Brazil - Industry

Industry

After 1987 problems that had confronted industry earlier in the decade intensified, adverse macroeconomic conditions persisted, and political troubles affected expectations adversely. Until the end of the 1980s, industry relied heavily on government protection and favors, but it also faced pervasive regulations and extensive governmental interference. These factors had a deleterious effect on industrial investment and on the productivity of several industrial subsectors, increasingly blunting the competitive edge they had struggled to achieve in the world market. Moreover, as a result of the fiscal crisis, the government was hard-pressed to continue to provide support and subsidies for industry and to maintain and expand the country's infrastructure.

The Collor de Mello administration, inaugurated in 1990, introduced significant changes in Brazil's economic strategy. Regarding industry, the government implemented measures to eliminate regulations, to liberalize trade, and to markedly reduce governmental favors and subsidies. It also announced a series of actions aimed at increasing industry's competitiveness. Despite these efforts, political and macroeconomic difficulties prevented the effective implementation of the new strategy, and the mounting fiscal crisis dampened efforts to rebuild and improve the badly deteriorated infrastructure. Therefore, an important part of the industrial sector failed to recover and to modernize. With stagnation, the domestic market could not give industry a dynamic push. Moreover, the reduction in investment, coupled with the deteriorating infrastructure, led to declines in competitiveness. These developments, together with fewer import barriers, caused industry's balance of trade to decline, from a peak of US$16.3 billion in 1988 to US$11.1 billion in 1991. In the early 1990s, despite sectoral weaknesses, the industrial sector became a major contributor to the country's exports and trade surplus.

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