Brazil’s Growing Economy

36.4.3: Brazil’s Growing Economy

Brazil’s economy is characterized by moderately free markets and an inward-oriented approach to development.

Learning Objective

Detail some of the reasons for Brazil’s economic growth in the latter 20th century

Key Points

  • From 2000 to 2012, Brazil was one of the fastest growing major economies of the world, with an average annual GDP growth rate of over five percent. And from roughly 1968 to 1980, Brazil’s average annual GDP growth rate was approximately ten percent during what was dubbed the Brazilian Miracle.
  • Much of Brazil’s economic growth during the Brazilian Miracle can be attributed to a group of technocrats led by Minister of Finance Antonio Delfim Netto, to whom the military government entrusted economic policy.
  • The government became directly involved in the economy, investing heavily in infrastructure, building, and reducing reliance on imports.
  • As a result of this industrial growth and investment in infrastructure, Brazil became an urban society, with 67% of its population living in cities.
  • However, to continue fueling its economic growth, Brazil needed more imported oil, and in the 1970s, a series of international energy crises contributed to a deceleration in growth.

Key Terms

recession
In economics, a business cycle contraction that results in a general slowdown in economic activity. Macroeconomic indicators such as GDP (gross domestic product), investment spending, capacity utilization, household income, business profits, and inflation fall, while bankruptcies and the unemployment rate rise.
hyperinflation
In economics, when a country experiences very high and often accelerating rates of inflation, rapidly eroding the real value of the local currency and causing the population to minimize their holdings of local money, normally switching to relatively stable foreign currencies.

 

From 2000 to 2012, Brazil was one of the fastest growing major economies of the world, with an average annual GDP growth rate of over five percent. In 2012, Brazil’s economy temporarily became the world’s sixth largest economy, surpassing that of the United Kingdom. However, Brazil’s economic growth decelerated in 2013 and the country entered a recession in 2014. Similarly, Brazil’s development during the 1960s was so impressive it was dubbed the Brazilian Miracle. During that time, Brazil opened its markets and took an inward-looking approach to economic development. Its economic growth was only impeded by a series of international energy crises during the 1970s.

Central Rio de Janeiro

Central Rio de Janeiro: Central business district of Rio de Janeiro.

The Brazilian Miracle

The Brazilian Miracle refers to a period between 1968 and 1980 during which Brazil experienced exceptional economic growth during the rule of its military government. During that time, the average annual GDP growth was close to ten percent. Economic growth was particularly strong from 1969 to 1973 during the tenure of President Emilio Garrastazu Medici. Perception of the so-called golden age of Brazilian development was strengthened in 1970 when Brazil won the FIFA World Cup for the third time and the military government adopted the official slogan, “Brasil, ame-o ou deixe-o” (“Brazil, love it or leave it”).

Much of Brazil’s economic growth can be attributed to a group of technocrats led by Minister of Finance, Agriculture, and Planning Antonio Delfim Netto, to whom the military government entrusted economic policy. The government became directly involved in the economy, investing heavily in new highways, bridges, and railroads. Steel mills, petrochemical factories, hydroelectric power plants, and nuclear reactors were also built by large state-owned companies such as Eletrobras and Petrobras. Additionally, to reduce reliance on imported oil, the ethanol industry was heavily promoted. By 1980, 57% of Brazil’s exports were industrial goods compared to just 20% in 1968.

 

Energy Crises and Deceleration of Growth

As a result of this industrial growth and investment in infrastructure, Brazil became an urban society, with 67% of its population living in cities. Sao Paulo, in particular, grew quickly due to a population influx from the poorer countryside. However, to continue fueling its economic growth, Brazil needed more imported oil. In the early to mid-1970s, President Ernesto Geisel removed long-time Minister of Finance Netto and opened Brazil to oil prospecting by foreign firms for the first time since the 1950s, fending off nationalist objections. Although its growth and borrowing were sustainable during the early years of the Brazilian Miracle, the 1973 global oil crisis required the military government to borrow increasingly from international lenders to cover the rising costs of fuel, and the resultant debt became unmanageable. By the end of the decade, Brazil had the largest debt in the world at approximately US $92 billion.

Sao Paulo at Night

Sao Paulo at Night: The Itaim Bibi Financial District of Sao Paulo, Brazil, shot by Rodrigo Ono. 

As a result of the energy crises of the 1970s, Brazil experienced a 14-year period of hyperinflation from 1980 until 1994. During this time, the republic cycled through several short-lived currencies, including the cruzado, cruzado novo, cruzeiro, and cruzeiro real. In 1994, the Brazilian real was introduced and proved stable and enduring. Brazil also suffered drastic reductions in its terms of trade as a result of the 1973 oil crisis. In the early 1970s, the performance of the export sector was undermined by Brazil’s overvalued currency. With the trade balance under pressure, the oil shock led to a sharply increased import bill, raising import requirements and the already large current-account deficit.

Brazil shifted its foreign policy to meet its economic needs. Due to its reliance on foreign oil, Geisel shifted its strict alignment with the U.S. and its allies to a more pragmatic approach, including a more neutral stance on Middle Eastern political affairs. His government also recognized the People’s Republic of China and the new socialist governments of Angola and Mozambique, both former Portuguese colonies. The government moved closer to Japan and Latin American and European countries as well.

Attributions