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Two Years of Change |
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Two Years of Change |
4. Foreign Sector
The economic liberalization process provided access to imported raw materials, semi-manufactures and, above all, machines and equipment at reduced prices, thereby increasing the competitiveness of all economic sectors.
Brazil's international trade virtually doubled in five years, going from US$52.1 billion in 1990 to US$101.1 billion in 1996. Both exports and imports increased.
Although exports increased in 1995 and 1996 (6.8% and 2.7%, respectively), a larger increase in imports (50.7% and 6.9%, respectively) caused a deficit in the trade balance. In 1996, the trade deficit was US$5.5 billion, which represents less than 1% of Brazil's GDP.
It is worth asking what we are importing. Basically, the increase in imports is due to a growth in capital goods purchases. These are machines and equipment. This signals a change in Brazil's relationship with the international economy. In truth, we are preparing to increase our productivity and production and, after that, our exports.
The government is adopting various measures to stimulate exports and, consequently, to eliminate the trade deficit. Brazil wants to balance its foreign trade accounts.
Pro-export measures
- insuring export credits
- expanding PROEX (credit for exports)
- removing the ICMS
- reducing the Brazil Cost
Brazil and Mercosul have become principal destinations for foreign direct investments. Currency stabilization, economic growth and the further consolidation of Mercosul, all of which occurred in 1995, proved to be important factors in attracting these investments. Average annual direct investments in Brazil during the period 1990-94 were around US$1 billion, rising to US$2.9 billion in 1995 and reaching US$9.2 billion in 1996.
One significant economic fact was the change in the foreign investment profile. In 1993 and 1994, almost all of the inflow went into the stock market. Since 1995, the majority of the inflow has been going into production. In 1996, foreign capital totaling US$9.2 billion went into direct investments. This change signals foreign investor confidence in the Brazilian economy.
As a result of the economy's good performance, Brazil's international reserves have increased continuously since 1993, reaching US$60.1 billion in 1996. With the substantial international liquidity that these reserves provide, the Brazilian economy is prepared for eventual problems originating abroad.
