Accounting

Brazil: Embracing Globalization?

Brazil, at first glance, appears to be a country filled with opportunities to become a global economic powerhouse. With its vast acreage, large population, and array of natural resources, many economists have predicted that Brazil will develop into a force in the world economy. Despite the natural advantages that Brazil possesses, the country has failed to sustain long-term growth and stable economic climates, stemming from an array of strategies and partnerships that have defined this country’s global status.

Brazil’s economic struggles began from within its own borders. Significant changes in the political arena ultimately equated to major shifts in the economic and social well-being of the country as a whole. Before the Great Depression in the 1930’s, Brazil’s primary export, coffee, represented over 70% of the country’s total export portfolio. As the Depression hit, the price of coffee plunged, export dollars dropped by 60%, and Brazil was forced to take the first of many actions to fix their economic state.

Brazil reacted to the coffee crisis by promoting domestic manufacturing, imposing exchange controls, and devaluing the currency. This strategy succeeded in the short-term (7% year over year economic growth) and made Brazil less vulnerable to external events, but ultimately failed due to increased inflation and decreased foreign investment dollars. These factors, coupled with inefficient industrial operations, contributed to balance of payment problems for Brazil which led to economic stagnation and, eventually, an overthrow of the government.

A militant government was imposed to build a stronger economic structure and to stabilize the social environment of the country. To address the balance of payments problems that the previous strategy had overlooked, the regime once again devalued Brazil’s currency in hopes of attracting foreign capital. This placed heavy emphasis on enhancing initiatives in the...