillion dollar resorts in the coastal areas of the northeast. Such investments helped attract an increasing number of tourists to the northeast region. Other investments funded by the IDB and Brazilian government are planned for the Amazon and Pantanal regions, and in the south of Brazil.

FINANCIAL SERVICES.

The government owns most of the financial sector, the largest component of the services industry. The 3 largest banks of Brazil—the Bank of Brazil, Federal Economic Register, and National Bank of Economic and Social Development (BNDES)— accounted for US$181.5 billion in total assets in 2000. The assets of the 3 major banks represented approximately 23 percent of the gross domestic product in 1999. The government holds the majority of the stocks of 3 national banks and a variety of state banks, with the exception of the privatized State Bank of São Paulo (BANESPA), the seventh largest bank in Brazil, and the State Bank of Rio de Janeiro (BANERJ).

The Bank of Brazil is the largest bank in Brazil and the largest financial institution in Latin America. It has 12.9 million customers and agencies in 30 different countries, employing 90,378 people. The total assets of the Bank of Brazil were worth roughly US$71 billion in 2000. The second largest bank, the Federal Economic Register, had assets worth approximately US$63 billion, employing 102,614 people in 2000. BNDES's assets were worth approximately US$48 billion, employing 1,246 people.

The Brazilian Discount Bank (BRADESCO) and Itaú have the largest assets in the private sector . BRADESCO has 3.6 million customers and more than 26 million checking accounts. Total assets for 2000 accounted for US$40 billion and US$27 billion for BRADESCO and Itaú, respectively.

The total assets of the 50 largest banks in Brazil were worth US$436 billion in 2000. This represented more than 50 percent of the total gross domestic product of that year. This part of the financial services sector employed 492,230 people in 2000.

RETAIL.

This sector is responsible for the highest number of employed people in all sectors of the services industry. The number of companies that employ 500 or more workers is low; there were 75 companies which hired 500 or more workers in 1997 in the retail section, and 31 companies with 500 or more workers in the wholesale section. The bulk of employed people in this sector come from companies that employ less than 500 employees. Combined retail and wholesale sectors were made up of 708,635 retail and wholesale outlets. Total sales in the sector amounted to approximately US$300 billion in 1998. There are few retail chains in the economy. Most of them are located in the capitals of each state but are not part of the retail context in the less developed economies in rural areas. Food, grocery, and other retail chains are located in the coastal areas whereas small family-owned businesses compose the retail sector in smaller cities. The smaller retail businesses are responsible for employing a large number of people.

INTERNATIONAL TRADE

Brazil's overall trade flow (the sum of imports and exports) increased from US$63.8 billion in 1993 to US$97.2 billion in 1999, a 52 percent rise. Most of the increase in trade flow is due to the 94 percent increase in imports, from US$25.3 billion to US$49.2 billion. Exports increased by 24 percent during the same period, from US$38.6 billion to US$48 billion.

From 1981 until 1994, Brazil exported more than it imported. Beginning in 1995, however, Brazil began to run a trade deficit , due to the stabilization policies adopted by President Fernando Henrique Cardoso. Since then, the imbalance has grown considerably. Brazil's

trade deficit increased to record numbers in 1997, to US$6.8 billion. This continued in 1998 at US$6.6 billion, but in 1999, the trade deficit decreased to US$1.2 billion. Forecasts for the year 2000 are that exports will exceed imports. The decrease in the deficit can be attributed to the devaluation of the real in 1999.

The primary trading partners of Brazil are the United States and Argentina. The United States is the major importing country of Brazilian goods. Exports to the United States reached US$9.7 billion, representing 19 percent of all exports (this percentage has been the same since 1996). Major exports were manufactured goods, iron ore, soybeans, footwear, and coffee. Argentina was Brazil's second largest exporting destination with US$6.7 billion, or 13 percent; followed by Germany with US$3 billion, or 6 percent; the Netherlands with US$2.7 billion, or 5 percent; and Japan with US$2.2 billion, or 4 percent.

Major imports come from the United States. In 1998 Brazil imported goods valued at US$13.5 billion, representing 23 percent of all imports. Major imports were machinery and equipment, chemical products, oil, and electricity. The second largest imports come from Argentina with US$8 billion, or 14 percent of the total imports to Brazil; followed by Germany with US$5.2 billion, or 9 percent; Japan with US$3.3 billion, or 6 percent; and Italy with US$3.2 billion, or 6 percent.

Brazil is a member of the General Agreement on Tariffs and Trade (GATT) and the Law of the Sea treaties. Brazil is also member of MERCOSUR, a South American free trade agreement that includes Argentina, Paraguay, and Uruguay. Bolivia, Chile, and Venezuela were being considered for membership to the MERCOSUR free trade area.

MONEY

From the 1970s onwards, government spending and service of the public debt were the reasons for high inflation, and the subsequent rise in prices. Inflation was Brazil's greatest monetary problem until President

Fernando Henrique Cardoso in the mid-1990s adopted measures to slow down government spending and renegotiate public debt in order to contend with inflationary pressures. Brazil's currency was constantly devalued against the U.S. dollar. Currency devaluations generated incentives for the export market, decreasing the trade imbalance caused by debt payments and excess imports of manufactured goods. Devaluation helped the export market, which expanded its production when exports were given a price advantage provided by cheaper products in the world markets, but also represented a burden for domestic consumers who faced higher prices on imported goods. In the period from 1995 to 2000, the real devalued by approximately 100 percent. In 1995, 1 U.S. dollar was equal to 0.9176 reals. In 2000, 1 U.S. dollar was equal to 1.8302 reals. The devaluation was largely felt in early 1999, when the central bank of Brazil adopted a floating exchange rate system. The real then fell by 56 percent from 1998 to 1999.

In the past, Brazil had as many as 9 regional stock exchanges. However, with consolidations of the stock markets in the early 1990s and the advent of electronic trading, all securities transactions in Brazil are carried out in São Paulo, at the São Paulo Stock Exchange (BOVESPA). There are approximately 1,100 companies listed on the São Paulo exchange. The total market valuation of all listed companies on the São Paulo Exchange was US$228.6 billion in February 2001. Daily transactions are published in the leading newspapers and are available on the Internet. BOVESPA is part of the leading technology exchanges, offering electronic and after-hours trading options. The Rio de Janeiro Stock Exchange is the oldest financial institution in the country, founded in 1845. The Rio de Janeiro exchange is responsible for all the transactions in government bonds. Futures transactions are carried out at the Mercantile Futures Exchange (BM&F). Located in São Paulo, the BM&F has been operating since 1986 and is used mainly by coffee, beef, and cattle producers and buyers.

POVERTY AND WEALTH

Brazil has a few wealthy people and a large number of very poor people. The gap between the highest and the lowest social levels is high, even if it decreased during the late 1990s. Stabilization of the economy, through lower inflation levels, has given more purchasing power to the poor. Social indicators show that since 1994, when Fernando Henrique Cardoso became president, the percentage of people living below the poverty line decreased from 19 percent of the total population in 1993 to 14.51 percent in 1999, the lowest level in decades.

The income received by the top 10 percent of the Brazilian people represented 47.75 percent of the total income received in 1999. Meanwhile, the income received by the bottom 50 percent of the Brazilian people represented only 12.55 percent of the total income received in 1999. The top 1 percent of Brazilian people received 13.31 percent of the total income in 1999, more than the income for the bottom 50 percent combined.

Health services are free for all Brazilians, but the service is questionable. Medical doctors are well educated, but the demand in urban areas is much higher than what is available. Health and sanitary conditions vary from region to region. The south and southeast have better health services and sanitary conditions than the north and northeast.

Despite a government program against illiteracy, developed in 1971, 15 percent of the population aged 15 and higher were still illiterate in 1999. This number is higher than the percentage in Latin America and the Caribbean Islands as a whole. The percentage of illiteracy among the upper-middle class is 10 percent. Education is free at the school and university levels. Secondary school is the responsibility of the municipalities, and universities are the responsibility of the federal and state governments.

The biggest social challenge facing the Brazilian government and society is the lack of education, housing, health care, and nutrition for the homeless children of Brazil. Thousands of children live in the streets, abandoned by their parents who cannot afford to raise them. Confronting starvation and living in deplorable conditions, these children abuse drugs, commit crimes, and resort to prostitution in order to survive. The government has developed programs through the Ministry of Social Assistance to combat the poverty and starvation of homeless children.

WORKING CONDITIONS

Brazil employed approximately 24.49 million people in 1998: 66 percent between 18 and 39 years of age, 31 percent between 40 and 64 years of age, 2 percent under 17 years of age, and 1 percent 65 years of age or older. The rate of unemployment for 2000 was 7.1 percent, a decline from the 1999 rate of 7.6 percent. This rate was calculated by the Instituto Brasileiro de Geografia e Estatística, (IBGE, Brazilian Institute of Geography and Statistics) in the 6 largest metropolitan areas of the country (Recife, Salvador, Belo Horizonte, Rio de Janeiro, São Paulo, and Porto Alegre). Unemployment rates for the 1998-2000 period were the highest in the decade, and at least as high as in 1984, the last year that the military held power.

Unions represent all major segments of industry. The National Confederation of Industrial Workers, the National Confederation of Commercial Workers, the National Confederation of Bank Workers, and the National Confederation of Ground Transport Workers are examples of the major labor unions in Brazil. Unions are legal, and financed by compulsory payments deducted from workers' paychecks and by membership dues. Approximately 7 million workers are unionized, accounting for 20-30 percent of the employed labor force . Brazilian workers have had the right to strike since 1984. In 1992 the economy was hit by an organized strike of port workers, airport workers, teachers, drivers, fare collectors, and government employees. In the late 1990s strikes were still common in Brazil.

The minimum wage was established in 1940. After correcting for inflation, the initial minimum wage was approximately US$100 per month in 1940; it rose to its maximum in 1960 at US$170 per month, and was equal to US$75 per month in December 2000.

Even though children under 14 years of age are prohibited from working, it is estimated that 14 percent of all children between 10 and 13 work. Maternity benefits include a 90-day leave for mothers and a one-week leave for fathers. Racial discrimination is illegal, but still practiced by many businesses in Brazil. Non-white workers and women are often underpaid. The role of women in the workforce has changed considerably in the 1980s and 1990s. According to the constitution, there must be equal pay for equal work regardless of sex. The government also provides special protection for women. While the more industrialized areas in Brazil, mostly the southeast region, employ women and treat them equally to male workers, the less industrialized regions, mostly the northern regions, still underpay women and discriminate against them.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

1500. Portuguese Admiral Pedro Álvares Cabral discovers Brazil.

1549. Governor-general Tomé de Souza establishes the first government in Brazil.

1773. Pedro I proclaims Brazil's independence from Portugal on 7 September and is crowned emperor.

1883. Revolution establishes the Federal Republic of the United States of Brazil.

1888. Slavery is abolished in Brazil.

1891. First constitution under the Republic.

1930. Getúlio Vargas is named president, brought to power by the military with some civilian support.

1946. Eurico Dutra is elected president.

1950. Vargas returns, creating the National Development Bank and the state petroleum company.

1964. Military dictatorship. Congress appoints Humberto de Alencar Castelo Branco to the presidency.

1967. Arthur da Costa e Silva becomes president under a new constitution.

1973. Oil crisis results in a significant setback for Brazil's economy.

1979. General João Baptista de Oliveira Figueiredo becomes president and allows democratic elections.

1982. First democratic elections since 1964.

1985. Tancredo Neves, a senator from Minas Gerais from the opposition party, becomes president.

1988. The constitution is ratified, reestablishing direct elections for the presidency.

1989. Fernando Collor de Mello is elected president, and implements a liberalization plan.

1992. Itamar Franco takes over the presidency and tries to control inflation, which he does in 1994 with his "Real Plan."

1994. Fernando Henrique Cardoso is elected president on the strength of his economic plan.

1998. Fernando Henrique Cardoso is reelected.

FUTURE TRENDS

The continued success of economic measures adopted by Fernando Henrique Cardoso upon his re-election in 1998 depends upon the ability of the government to maintain a tight monetary policy and maintain fiscal restraint facing both national and international economic pressures. In the long run, the government needs to implement structural reforms, such as reforms of the tax and social security systems, decentralization of governmental spending to state and municipal governments, and privatization of major enterprises. Most of these measures require additional constitutional amendments or legislation.

The presidential election on October 2002 will have a strong influence on the political, fiscal, and economic programs adopted by President Cardoso. The triumph of the leftist parties shown in the 2000 municipal elections suggest that there is a disapproval of the harsh measures taken by Cardoso to restore stability. Since there is no popular candidate from the governing coalition for the 2002 presidential elections, there might be difficulties passing unpopular laws if the opposition comes into power. Contentious legislation such as tax reform and social security payments from retired civil servants may not be considered until after Cardoso's presidency ends. The passage of such laws would greatly improve the quality of the fiscal situation.

DEPENDENCIES

Brazil has no territories or colonies.

BIBLIOGRAPHY

Baaklini, Abdo I. The Brazilian Legislature and Political System .Westport, CT: Greenwood Press, 1992.

Bacha, Edmar L., and Herbert S. Bacha, editors. Social Change in Brazil, 1945-1985: The Incomplete Transition. Albuquerque: University of New Mexico Press, 1989.

Bak, Joan L. "Political Centralization and the Building of the Interventionist State in Brazil." Luso-Brazilian Review. Vol. 22, No. 1, Summer 1985.

Banco Central do Brasil. <http://www.bcb.gov.br>. AccessedFebruary 2001.

Becker, Bertha K. Brazil: A New Regional Power in the World-Economy. New York: Cambridge University Press, 1992.

Brazilian Embassy in Washington. <http://www.brasilemb.org/>. Accessed in January 2001.

Burns, E. Bradford. A History of Brazil, 3rd ed. New York:Columbia University Press, 1993.

Economist Intelligence Unit. Country Profile: Brazil. London: Economist Intelligence Unit, 2001.

Fausto, Boris. A Concise History of Brazil. Cambridge, U.K.:Cambridge University Press, 1999.

Instituto Brasileiro de Geografia e Estatística (IBGE). <http://www.ibge.gov.br>. Accessed February 2001.

Instituto de Pesquisa Econômica Aplicada (IPEA). <http://www.ipea.gov.br./>. Accessed February 2001.

International Cocoa Organization (ICCO). 1997/98 Annual Report. <http://www.icco.org/anrep.htm>. Accessed February 2001.

Latin American Network Information Center (LANIC). Brazil. <http://www.lanic.utexas.edu/la/brazil/>. Accessed February 2001.

Levine, Robert M. The History of Brazil. Westport, CT:Greenwood Press, 1999.

Ministério do Esporte e Turismo. EMBRATUR: Empresa Brasileira de Turismo. <http://200.236.105.128/estatisticas/estatisticas.htm>. Accessed August 2001.

Parkin, Vincent. Chronic Inflation in an Industrialising Economy: The Brazilian Experience. New York: Cambridge University Press, 1991.

Payne, Leigh A. Brazilian Industrialists and Democratic Change .Baltimore: Johns Hopkins University Press, 1994.

Schneider, Ronald M. Brazil: Culture and Politics in a New Industrial Powerhouse. Boulder, CO: Westview Press, 1996.

U.S. Central Intelligence Agency. World Factbook 2000. <http://www.odci.gov/cia/publications/factbook/index.html>. Accessed August 2001.

U.S. Department of State. FY 2001 Country Commercial Guide: Brazil. <http://www.state.gov/www/about_state/business/com_guides/2001/wha/index.html>. Accessed February 2001.

The World Bank Group. Countries: Brazil. <http://www.worldbank.org/html/extdr/offrep/lac/br.htm>. Accessed February 2001.

—Ecio F. Costa

CAPITAL:

Brasília.

MONETARY UNIT:

Brazil's currency, the real (R$), was introduced on 1 July 1994. One real equals 100 centavos. There are coins of 1, 5, 10, 25, 50 centavos, and 1 real, and notes of 5, 10, 20, 50, and 100 reals.

CHIEF EXPORTS:

Manufactures, iron ore, soybeans, footwear, coffee.

CHIEF IMPORTS:

Machinery and equipment, chemical products, oil, electricity.

GROSS DOMESTIC PRODUCT:

US$1.057 trillion (purchasing power parity, 1999 est.).

BALANCE OF TRADE:

Exports: US$46.9 billion (f.o.b., 1999 est.). Imports: US$48.7 billion (f.o.b., 1999 est.).