The post-1964 reforms and other policies of the military government

The post-1964 reforms and other policies of the military government, together with the state of the world economy, created conditions for very rapid growth between 1968 and 1973. In that period, the average annual rate of growth of GDP jumped to 11.1%, led by industry with a 13.1% average. Within industry, the leading sectors were consumer durables, transportation equipment, and basic industries, such as steel, cement, and electricity generation. IBM 13N5182 CPU Fan As a result of the post-1964 policies, external trade expanded substantially faster than the economy as a whole. There was a significant growth in exports, especially manufactured goods, but also commodities. Yet, imports grew considerably faster, rapidly increasing the trade deficit. This did not present a problem, however, because massive inflows of capital resulted in balance of payments surpluses. IBM Thinkpad T30 2366-AA3 CPU Fan The external sector contributed substantially to high growth rates, as did the rapid expansion of investment, including a growing share of public investment and investment by state-controlled enterprises. In addition, increased demand for automobiles, durable and luxury goods, and housing resulted from a rapid growth in income for the upper income strata and from credit plans created for consumers and home-buyers by the capital-market reforms. IBM Thinkpad T30 2366-AA3 CPU Fan The industrial sector generally experienced not only rapid growth but also considerable modernization. As a result, imports of capital goods and basic and semi-processed inputs increased sharply. The share of intermediate goods imports in total imports increased from 31.0% in the 1960-62 period to 42.7% in 1972, and that of capital goods, from 29.0 to 42.2%. The total value of imports rose from US$1.3 billion to US$4.4 billion. IBM Thinkpad T30 CPU Fan A comparison of the 1960 and the 1975 shares of the various industrial sectors in total value added by industry reveals a continuation in the relative decline of nondurable industries, notably textiles, food products, and beverages, and an increase in machinery, from 3.2 to 10.3%. The relative shares of most of the remaining industries, however, did not change significantly in the period. HP 535438-001 CPU Fan As a result of the period's outward-looking development strategy, Brazil's industrial exports increased from US$1.4 billion in 1963 to US$6.2 billion in 1973. The composition of exports shows that whereas in 1963 processed and semi-processed manufactured exports accounted for only 5% of total exports, in 1974 their share had reached 29%.DELL Inspiron N3010 CPU Fan In the 1968-73 period, personal income became more concentrated and regional disparities became greater. Industrial expansion took place more vigorously in the Center-South Region, which had benefited most from the import substitution industrialization strategy. Its per capita income considerably exceeded the national average, its infrastructure was more developed, and it had an adequate supply of skilled workers and professionals. HP Pavilion dv6-3070tx CPU Fan The region was therefore able to take advantage of the opportunities and incentives offered by the military regime. Although a special regional development strategy existed for the Northeast, it promoted a distorted industrialization that benefited only a few of that region's large cities; the Northeast's linkages with the Center-South were stronger than its linkages within the region. IBM 41W5269 CPU Fan The combination of a harsh climate, a highly concentrated land-tenure system, and an elite that consistently resisted meaningful change prevented the Northeast from developing effectively. Brazil suffered drastic reductions in its terms of trade as a result of the 1973 oil shock. In the early 1970s, the performance of the export sector was undermined by an overvalued currency. ASUS A8H CPU Fan With the trade balance under pressure, the oil shock led to a sharply higher import bill. Brazil opted to continue a high-growth policy. Furthermore, it adopted renewed strategies of import substitution industrialization and of economic diversification. In the mid-1970s, the regime began implementing a development plan aimed at increasing self-sufficiency in many sectors and creating new comparative advantages. SONY UDQFRZH13CF0 CPU Fan Its main components were to promote import substitution of basic industrial inputs (steel, aluminum, fertilizers, petrochemicals), to make large investments in the expansion of the economic infrastructure, and to promote exports. This strategy was effective in promoting growth, but it also raised Brazil's import requirements markedly, increasing the already large current-account deficit. HP COMPAQ 2510P CPU Fan The current account was financed by running up the foreign debt. The expectation was that the combined effects of import substitution industrialization and export expansion eventually would bring about growing trade surpluses, allowing the service and repayment of the foreign debt. Thus, despite the world recession resulting from other countries' adjustments to the oil shock, Brazil was able to maintain a high growth rate. APPLE 661-4951 CPU Fan Between 1974 and 1980, the average annual rate of growth of real GDP reached 6.9 percent and that of industry, 7.2 percent. However, the current-account deficit increased from US$1.7 billion in 1973 to US$12.8 billion in 1980. The foreign debt rose from US$6.4 billion in 1963 to nearly US$54 billion in 1980. Brazil was able to raise its foreign debt because, at the time, the international financial system was awash in petrodollars and was eagerly offering low-interest loans. HP Pavilion dv6-3034ca CPU Fan By the end of the 1970s, however, the foreign debt had reached high levels. Additionally, the marked increase of international interest rates raised the debt service, forcing the country to borrow more only to meet interest payments. Productive capacity, exports, and the substitution of imports in various sectors expanded and became more diversified. However, the expected impacts on Brazil's current account were not to materialize until the mid-1980s. HP G56-126NR CPU Fan Another feature of the 1974-80 period was an acceleration of inflation. Between 1968 and 1974, the rate of inflation had declined steadily, but afterward the trend was reversed. From 16.2 percent a year in 1973, the growth rate of the general price index increased to 110.2 percent a year by 1980. The effect of the 1974-85 period's industrialization on the balance of trade was significant. Compaq Presario C556CA CPU Fan The balance of trade moved from an average deficit of US$3.4 billion in the 1974-76 period to an average surplus of US$10.7 billion in the 1983-85 period. In 1985 the share of manufactures (processed and semi-processed) of total exports reached 66 percent, and between 1971–75 and 1978-83 the share of basic input imports in total imports declined from 32.3% to 19.2%. SONY Vaio VGN-NR360E CPU Fan The recession and stagnation of the early 1980s had a role in reducing imports. However, import substitution was also important, as demonstrated by the few years of the 1980s that experienced a significant growth in GDP while the trade surplus was maintained. Between 1981 and 1992, the GDP increased at an average annual rate of only 2.9% and per capita income declined 6%. HP Pavilion dv5170us CPU Fan Gross investment, as a proportion of GDP, fell from 21 to 16 percent, in part as a result of the fiscal crisis and the loss of public-sector investment capacity. The decline also reflected growing uncertainties regarding the future of the economy. The 1980s became known as the "lost decade," and its problems spilled over into the 1990s. Despite thestagnation of the 1981-92 period, inflation remained a major problem (see stagflation). SONY Vaio VPC-EE3WFX/WI CPU Fan It stayed in the 100% level until the mid-80's and then grew to more than 1000% a year, reaching a record 5000% in 1993. In 1979 a second oil shock nearly doubled the price of imported oil to Brazil and lowered the terms of trade further. The rise in world interest rates sharply increased Brazil's balance of payments problem and the size of the foreign debt. HP G56-126NR CPU Fan HP 3MLX8TATP20 CPU Fan Nevertheless, the government continued borrowing, mainly to face an increasing debt burden, while it tried vainly to maintain the high-growth strategy. At the beginning of the 1980s, however, the foreign-debt problem became acute, leading to the introduction of a program to generate growing trade surpluses in order to service the foreign debt. The program was achieved by reducing growth and, with it, imports, and by expanding exports. SONY Vaio VGN-NW240F/S CPU Fan As a result, in 1981 real GDP declined by 4.4 percent. The 1982 Mexican debt crisis ended Brazil's access to international financial markets, increasing the pressure for economic adjustment. Some unorthodox economists like Stephen Kanitz attribute the debt crisis not to the high Brazilian level of indebtedness nor to the disorganization of the country's economy. SONY Vaio VPC-EB1Z0E/B CPU Fan They say that the cause of the crisis was rather a minor error in the U.S. government banking regulations which forbids its banks from lending over ten times the amount of their capital, a regulation that, when the inflation eroded their lending limits, forced them to cut the access of underdeveloped countries to international savings.^[1] The austerity program imposed by the International Monetary Fund in late 1979 continued until 1984, Compaq Presario CQ60-514NR CPU Fan but substantial trade surpluses were obtained only from 1983 on, largely as a delayed result of the import substitution industrialization programs of the 1970s and the reduction in imports brought about by economic decline. The austerity program enabled Brazil to meet interest payments on the debt, but at the price of economic decline and increasing inflation. Toshiba Satellite X205-S9800 CPU Fan Inflation accelerated as a result of a combination of factors: the exchange-rate devaluations of the austerity program, a growing public deficit, and an increasing indexation of financial balances, wages, and other values for inflation. The first two factors are classical causes of inflation; the last became an important mechanism for propagating hyperinflation and in preventing the usual instruments of inflation control from operating. ASUS G2P CPU Fan By the mid-1980s, domestic debt nearly displaced foreign debt as Brazil's main economic problem. During the high-growth 1970s, a significant portion of foreign borrowing had been by state enterprises, which were the main actors in the import substitution industrialization strategy. Initially, they borrowed to finance their investments. However, toward the end of the decade, with the acute shortage of foreign exchange, Compaq Presario CQ60-430SA CPU Fan the government forced state enterprises to borrow unnecessarily, increasing their indebtedness markedly. Their situation worsened with the sharp rise in international interest rates in the late 1970s, the devaluations of the austerity program, and the decreasing real prices of goods and services provided by the public enterprises stemming from price controls. DELL BFB0505HA CPU Fan Because the state enterprises were not allowed to go bankrupt, their debt burden was transferred gradually to the government, further increasing the public debt. This, and a growing disorganization of the public sector, transformed the public debt into a major economic problem. By the mid-1980s, the financial burden stemming from the debt was contributing decisively to its rapid expansion. HP Pavilion dv5-1272et CPU Fan