Brazil: Resilience in the Face of the Global Crisis
Figure 3.2. Growth, Inflation, Stabilization Plans, and Debt Crises, 1980–95
growth, % per year
4.0
external internal debt default debt default
8
3.5
6
3.0
4
2.5
2
2.0
0
1.5
inflation, log
10
1.0
–2 Cruzado I Bresser Collor I Verão Collor II Cruzado II
–4
0.5 0
19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 18 89 19 90 19 91 19 92 19 93 19 94 19 95
–6
Real
growth (left axis)
inflation (right axis)
Source: IBGE.
reforms; privatization; the overhaul of regulatory frameworks for privatized services; reform of both the private and state banking systems; and the elimination of price controls. These reforms led to a modest improvement in growth: from 1994 to 2002, average annual GDP growth increased to 2.7 percent—up from 2.1 percent in the previous decade—driven by rising domestic demand. With the strong increase in real income generated by the abrupt fall in inflation and the more stable economic environment, consumption—mainly private consumption—surged. It became the main driver of growth during this period, rising 20 percent (with private consumption growing 17.6 percent), and accounted for 85 percent of total growth. Following a rapid rise in the aftermath of price stabilization, investment made a modest contribution to growth, representing the remaining 15 percent (table 3.1, figure 3.3). The net contribution of the external sector to Brazil’s GDP growth was negligible, owing to a strong increase in imports coupled with modest export growth that resulted from the new fixed-exchange-rate regime. The external environment was nevertheless essential to the stabilization effort, as a larger supply of imports (and the appreciated exchange rate) helped keep prices under control. Imports tripled between 1994 and 1997, shifting a positive trade balance of US$20 billion into a deficit of similar magnitude by 1997. External conditions also allowed Brazil to finance its large trade and current account deficits via foreign direct
95