Of all countries, Brazil is ranked as number nine as being the largest economy in the world when it comes to power parity. This is in part due to this country having a diversified middle income economy, which includes a broad range of variations for development levels. The greatest industry growth is found in the south and southeast regions of Brazil while the northeast is very poor. However, many investors see this poor section of the country more of an opportunity than they see it as an eye soar.
During 1994, Brazil launched an extremely successful program to help stabilize the economy called the Real Plan. As a result, the annual level of inflation had dropped from 5,000% in 1994 to 2.5% in 1998. Having been able to move the fixed exchange rate regimen to a floating regimen in 1999 made a significant improvement for the country overall.
When looking at the Brazilian real exchange rate compared to the US dollar for gross domestic product in 1980, the numbers for Brazil were 7,846,331 compared to 52.69. However, by 2005 with the stabilization program in place, Brazil’s numbers were at 1,930,335 to 2.43. Obviously, this shows a clear indication that the program and efforts paid off and today, even with a challenging economy, forecasters are optimistic for the Brazilian real exchange rate.
In 2000, the Fiscal Responsibility Law was established in Brazil, which improved fiscal discipline for this country on three distinct levels. This program affected the federal, state, and municipal levels of the government. Then at the end of 2003, the privatization program developed by Brazilian officials included telecommunication firms and steel manufacturers. With this, proceeds were generated at more than $90 billion. These two changes were also responsible for improving the Brazilian real exchange rate.
Other changes made by the Brazilian government to keep the economy stabilized and to promote growth included larger deficits for pension programs, tax reform, and new trade. In fact, trade alone for Brazil has grown by 50% over the past 10 years. Today, the largest foreign investor in the country of Brazil is none other than the United States.
Brazil has also improved agricultural resources, improved livestock production, and lowered incentives for people to destroy the beautiful rainforests. Because Brazil has one of the most advanced industrial sectors throughout all of Latin America and this country is constantly working hard to create more in-country resources, the Brazilian real exchange rate has not only remained strong but it continues to stabilize and grow.
Considering that Brazil now possesses well developed systems for agricultural, mining, manufacturing, and services, it holds a very powerful economic position in the world, something that every country could learn from and build on. The only bump experienced when comparing Brazilian currency to the US dollar was in the 1980s.
At that time, inflation was coming down to a single digit annually but real exchange rate appreciation during the Real Plan phase was substantial. While currency value increased, the problem was that it made goods far more expensive than other countries, causing people to look outside of Brazil for certain things. Without doubt, the development of Brazil, which has been based on a strategy of import substitution led to over inflation but today, business and investment opportunities in Brazil remain solid.
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