EXTERNAL SECTOR
The Brazilian trade balance, annually measured, has been in deficit since the middle of 1995. This reflects, above all, the trade liberalization of the Real Plan, the increase in the rate of investment, and the restructuring of the production sector.
From the second half of 1998 on, the performance of the total and manufactured exports began to reflect a fall in international commodity prices and the slowering of world trade due to the international economic crisis. The exports of manufactured goods were particularly affected by the impact of the crisis in Latin America (negative growth), an a region that absorbs approximately 40% of the Brazilian exports of manufactured goods.
More recently, the devaluation of the exchange rate is stimulating exporters to regain markets and open new ones as well as encouraging import substitution. These movements demand time, and should generate positive results starting from the second half of 1999.
The import coefficient rose significantly after the Real Plan, reflecting the opening of the economy and the efforts for modernization in the production sector.
Foreign investors' trust in the perspectives of medium and long terms of the Brazilian economy is clearly demonstrated by the growing net inflow of direct foreign investments. From 1995 to April of 1999, there was a positive flow of US$ 67,5 billion.
The shift in the Brazilian exchange rate in January 1999, with the adoption of free exchange, minimizes the risk of speculation against the Brazilian currency, therefore mitigating the need for reserves in order to safeguard the Real.