Raphael Lima Rega
Mr. Ed McClelland
Dallas Baptist University
In the past years the importance of Brazil's economy has changed drastically, and now has become a big promise to the future; however, is that really going to happen? The dream of became a large in important economy in the future world's economy is really going tohappen? Is Brazil really ready for this big change? How the Brazil's economy is being prepared for it? This paper will discuss the challenges that Brazil has now and be ready for the future. Moreover, will introduce a few aspects of the Brazilian economy history that affected the way that Brazil deal with the own economy.
History of Brazilian Economic
To be able to understand why Brazil'seconomy is the way that it is and why Brazil reacts to economy events the way that reacts, it is necessary to know what events and facts happened in the Brazilian history that build and affected their economy.
The Brazilian history started way different that the other modern developed countries that were colonies. The difference is in the importance and function that the country had to Portugal.Brazil had an exploitation colonization, were the importance and function of the colony was to provide natural resources and crops that Portugal could not produce. Another important fact was that the cost of production should be lower, as well the investment. Furthermore, in the beginning of Brazil's history; Portugal was looking for to dominate the sugar market, one of the most lucrativecommodities at that time. That was the Portuguese's strategic until the end of the colonization; commodity over commodity, everything that was lucrative and Portugal could plant or extract it was did (Furtado). Then it was born the Brazilian Economy, an economy based in exporting commodities and importing goods and services, extremely dependent from external economies and investments, and a very weakinternal economy.
After the decolonization Brazil kept the same economics strategies, export commodities with reduced production and investment costs. Although, the country slowly was developing and acquiring more technologies and also the Brazilian people started to have more consumption power. Brazil was facing a new era in their economy, but every change in an economy comes with new challengesand problems. Because of the Brazilians started to accumulate more wealth, consequently, the started to spend more money. The results of this increase in consumption in an economy that was not prepared were long periods of inflation problems.
The Brazilian government was always known to only react to economic events, instead of predict them, and also to always apply policies to "fix" problemsin the short-run. Consequently, the inflation problem was not solved, but was only aggravated. During the 60's the Brazilian economy was facing three big problems; first the GDP were inferior to the population growth, second a lack of infrastructure, and third the country was struggling with huge inflation rates that were growing every year 33.3% in 1961, 54.8% in 1962, and 78% in 1963. Trying tosolve the inflation problem, the government of the president João Goular decided to restrict the foreign investment and capital claiming to protect the national business and industry; however, these restrictions caused a revolution led by the militaries that toke over the power (Garcia).
In this new phase of the Brazil's economy the militaries come up with a solution to solve all threeproblems at the same time. The country was operating bellow the potential GDP, and also had really small internal production resulting in bigger price levels (McEachern, 2009, pp 559). The propose solution was to come up with a supply shock, by using the automatic stabilizers concept. The government drastically increases the investments in infrastructure to solve the problem of lack of infrastructure....