4. STABILITY AND FOREIGN INVESTMENT

The Real brought predictability and stability to the economy; political party alliances provided stability to the administration and support for the reforms. Brazil regained its direction and self-confidence. The public supported the fight against inflation, the opening of the economy, and the reforms. The Government, in turn, reestablished its ability to plan. For example, the 1996-1999 Multi-Year Plan (PPA-Plano Plurianual) indicates how much and in what areas the government plans to invest. Businessmen once again are able to program their investments, and foreign investors are returning to Brazil.

GRAPHIC 8

The Central Bank estimates that direct foreign investment totaled US$3.5 billion in 1995. This figure represents a growth of more than 120% above the average annual investment level for 1990-1994 (US$1.57 billion). Economic stability, the non-discriminatory treatment of foreign capital, and the transparency and predictability of the national institutions are factors that explain the increase in direct investments in 1995.

Foreign direct investment should grow even more in 1996. In this sense, the increased access to the Brazilian market made possible by the constitutional reforms, by passage of the Public Service Law of Concessions, and by the Executive Branch's authorizing increased foreign ownership of financial institutions will be a key factors.

The consolidation of Mercosul in 1995 is another key element in attracting foreign investment. The January 1, 1995, inauguration of the Customs Union, which encompasses Brazil, Argentina, Paraguay and Uruguay, created a market of 200 million potential consumers with a GDP of some US$720 billion.