BUSINESS ESSENTIALS - TRADE Brazil Nuts
In the period between 1995 and 1998, Brazil’s
exports totalled US$ 198.3 billion, reaching a record level
of US$ 53 billion in 1997. In turn, during the same period,
the accumulated import total reached US$ 222 billion, also achieving
its maximum level in 1997: US$ 61.4 billion.
The accumulated commercial deficit of
US$ 23.7 billion in the four years, began to show signs of reversal
in 1998. Estimates of the commercial balance for 1999, after
the exchange rate regime became more flexible in January, followed
by a devaluation of the Real with relation to the American dollar,
vary between 2 and 6 billion dollars. With such exchange rate
alterations, it is expected that the recent commercial deficits
cycle, during which the export increase was surpassed by the
import growth, has come to an end.
Between 1980 and 1998, Brazilian foreign
trade was made up of different phases with relation to its volume
and profile, during which there was growing international integration.
During the 1980s, the foreign debt crisis led to a policy of
raising the industrial and economic export coefficients as a
whole, whilst imports were kept at low levels. In turn, during
the first half of the 1990s, there was a sharp climb in the
imports coefficient.
Within the development of Brazil's foreign
trade, in spite of the growth in exports during the 1990-97
period, with a slight drop in 1998, the significant positive
credit balance suffered a reduction as from 1992 and showed
improvement in 1995.
This trend in relation to export and
import largely reflected the guidelines adopted during the period
by trade and exchange rate policies as well as by other economic
policy mechanisms affecting overseas trade. During most of the
1980s, trade surpluses took precedence as a result of the problems
with the foreign debt, leading to efforts to ensure that exchange
rates did not lag behind in relation to inflation. At the same
time, protectionist policies - both tariff and non-tariff -
were retained from the industrialisation period.
During the 1990s the opening up of the
economy resulted in increased imports. The renegotiation of
the foreign debt and a new and intense inflow of short-term
capital removed the trade mega-surpluses from the agenda of
priorities of those formulating economic policy. As from mid
1994, the exchange rate base instituted by the Real Plan played
an important part, forcing down the price of tradable goods.
Many of the economists considers that
an important exchange rate valuation, in real terms, has taken
place at the beginning of the exchange rate base operation.
The consequent explosion in Brazilian imports in 1995, as well
as the exchange rate crisis in Mexico at the end of 1994 (a
system that until then had been considered as a model of stability
based on the in-flow of short-term capital and exchange rate
appreciation) provoked a debate on the sustainability of the
exchange rate and trade policy in force at the time.
On the one hand, there were economists
who regarded the exchange rate and trade policy and the economic
growth as being incompatible. Forced to keep interest rates
at an extremely high level in order to keep the economy and
imports at a low level and/or to continue attracting capital,
the Government was presiding over an unsustainable expansion
of the net public sector debt. This grew from US$ 153 billion
at the end of 1994 to US$ 211 billion in December 1995 and interest
charges jumped from 3.8% of GDP in 1994 to 5.4% in 1995. Interest
charges became explosive, being added to other budget items
with tendency to growing deficits (particularly social security).
In December 1998, the net external debt of the National Treasury
(excluding the internal movables debt with the Central Bank)
reached US$ 360 billion.
On the other hand, other specialists
in the sector argued that structural reforms to reduce the the
Brazil cost and lower local interest rates would be sufficient
to maintain the balance of payments at an acceptable level,
without the need to make major modifications to exchange rates
or to the commercial policy currently in force at that time.
Besides, after the Mexican crisis, the exchange rate regime
had become partially flexible with the introduction of exchange
bands and with the previous announcement of gradual exchange
rate devaluation (from 5% to 7% annually). The Asiatic financial
crisis in 1997, followed by Russia’s moratorium in mid
1998 and by contaminating effects of the latter, altered the
exchange rate regime more rapidly until it became completely
flexible, by provoking an important capital exodus between August
and December, 1998.
Total import and export flows between
1980 and 1998 also went through major changes in their composition.
Basic products (iron ore, soy bran, soy beans, coffee beans,
leaf tobacco, chicken, unrefined sugar, beef, etc.) comprising
42% of the export tariff in 1980, accounted for only 25.4% in
1998. Manufactured goods (automotive, orange juice, piston engines,
pumps and compressors, tyres, instant coffee, paper, engines
and generators, refined sugar, cigarettes, furniture, chemical
products, iron and steel laminates, textiles and footwear, etc.)
went from 45% to 57.5% during the same period. In turn, semi
manufactured goods (cellulose, iron and steel products, unrefined
aluminium, sugar crystal, unrefined soy oil, leather and fur,
pig-iron, iron alloy, gold for non-monetary use, aluminium alloy,
etc.), rose from 12% in 1980 to 15.9% in 1998.
With relation to imports, petroleum
fell back after peaking at US$ 10.6 billion in 1981 to US$ 2.6
billion in 1995. Imported fuel and lubricants totalled US$ 4.1
billion in 1998, receding with relation to the US$ 5.8 billion
of the previous year, partially resulting from the drop of their
international prices.
There was a remarkable increase in the
importation of metal-mechanical and electro-electronic products
during the 1990’s, corresponding to consumer durable and
capital goods. In 1998, external acquisition of automobiles
amounted to US$ 2.7 billion. Importation of capital goods totalled
US$ 16 billion in 1998, corresponding to 27.9% of the sector,
whereas external acquisition of durable consumer goods (excluding
automobiles) came to US$ 2.5 billion (4.4% of the sector). In
turn, raw materials and intermediary products comprise the largest
import group: US$ 26.7 billion in 1998, that is, 46.4% of imports
of the sector.
Nowadays the Brazilian economy presents
a general trade perspective in which on the exports side, manufactured
and semi-manufactured product lines using natural resources
and energy are expanding and becoming strongly competitive.
Dependence on basic products has been reduced but there is an
increasing specialisation, as a whole, in industrialised products
with a relatively simplified technological content and a small
aggregate value.
On the other hand, opening up of trade
has led to the adoption of rationalisation plans by Brazilian
companies, resulting in an increase in productivity expressed
in value ratios aggregated by worker employed. Specialisation
in product lines or production segments has resulted in leaner
and more competitive production. However, the coefficient of
imports has increased with components or raw materials with
a greater technological content, reinforcing the trend towards
specialisation shown in exports. The restrained investment in
fixed capital for the modernisation, expansion or construction
of new plants is reflected in the results of the opening up
of trade - in terms of employment, balance of payments and technological
content of the remaining production machinery - which has not
yet come anywhere near the required level.
The Brazilian export business has also
been developing in different ways according to international
economic regions. In each and every case, the trade pattern
has been accentuated or subdued. For example, the European Union,
Brazil’s largest regional customer, recently increased
their purchase of basic products (soy bran). In the United States,
footwear is individually the greatest Brazilian export, competing
with Asian suppliers (particularly China). Asia-Pacific and
Eastern Europe have become growing markets for soy oil, sugar
crystal, leather and fur as well as the more traditional orange
juice and semi manufactured iron and steel goods. In the case
of Mercosur (Argentina, Paraguay and Uruguay), Brazilian sales
of vehicles, parts and engines are prominent.
The table relating to Brazilian overseas
trade shows the development of overseas trade by region during
the 1990s. The growing importance of trade with Argentina may
be observed by looking at that country’s position in relation
to Brazilian exports and imports: Brazilian exports to Argentina
soared from US$ 645 million in 1990 to US$ 1.5 billion in 1998,
increasing from 2% of total exports at the beginning of the
decade to levels of around 13.2% in 1998; in turn, purchase
of Argentine products reached levels of around 13.9% of Brazilian
exports in the same year. Latin America and the Caribbean almost
doubled their share as a channel for Brazilian exports whilst
their sales in Brazil held up well in the period, following
the general trend for imports.
It should be noted that the recent growth
in imports has been particularly aimed at the United States
and Europe, whilst exports to those markets have decreased in
relative terms. Reduction in Brazilian trade protection aimed
at the local metal and mechanical industry and demand for imported
consumer durable goods have been responsible for that trend
in relation to imports.
Importance should also be attached to
trade with the developing countries of Asia: Brazilian exports
went up by 70% whilst imports soared by 400% between 1990 and
1994. The proportion of those Asian economies included within
the volume of Brazilian trade accounts for slightly more than
10% in 1994 but the expansion rate indicates its likely significance
in the future, with renewed growth in the region after the financial
crisis. In 1998, during the course of the Asiatic crisis, Brazilian
exports to the region corresponded to 6.7% of the total, while
9.7% of imports were originated in that region.
A close analysis of Brazil’s foreign
trade reveals the country’s increasing integration in
world market circuits. The latter offer opportunities and challenges:
on the one hand they provide opportunities to expand the production
of goods for export, as well as the acquisition of equipment
and technology for technological renewal; on the other hand
they offer serious competitive challenges and in several cases,
discourage local production.
The final balance between stimulation
and restriction offered by trade in connection with economic
growth will depend on the response in terms of private local
investment and consequently on the greater or lesser capacity
demonstrated by macroeconomic policies and industrial policy
to maximise the taking up of opportunities offered by overseas
trade.
