Background Information

Brazil is a country located in Latin America and covers more almost a half of South America. The country borders every country in the region except Chile and Ecuador. A federal system of government is applied, with the three aims of the government including the executive, judiciary, and the legislature 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 after that, democratic governance is practiced with the president elected by the citizen for form the government. Currently, Brazil is 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, the balance of trade is currently 11.2%, 9.32%, 14.25%, and $6, 437millio respectively. The indicators particularly the favorable balance of trade makes the economy considerably string.

The capital city of the country is Brasilia, while the largest cities include Sao Paulo, Rio de Janeiro, Salvador, and Recife. According to the 2010 Census, the population comprises of 47.7% were white and 43.1% were 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 official language of the country is the Portuguese borrowed from the colonial masters. Other languages used in business include English and Spanish. Catholic traditions are largely practiced, but religious freedom is highly upheld. Traditional beliefs are recognized as part of religion. The focus of this paper is on the economic matters of the country and in particular the key indicators, international trade, and international finance.

The Key Economic Indicator

The key economic indicators to evaluate the performance of the economy include the GDP, the GDP per capita, 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. The GDP declined for the three years 2012, 2013, and 2014, but stilled remained higher than it was 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 $5969.68, the average since 1960 until 2014 was 3831.59 USD, and the all-time high was in 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.

The unemployment rate

GDP per Capita

International Trade

International trade is a point of interest to countries across the world because of the role it plays the economic development levels. Trade, in this case, takes place through the importation and exportation of goods and services among the trading economies.  The partners are usually interested in reducing the imbalance where more importation than exportation takes place. More of the exports are preferred because it 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. The top five export partners to the country include China, United States, Argentina, Netherlands, and Japan in that sequence. The export volume from the five countries was $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 industrials machinery. The volume of the exports in 2014 was $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 exported include soybeans and related soya products, transport equipment and parts, oil and oil products, meat, iron ore chemical products and metal products. the percentage of the totals export of the commodities are estimated  at 15%, 10%, 9%, 8%, 7%, 7% and 7%  respectively. 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, 16% is which constitute of exported services.

The quality of the exports can be evaluated through the proportion of the total amount of the 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 is a decline and a negative indicator. Nevertheless, this could imply that the economy is increasingly driven by the local demand for goods and services.

Table on percentage of exports to GDP

Graph on trends on exports in Brazil from 2006 to 2016

Imports of goods and services are a significant undertaking because it assists an economy to acquire what the local systems have not been able to produce. The purchasing of goods and services from the foreign market is less preferred because it involves the outflow of resources. According to Trading Economies (2016), the key relevant into the 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 of 47%, 14%, 22%, 13%, 9% and 9% of the total import respectively. 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 regarding their percentage of the GDP in the respective years. A high of the rate would imply that the country relies heavily on the importation of goods and services to satisfy internal needs. The outcome would indicate a deficiency regarding internal production mechanisms. According to World Bank, the percentage of imports to GPD was 34.1% in 2006, which increased over the years to 51.9% in 2009 since when it declined to 13.9% in 2014. The trend in the recent years implies that the economy is likely moving 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. Brazil makes use of 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, result to the purchase of the locally produced commodities and services. In the bid to enhance the restriction, the government as rose 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 significant trade policy reforms (WTO, 2016). Traditional, the state had applied a protective approach to trade to support internal development and utilization of local resources. The landmark reforms were reported in 2000 when more open trade and investment regimes were adopted (WTO, 2000). As a result, the trading policies adopted are more market oriented, decentralized control, and the end of state monopoly and price control. WTO is, therefore, a key player in advising Brazil on the trade policies which as fair to its internal affairs and attractive to trading partners. Been a member of WTO gives the country the opportunity to file disputes when aggrieved by trading partners. Currently, Brazil has filed disputes to WTO against Indonesia and Thailand (WTO, 2016).

International Finance

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 for Brazil was $13,621,476,250 in 2006, which declined to across the years to -$103,597,152,727 in 2014 (World Bank, 2016a). The decline implies 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 has growth 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 from the capital outflow from local investors to foreign economies. A country with a favorable economic status attracts more of the external capital than the investment made by the residents in other countries. A positive foreign direct investment is therefore preferred. Countries strive to attract FDI so as to assist in the exploitation of local resources, spur economic growth, and create employment. 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 trend shown by Brazil in this aspect implies that the confidence of foreign investors to the country has been consistently positive. The growth in FDI from $19,378,093,068 in 2006 to 96,895,162,916 in 2014 is such a positive indicators of stability and suitability of the economy. The table below shows a consistent growth in the net FDI from 2006 to 2014.

Monetary System, IMF and 2008 Crisis

Brazil’s monetary system is liberalized in that private banks play a critical role in the financial sector. The monetary and fiscal systems are controlled by the central bank of the current. The currency used in the economy is called the real and is tagged to the US Dollar a fixed rate set by the central bank (Thyberg, 2016). The aim is to caution the economy against the spillover from foreign arising crisis. The use of ATMs and credit cards is highly popular in the country. Brazil is an affiliate of IMF; it (the country) receives monetary assists, financial review, and policy assistance (Thyberg, 2016). Concerning the crisis experienced in across the world, Brazil is one of the countries whose economies were less affected. The countries GDP declined slightly between 2008 and 2009 but moved back to the growing state. The reasons for the stability would have been because of two factors. First, the internal systems in the production of goods and services remained stable due to adequate raw materials and labor. Been an export-oriented country, the capacity developed within remained steady due to little reliance on foreign assistance. Secondly, the government applies a controlled exchange rate system and hence the changes in the financial sectors in other countries would not easily spillover. The cost of production to the manufacturers and the price of goods remained relatively stable.

In recap, it is evident from the discussion that the management of economic performance in terms and international trade and finance is not an easy task. The economies in the modern world are largely interconnected and leading to possibilities of the flow of crisis from one country to the other. Brazil is one of the developing economies whose economic strength is considerably commendable. The South American economy has had a continuous growth 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 IMF are the likely factor to drive Brazil into a world economic powerhouse.

References

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

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