Brazil is a country located in Latin America and covers almost a half of South America. The country borders every country on the continent except Chile and Ecuador. A federal system of country is applied with the three arms of the government, including the executive, judiciary, and the legislature bodies, that have been separate and independent from each other. It was colonized by the Portuguese and got its independence in September 1822. Having experienced decades of military rule, democratic governance is practiced with the president elected by the citizens who form the government. Brazil has the strongest economy in the region and is regarded as among the future economic powers in the world. According to Trading Economic (2016), the unemployment rate, inflation rate, interest rate, and the balance of trade are currently 11.2%, 9.32%, 14.25%, and $6, 437million respectively. The indicators, particularly the favorable balance of trade, make the economy considerably strong.
The country’s capital city is Brasilia, while the largest cities include Sao Paulo, Rio de Janeiro, Salvador, and Recife. According to the 2010 Census, the population comprises 47.7% of whites and 43.1% of ethnic origins, the black were 7.6%, and 1.6% were associated with the other minority ethnic groups,, including Indians, Arabs, and Japanese. The country’s official language is Portuguese, borrowed from the colonial masters. Other languages used in official business include English and Spanish. Catholic traditions are largely practiced, but religious freedom is highly upheld. In addition, traditional beliefs are recognized as part of religion. The economic matters of Brazil, in particular, the key indicators, international trade, and international finance,, are to analyzed in order to shed light on the economic model of the progressive Latin country .
The Key Economic Indicators
The key economic indicators to evaluate the performance of the economy include the GDP, the GDP per capita, balance of payment, and the unemployment rate. The GDP in Brazil was as low as 15.17 USD Billion in 1960 but improved to its all-time high of 2615.19 USD Billion in 2011. The indicator recorded a continuous growth from 2002 to 2011. However, it declined for the years 2012, 2013, and 2014 but remained higher than in 2010. The unemployment rate is currently at 11.2%, which is all time high since 2012; the lowest over the same period was 6.2 percent in December 2013. The GPD per capital, as reported in 2014, was at $5,969.68, the average since 1960 until 2014 was 3,831.59 USD, and the all-time high was 6010.79 USD in 2013. Nevertheless, according to Transparency International (2016) the country’s corruption perception level is 38/100, which is below average but still relatively high.
International trade is a point of interest to countries across the world because of the role it plays in the economic development. Trade, in this case, takes place through the importation and exportation of goods and services among the trading partners. The associates are usually interested in reducing the imbalance, when there is more of the importation than exportation. More of the exports are preferred because such tendency implies that huge amount of foreign income is reported as oppose to excessive importation leading to considerably massive outflow from the economy.
The total exports from Brazil to the rest of the world in 2014 were $225,098,405,233. Indeed, the top five export partners of the country include China, United States, Argentina, Netherlands, and Japan in that sequence. Notably, the export volumes from the five countries were $40,616,107,929; $27,144,925,429; $14,281, 998,035; $13,035,583,965; and $6,718,600,696 respectively (GlobalEDGE, 2014). The leading exported goods include ores, oil seeds, oil & mineral fuels, meat, and industrial machinery. The volumes of the exports in 2014 were $28,402,213,499; $23,500,131,993; $20,650,307,555; $15,417,190,828; and $12,727,864,227 respectively (GlobalEDGE, 2014). In 2006, the exports were about $8,500 and was all time high at $26,158.51 USD Million in August of 2011. According to Trading Economic (2016), some of the specific products to be exported include soybeans and related soya products, transport equipment and parts, oil and oil products, meat, iron, ore, chemical products and metal products. Therefore, the percentage of the total export of the commodities is estimated at 15%, 10%, 9%, 8%, 7%, 7%, and 7% correspondingly. It is further indicated that 46% of the exports is made up the shipment of raw materials and the manufactured goods at 38%. The remaining percentage of 16% is what constitutes of exported services.
The quality of the exports can be evaluated through the proportion of the total GDP in the particular year. A higher percentage of the export to GPD is preferred because it implies that a significant portion of what is produced locally is sold to external markets to bring in foreign income. In 2006, the percentage was 14.4% and 11.2% in 2014, which showed a decline and a negative indicator. Nevertheless, such fluctuations could demonstrate that the local demand for goods and services increasingly drives the economy.
Table on Percentage of Exports to GDP
Graph on trends in exports in Brazil from 2006 to 2016
In fact, importing goods and services is a significant undertaking because it assists an economy in acquiring what the local systems have not been able to supply. Purchasing goods and services from the foreign market is less preferred as it involves the outflow of financial resources. Trading Economies (2016) states that the key import goods into Brazil include raw material and intermediate products, chemical products, capital goods, fuels and lubricants, durable consumer goods, and non-durable consumer goods. The products constitute about 47%, 14%, 22%, 13%, 9%, and 9% of the total import. Noteworthy, the top five importer partners include China (18%), the United States (15%), Germany and Argentina (6%), and South Korea (3%).
The quality of the imports can be evaluated taking into account their percentage of the GDP in the respective years. A high rate would imply that the country relies heavily on importing goods and services to satisfy internal needs. Moreover, the outcome would indicate a deficiency regarding internal production mechanisms. According to World Bank (2016), the percentage of imports to GPD was 34.1% in 2006, which increased over the years to 51.9% in 2009 but declined to 13.9% in 2014. Ultimately, the trend in the recent years implies that the economy is likely to move towards the maturity with the local production systems enhanced significantly.
Table on the Percentage of Exports to GDP
Countries try to apply strategies to restrict international trade to favorable levels using tariff rates and quotas. In fact, Brazil uses tariffs to limit the importation of goods and services. According to World Bank (2016), the tariffs are used to make the products from other countries expensive and unaffordable to the locals, thus resulting in the enhanced purchase of the locally produced commodities and services. In the bid to enrich the restriction, the government raised the tariff charged from 6.7% in 2006 to 7.8 in 2014.
Brazil has been a member of WTO since 1995. Since joining the organization, the country has made several significant trade policy reforms (WTO, 2016). Traditionally, the state applied a protective approach to trade to support internal development and utilization of local resources. In addition, the landmark reforms were reported in 2000 when more open trade and investment regimes were adopted (WTO, 2000). As a result, the designed trading policies are more market oriented, decentralized control, and the end of state monopolies and price control. Therefore, the WTO is a key player in advising Brazil on trade policies that are fair to its internal affairs and attractive to trading partners. Being a member of WTO gives the country the opportunity to solve disputes when it is aggrieved or cheated by trading partners. Brazil has recently filed disputes against Indonesia and Thailand (WTO, 2016).
Components of Balance of Payment (BoP)
The two fundamental elements in the BoP are the current and capital accounts. The current accounts refer to the difference in the export and import of goods and services. The current account in Brazil was $13,621,476,250 in 2006, which declined to -$103,597,152,727 in 2014 (World Bank, 2016a). In essence, the decline demonstrates that the net income from international trade and transfers have declined over the years, which can be a negative trend. On the other hand, the capital account, which shows the difference between the value of capital outflows and inflows grew tremendously from $ 64,966,000 in 2006 to $231,478,557 in 2014 (World Bank, 2016b).
Foreign Direct Investment
Country’s net foreign direct investment flow refers to the difference between the capital inflows from foreign investors and the capital outflow from local investors to foreign economies. Noteworthy, a country with a favorable economic status attracts more of the external capital than the investment made by the residents in other countries. As such, a positive foreign direct investment is therefore preferred. Countries strive to attract FDI to assist in exploiting local resources, spurring economic growth, and creating employment opportunities. An economy whose domestic market is favorable regarding the cost of running a business and the ready market can attract FDI (Heritage Foundation, 2016). The favorable economic environment shown by Brazil in this aspect implies that the confidence of foreign investors in the country has been consistently positive. For instance, the growth in FDI from $19,378,093,068 in 2006 to 96,895,162,916 in 2014 was quite a positive gauge of stability and suitability of the economy.
Monetary System, IMF and 2008 Crisis
Brazil’s monetary system is liberalized in that private banks play a critical role in the financial sector. Additionally, the dominance and monopoly by the state in the industry has been eliminated considerably. It is worth noting that the central bank controls the monetary and fiscal systems. The national currency used in the economy is called the real and is tagged to the US Dollar through a fixed rate of exchange set by the central bank, though it is reviewed from time to time (Thyberg, 2016). The aim is to cushion the economy against the spillover from the rising economic crisis. The use of ATMs and credit cards is highly popular in the country. Brazil is an affiliate to the IMF as the country receives monetary aid, financial review, and policy assistance on the regular basis (Thyberg, 2016). Concerning the crisis experienced in across the world, Brazil is one of the countries whose economies have been less affected. Its GDP declined slightly between 2008 and 2009 but moved back to the growing state in 2010. Two factors would have explained the reasons for the stability. First, the internal systems in producing goods and services remained stable due to sufficient raw materials and labor. Being an export-oriented country, the development capacity remained steady due to under-reliance on foreign assistance. Secondly, the government applied a controlled exchange rate system; hence, the changes in the financial sectors in other countries would not easily spill over. As such, the cost of production to the manufacturers and the price of products remained relatively stable.
In recap, it is evident from the discussion that managing economic performance regarding international trade and finance is not easy. Especially the economies in the modern world are largely interconnected, thus leading to the possibility of the flow of crisis from one country to another. For instance, Brazil is one of the developing economies whose economic strength is considerably commendable. Moreover, the South American economy has continuously grown regarding infrastructure, population size, and democratization process. The increase in GDP, the capital account, FDI, and the positive international relations guided by credible organizations, including WTO, World Bank, and the IMF, will likely drive Brazil into the world of high economic profits.
GlobalEDGE (2014). Brazil: Trade Statistics. Available at: http://globaledge.msu.edu/countries/brazil/tradestats
Heritage Foundation (2016). Brazil. Available at: http://www.heritage.org/index/
The World Bank (2016a). Current account balance (BoP, current US$). Available at: http://data.worldbank.org/indicator/BN.CAB.XOKA.CD
Thyberg, D., (2016). Money & currency in Brazil. Available at: http://traveltips.usatoday.com/money-currency-brazil-16276.html
Trading Economic (2016). Brazil GDP. Available at: http://www.tradingeconomics.com/brazil/gdp
Transparency International (2016). Corruption by country / territory. Available at: http://www.transparency.org/country/#BRA
World Bank (2016b). Net capital account (BoP, current US$). Available at: http://data.worldbank.org/indicator/BN.TRF.KOGT.CD?page=1
WTO (2000). Brazil: November 2000. Available at: https://www.wto.org/english/tratop_e/tpr_e/tp140_e.htm
WTO (2016). Brazil and the WTO. Available at: https://www.wto.org/english/thewto_e/countries_e/brazil_e.htm