Cornerstone Global Associates



Posted by: simona on: January 12, 2013

Simona Ross, Cornerstone

Brazil’s economy highlights the interconnectedness of the world we live in today.  In the late 1990s, globalization was already so far advanced that events on the other side of the world have wide-ranging implications for a single country.  In the case of Brazil, it was the Asian financial crisis of 1998 that had a trickle down effect and brought the Brazilian economy into turmoil.  On the other hand, Brazil also benefited from a more globalized world. The creation of the regional trade agreement ‘Mercosur’ granted Brazil greater access to its numerous neighboring countries, and helped the country achieve vast regional economic growth.  Brazil gained from its strong trade ties to the United States, Canada, Europe, Russia and China. Still, Brazil faced trade barriers that were targeting goods where the country had a comparative advantage.  Given that Brazil’s main export has been coffee, it was strongly dependent on global coffee prices and had a limited capacity to cope with an economic shock that was induced by a sudden fall in coffee prices.  One of Brazil biggest obstacles was its gigantic amount of foreign debt, which absorbed a great share of Brazils income.  Brazil’s objective to repay its debts led to policies that were primarily focused on an increase in GDP and disregarded the needs of its large, poor population, and failed to protect the environment and indigenous traditions.  The country’s political environment further hindered economic growth.  Resistance from Congress made necessary reform difficult and resulted in fruitless economic policies and a lacking social security system.  As an outcome of this, Brazil is marked with bad fiscal health.

In my opinion, the article failed to address the environmental consequences of Brazil’s rapid economic growth. As an attempt to repay its debts, Brazil sold huge areas of the Amazon to either use the rainforest for wood and arable land or to extract aluminum from the river, which led to an increased amount of toxins in the drinking water.  Furthermore, little background was given on the ongoing violence in Latin America, which makes the region less attractive for foreign direct investment.

Nonetheless, Brazil has great potential to achieve continuous rapid economic growth and can fulfill its mandate as a member of the BRIC nations.  Brazil’s large territory played a significant role in developing its strength in various economic sectors.  With proper investment in human capital, Brazil could profit from its large and immensely diverse population.  Brazil should take advantage of its rising income and lower internal inequality, and aim to broadly educate its people.  Efficient education can be achieved through following the model of the Mexican ‘Oportunidades’ program.  A largely educated population, improved infrastructure, stable currency, and lower taxes, are crucial factors which attract foreign direct investment.  I would recommend Brazil to further take advantage of its unique location by strengthening its relationships with its ten neighboring countries and the United States.  To ensure reduced trade barriers and better working conditions, Brazil and other developing countries have to claim stronger representation within the World Trade Organization.  Brazil is on track towards a prosperous economic future although there are still various obstacles that the country has yet to overcome.