Leading the Brics?

12 December 2016

Yet, Bra azil’s success in World T s Trade Organiz zation (WTO disputes concerning developed country agricu O) c d ultural subsid dies, use of WTO compu ulsory licens sing provision to break patents, and diplomatic ne ns d egotiations wi Iran had g ith generated ten nsions with the United Sta and the European Uni t ates E ion. Di ilma had to decide wheth to follow the internati d her ional policies associated w s with her two o-term prede ecessor, Lula, or to advance a new agenda.

During he inaugural s e er speech, Dilma started to outline n her am mbitions: “We will not make the slighte concession to protection policies in rich countri as e est n nist ies, they repress the op r pportunity for developing countries to o r overcome poverty. ” To pu ursue this plan, she had to either push for develop h ped countries to reduce a s agricultural s subsidies and open marke by d ets completing the Do round of global trade talks or contin to fight tr oha g t nue rade disputes through the WTO s settlem ment process a route th Brazil ha recently pursued wit success ag s, hat ad th gainst U. S. c cotton subsid dies.

Leading the Brics? Essay Example

Should Brazil take a leading role in mult r tilateral nego otiations on trade and g global gover rnance? Did th country of a visionar new appro he ffer ry oach to global leadership? Do omestically, Dilma set an ambitious ag D a genda for grow wth, declarin “It is nece ng, essary to guar rantee price stability and continue el d liminating th obstacles t he that inhibit t the dynamism of the Bra m azilian econo omy. ” Goldm Sachs exp man pected the BR RICs to be am mong the five largest econo omies in the w world by 2030, forecastin a growth rate of more than 5% per year for Braz Optimistic foreign investors ng r t zil. had tr ransferred mo than $30 billion in portfolio investm ore b ment to Brazil in 2010 alon However, Brazil l ne. faced significant obstacles to growth, includ o g ding rising in nflation, high interest rate an apprec h es, ciating excha ange rate, po oor infrastru ucture, excess sive bureauc cracy, and p persistent crim Could D me. Dilma overcome these ch hallenges, whi Lula also had pledged to fix in his in ich h naugural speeches in early 2003 y and 2007? Was Bra the countr of the futu as investo hoped, or was its recen economic su azil ry ure, ors nt uccess part of a boom-bus cycle in com o st mmodities?

To order copies or request permission to reproduce materials, call 1-800-5 ght nt H T n 545-7685, write Ha arvard Business School Publishing, Bo oston, MA 02163, or go to www. hbsp o p. harvard. edu/edu ucators. This publica ation may not be d digitized, photoco opied, or otherwise reproduced, poste or transmitted, without the permis ed, w ssion of Harvard Bu usiness School. Purchased by YAQIAO LI ([email protected] com) on October 15, 2012 711-024 Brazil: Leading the BRICs? Brazil in the World Economy Colonized by the Portuguese in the 16th century, Brazil initially exported lumber and gold (Exhibit 1).

Additional exports came from sugar, tobacco, and eventually coffee farmed on large plantations using indigenous peoples and slaves brought from Africa. 2 After Napoleon’s troops invaded Portugal in 1807, crown prince Joao VI escaped to Rio de Janeiro with his court. In 1822, one year after Joao VI returned to Europe, his son Pedro I declared Brazil an independent country. Brazil then established trade relations with northern Europe, the United States, and Latin America even as its economy remained largely based on exporting commodities. A republican government was established after a relatively peaceful rebellion in 1889. Its leaders went on to create a cartel controlling international coffee supplies. Profits from exports, however, were concentrated in the hands of elite landowners. Even after the abolition of slavery in 1888, black, indigenous, and mixed-race migrants from the north suffered from a lack of opportunities and access to land and ended up settling in slums called favelas, most notoriously in Rio de Janeiro.

In 1930, a former republican official, Getulio Vargas, overthrew the regime and by 1937 gave himself dictatorial powers. He then put in place an import substituting industrialization (ISI) development strategy, with high tariffs to protect domestic producers and exchange rate controls to keep the currency stable. Vargas and his successors established a significant role for the state in the Brazilian economy. State-owned enterprises expanded, notably into oil (Petrobras) and mining (Vale), and Vargas created a national development bank to provide subsidized loans for long-term infrastructure projects.

However, restrictive labor-market policies made it costly for firms to hire or fire workers, and new businesses often operated outside the formal economy. Despite proindustrialization policies, Brazil remained dependent on agricultural exports. When international coffee prices dropped in the early 1950s, the country experienced a significant balance-of-payments crisis. The ensuing stabilization program, passed under International Monetary Fund (IMF) pressure, undermined support for Vargas, who took his own life in a climate of political unrest.

Juscelino Kubitschek, elected in 1955, continued policies of state-run industrialization, with extensive government spending on infrastructure, including building the new capital, Brasilia. Aggressive growth fueled import consumption and worsened Brazil’s balance-of-payments, while government debt ballooned. Inflation jumped from 25% in 1960 to more than 100% in 1964. 4 In 1964, a military coup supported by right-wing groups continued Brazil’s ISI growth strategy but opened the country to foreign direct investment and introduced radical measures to control inflation.

Reforms mandated domestic savings, liberalized financial markets, and provided subsidized loans to domestic industries. The reforms were later called the “Brazilian miracle” because an expansion in manufacturing and services generated GDP growth averaging more than 10% annually. However, the military government also eliminated political parties and kidnapped and tortured political dissidents. For example, Luis Inacio Lula da Silva (Lula), who later became a leader in the Partido dos Trabalhadores (Workers’ Party) and eventually president, was incarcerated for protesting the military regime.

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