Update for Chapter 1 News Article: Multinationals Bet on Brazil’s Recovery; GM,
Nokia Expect Sustained Expansion. Wall Street Journal, September 5, 2000.
Brazil’s Gross Domestic Product (GDP) grew by 5.1% in 2004, the largest rate of growth
since 1994 when GDP increased by 5.85%. GDP fell by 0.2% in 2003 following slow
growth of 1.9% in 2002 and 1.3% in 2001. The government and central bank used tight
fiscal and monetary policies to stabilize the economy and promote long-term growth.
However, in 2005, inflation was still a concern as the central bank raised interest rates to
19.75% to dampen inflationary expectations. One reason that inflation is difficult to
control is that one-third of all prices in the government’s inflation index are utility rates
that are set by contract. Their prices are adjusted by an index tied to the value of the
dollar. Brazil’s economy is relatively closed to imports, so it gets less pricing benefit
from low-priced Chinese imported goods than other economies. There is also continuing
concern about the government’s ability to control its own spending.
Brazil has become a less attractive site for foreign investment, dropping from 3rd place in
2001 to 17th place in 2005 in the ranking of attractive destinations for investment
compiled by the consulting firm A.T. Kearney. The country’s slow-moving justice
system and complex maze of regulations hinder the development of new businesses.
Brazil received a $505 million credit from the World Bank in 2004 to simplify the
registration of new businesses, ease the paperwork for processing containers at ports, and
streamline the opening of bank accounts. Economists at the World Bank estimate that
Brazil could add half a percentage point to its output simply by reducing the licensing
time for new businesses from the current 152 days to Chile’s level of 27 days.
Brazil attracted $200 billion in foreign investment since the mid-1990s. However, 46%
of 400 multinational companies reported in a survey in 2004 that they had lost money.
Brazil’s foreign investment in 2004 totaled $18 billion, up from the 2003 level, but below
the $32 billion the country received in 2000.
Sources:
Brazil’s Economic Growth is Highest in 10 Years. Dow Jones Newswires. February 28,
2005.
Samor, Geraldo. Brazil Sees Prices Defy Interest Rates. Wall Street Journal. May 20,
2005.
Moffett, Matt and Samor, Geraldo. In Brazil, Thicket of Red Tape Spoils Recipe for
Growth. Wall Street Journal. May 24, 2005.
The Economist Intelligence Unit. Country Commerce: Brazil. August, 2004.