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8/3/2019 Brazil's Economic Final
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BRAZILS ECONOMICBRAZILS ECONOMIC
TURNAROUNDTURNAROUND
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BRAZIL ECONOMY Defined as a middle income economy with a strong
sense of nationhood.
Sixth largest economy by Nominal GDP.
Eighth largest economy by Purchasing Power Parity.
Expected to be Fifth largest economy in decades to
come.
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COMPARISON WITH USAComparison with United States of America.
Both Countries similar in terms of Size, Talented
Manpower and Abundant Natural Resources.
USA has emerged as a Economic Superpower, Brazil
has struggled.
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THE YESTER YEARS
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1968 - 1973
Between 1968 to 1973 the growth of GDP jumped to11.1%
Leading sectors were Consumer Durables, Transportation
and Basic Equipment.
Amazon basin provided Hydro Power and Timber.
Industrial Sector experienced not only Growth but alsoModernization.
Value of imports rose to US $ 4.4 billion.
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1970sCountry suffered drastic reductions in trade during
1973 Oil Shock.
This led to sharply higher import bill.
Countries foreign debt was US $ 54 Billion in 1980.
Government adopted development plan to increase selfsufficiency , expansion of economic infrastructure and
promote trade.
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1985 ONWARDSReform process started in Fiscal Sector.
To control Inflation and restore public sectors capacity
to invest.
Rise in CPI had escalated from 86.3% to 2485%
annually.
Plan was soon in trouble owing to large wage
adjustments, increasing aggregate demand and
inflationary pressures.
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CARDOSO AND LULA
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F
ERNANDO CARDOSOPrivatization program was launched.
Landmark lowering of Inflation from 31.2% in 1994 to
7.2% in 1997.
Major reforms in executive branch such as Tax System
and Social Security.
Rise in debt from 30% to 55.5% of GDP.
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LULA DA SILVAPresided over the country during a period of
significant Economic Crisis.
Pressed ahead with Social and Economic Reforms
Fastened countries growth through Financial Markets
and targeted Social Groups.
Exports were encouraged and new Trade Alliances
were formed.
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Renewing all agreements with IMF.
Achieved budget surplus in first two years.
In late 2005 Government paid off debt to IMF.
Risk indexes fell to around 250 points.
Country became net Creditor in 2008.
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COUNTRYS ECONOMIC WOES
In Oct2002govtdebtwas$250bn,around56% ofBrazilsGDP
Largerpartwasshorttermdebt
$82bnwasforeigncurrencydenominateddebt(tiedtoshort
terminterestratesorrealinterestrates)
PressureonBrazilianfirmstorepayloansindollars($96 bn
foreigncurrencydebt)
91% ofexportearningswasusedtoserviceforeigncurrency
debt
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CONTD..
Mismanagementoffinances
15% ofGDPonsocialprogrammes
Morethan5% ofGDPonpensionfunds($19 bndeficit)
Reasoncitedwaslabourlaws(retirement
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CONTD
Lackofinvestmentininfrastructuredevelopmenthadcreated
bottleneckfordev
Brazilhad 1.5mn kmofroadsofwhichonly 11% werepaved
req investmentof15bnreasis
Electricitywasanotherlackingarea
Ithadelectricityonlytill2008,req investmentof20 mn reasis
Povertydueunequalincomedistribution
Assaults,crime,corruption(20-30% ofpublicspending)were
rampant
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TURNAROUND MEASURES
Lulasworkerspartyleftorientedandopposedtoliberal
globalization
Once
in
power
,accepted
IMF
guidelines
Accepted$30 billionloan
Increaseddomesticfundfrom 3.75to4.25%
Topprioritytocontroldebtandreduceinflation
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Measurestaken
reducesocialsecuritydeficit
Rewritingtaxcode
Relaxinglabour laws
Empoweringthecentralbank
Setagrowthratetargetof3.5%
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Butdebtwasgrowing,lulasgovttightenedthebudgetbeyondIMFspecs
Federalspendingreduced
Govtemployeeswerelaidoff
Fewministrieswereshutdown
Armedforcesprocurementlawswerechanged
Allgovtpurchaseweremadeonlinetoreducecosts
Minimumwageincreasedby 8%
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Pensionreformswerealsopushedthrough
Worldbankproposalwasaccepted
Retirementageswereraisedforbothmenandwomen
Taxstructurechangedfromcascadetovalueaddedstructure
Proposalswerealsofloatedtogivecentralbanksfull
autonomy
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Contd..
Governmentrealizedthatforeconomicgrowthprivate
investmentsarenecessary
FDInormsmodified
Banonimportsofhardwareandsoftwarehadbeenremoved
TheFreeTrade ZoneinManausandstateslikeBahiaand
Pernambuco wereencouraging
industriesbyofferingthem 10 yearstax - holidays
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LulafoundedtheG20 grouptoopenfarmtrade
In2003,Brazilexportedtransportequipmentironore,soyabeans,footwear,coffee,autosworth$73.08billion
WiththefalloutoftheUSmarketsduetorecession,Brazilfoundatradingpartnerin China
TheothermajortradingpartnersincludedUS(22.4%),Germany(5.1%),
TheNetherlands(4.4%),Mexico(4.2%)andArgentina(4.1%)
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ThetotalexportstoIndiain2003 werevaluedat$550 million
BrazilwasalsolobbyingforapermanentseatinUNSecurity CouncilandFTAA
Thegovernmentundertookmajorreformstoincreasepubliccontroloverjudiciary
Bymid-2004,economicgrowthhadbeenvisible
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Future Challenges
Dependenceonforeignfunds.
ProjectingBrazilastheasafeinvestment
destination.
Inflationandunemployment. Reformprocessinjudiciaryandlaborlaws.
Taxationrelatedissuesbetweenthefederaland
stategovernment. AssociationwithFATAA(Free Trade Area of the
Americas )
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BRAZILS GOVERNMENT DEBT (1983-2003)
Particular 1983 1993 2002 2003
External Debt & Resource
Flows
(US$millions)
Totaldebtoutstandingand
disbursed
98,525 1,44,104 2,28,662 2,36,245
IBRD 3,628 6,575 8,585 8,588
IDA 0 0 0 0
TotalDebt Service 13,304 10,883 51,636 56,793
IBRD 507 1858 1518 2010
IDA 0 0 0 0
Compositionofnet
resourceflows
Officialgrants 16 59 0 -
Official Creditors 1576 -1033 916 -
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Contd..
Private Creditors 2659 10073 -9541 233
Foreign Directinvestment 1609 1292 0 -
World BankProgram
Commitments 2067 636 1276 1217
Disbursements 1204 471 1384 1291
PrincipalRepayments 270 1279 1063 1633
NetFlows 934 -808 322 -342
InterestPayments 237 579 456 377
NetTransfers 698 -1387 -134 -719
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CENTRAL GOVERNMENTS TAX REVENUES
AS % OFGDP FOR SOME COUNTRIES (2001)
0
5
10
15
20
25
Brazil Southkorea Thailand Mexico Argentina India
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BRAZILS INVESTMENTS & GROWTH (1983-2003)
Particular 1983 1993 2002 2003
STRUCTUREofTheECONOMY
(% ofGDP)
Agriculture 10.9 7.6 5.8 5.8
Industry 44.0 41.6 20.6 19.1
Manufacturing 33.2 25.0 12.4 11.4
Services 45.1 50.8 73.5 75.1
Imports ofgoodsandservices 9.0 9.1 13.4 13.1
1983-93 1993-03 2002 2003
(averageannualgrowth)
Agriculture 2.4 3.9 5.0 5.5
Industry 1.2 1.8 2.6 -1.0
Manufacturing 0.0 1.4 1.4 2.7
Services 3.0 2.5 1.6 -0.2
Imports ofgoodsandservices 5.9 4.0 -12.3 -1.9
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FEWFACTS ABOUT LUIZ INACIO LULAFDA
SILVA
Luiz inacio lula da silva isfromtheleftwingworkerspartybutwoos
foreigncapitalassiduously
Wasametalworkerwhostudiedonlytillprimaryschoolandisa
skillednegotiator
Isanexperttacticianwhohasgotthebackingofcentristpartieson
criticalreforms
HasstraightenedoutBrazilsprecariousfinancesandearnedrare
praisefromtheIMF
BelievesthefuturelieswithcountrieslikeIndia,BrazilandSouth
Africa
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ANALYSISANALYSIS
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BACKGROUND & PRE-REQUISITES
AllthetimeindepthduetoloansfromForeign Countries & IMF.
Thiswasmajorconstrain,whichcreatedabottleneckintheinfrastructuresector.
-Roads
-Industries-Ports
WaitingforaMessiah,Governmentincontrolduring Cardosoaswellas Lulahandicapped.
PensionPlans,TaxStructure,MonetaryPolicies,FiscalPolicies,Exchangeratemechanism,Tradenotmanagedinarequired
method & everytimetheyhadatradeoff. Corruption, Law, Crime & unabletofullfillpromiseswerefewBE &
CGconcerns,alongwiththereformsundertakenbytheGovernmentinpar.
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Financesofthecompanyweremismanaged.
Pension @100% ofthesalary,retirementagelimit50 years.
Unorganizedsectorforwork. HighTaxStructure TaxEvasion.
Bottleneck lackofinvestmentinInfra
HighDebtService & PayBack Lionsshareof
Govt- FedRevenues. UnequaldistributionofIncome
Law & OrderalongwithIncreasein Crime.
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CONCEPTS COVERED
3 branchesofEthics:-
Meta-ethics
NormativeEthics
AppliedEthics
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META-ETHICS
In philosophy, meta-ethics isthebranchof ethics thatseeksto
understandthenatureofethical properties,statements,
attitudes,andjudgments.
Accordingto RichardGarner and BernardRosen, therethree
generalquestions:
Whatis
the
meaning
of
moral
terms
or
judgments?
Whatisthenatureofmoraljudgments?
Howmaymoraljudgmentsbesupportedordefended?
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NORMATIVE ETHICS
Itisthebranchof philosophical ethics thatinvestigatestheset
ofquestionsthatarisewhenconsideringhowoneoughtto
act,morallyspeaking.
Itexaminesstandardsfortherightnessandwrongnessof
actions
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NORMATIVE ETHICAL THEORIES
VirtueEthics focusesontheinherentcharacterofaperson & not
specificactions.
Deontology - decisionsshouldbemadeconsideringthefactorsofone's
dutiesandother'srights
Consequentialism - moralityofanactioniscontingentontheaction's
outcome
Pragmaticethics - moralcorrectnessevolvesoverthecourseofmany
lifetimes
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APPLIED ETHICS
Itisatermusedtodescribeattemptstouse
philosophicalmethodstoidentifythemorallycorrect
courseofactioninvariousfieldsofhumanlife.
Forexample:-
Bioethics (euthanasiaisethicalornot)
Businessethics (thedutyof'whistleblowers'tothe
generalpublicasopposedtotheiremployers)
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REAL LIFE EXAMPLE:COMPARISIONWITH INDIA
Country Brazil India
Capital Braslia NewDelhi
Inflation(CPI) 6.97% 9.39%
Population 190,755,799 (5th) 1,210,193,422 (2nd)
GDP (PPP) $2.5trillion $4.47 trillion
GDP (Nominal) $2.3 trillion (7th) $1.88 trillion (9th)
GDP Growth Rate 7.5% 8.5%
Education(2011)
90% ofAdult
Population
74.04% ofAdult
Population
Received FDI (2009) 12th 22nd
Foreign Exchange Reserves (2011) 6th 7th
Exports (2010) 22nd 17th
Imports (2010) 20th 11th
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PROBLEMS/DILEMMAS
HugeDebts
InfrastructureDevelopmentandElectricity
PensionFundsTaxStructureandExpenditureofTaxes
Poverty
CorruptionJudiciary: Law & OrderSituation
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ALTERNATIVE OUTCOMES
InvestmentinInfrastructure & Education
ReductioninExpenditure
StricterPensionRules
Re-definingTax Laws
EncouragingFDI
ImportandExport
Outsourcing
TieupwithNations
BetterJudicialsystem
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INDIAN CONTEXT
INDIA BRAZIL
PublicdebttoGDPRatio 43.7419 57.5282
ExternaldebttoGDP
Ratio
23.3439 20.1689
5-yearsplanisthemainbackbonefortheIndianeconomy.
InIndiainfrastructureandindustrialdevelopmentaretheprioritysectors
ininvestments.
TaxratesarecomparativelylowertoBrazilthatwhichattractscompanies
establishinIndia.IndiaisnotmuchdependentontheFDIsforthebasicdevelopments.
Indiaisrichintermsofskilledandknowledgelabours,mineralsand
resources.
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INDIAN CONTEXT
SimilaritiesbetweenIndiaandBrazil:-
Similarpoliciesbetween 1950-1980 (ImportSubstitution,trade
barriers,etc.)
Startedtheirliberalizationprocessatapproximatelythesame
time(early 1990s)
Cardosos bosolo escolaprogrammethebaseofIndianGovt.sfreeschoollunchprogramme
Gainingimportanceontheworldstage.
Poverty:Accordingto 1998 Statistics,22% ofthepopulationwas
belowpovertylineinbrazil.
Corruption:Thiswasdevouring20-30% ofpublicspendingin
brazil.
Similareconomicfundamentalsexceptforbudgetsurplus.
Capitalinflow:HotMoney
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Problems:-
Highinflationrates:Higherfiscalburden & exposureto
commoditybasedindustries.
Infrastructure
:Poor
interconnectivity
between
town
villages & city.
SocialandEconomicinequality:50% ofpooraccounted
for 10% ofgdp inbrazil.
Rigidlabourlaws
Lackofpoliticalwill
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ButIndiadiffersdueto:-
5-yearsplansarethemainbackbonefortheIndian
economicdevelopment
Taxratesarecomparativelylower andmoresimplified
thanBrazilthatwhichattractscompaniesestablishinIndia
Astrongdomesticmarket
Indiaisrichintermsofcheapandskilledlabour
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=Basicinfrastructure
=Economicreformation
=Availabilityofmarket
=Securitization
= Labour wagesmanagement.
ConclusionConclusion
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ThankYou