Brazil The Economy the 1981 84 Period

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Brazil - The Economy the 1981 84 Period

By the mid-1980s, domestic debt nearly displaced foreign debt as Brazil's main economic problem. During the high-growth 1970s, a significant portion of foreign borrowing had been by state enterprises, which were the main actors in the import-substitution industrialization strategy. Initially, they borrowed to finance their investments. However, toward the end of the decade, with the acute shortage of foreign exchange, the government forced state enterprises to borrow unnecessarily, increasing their indebtedness markedly. Their situation worsened with the sharp rise in international interest rates in the late 1970s, the devaluations of the austerity program, and the decreasing real prices of goods and services provided by the public enterprises stemming from price controls. Because the state enterprises were not allowed to go bankrupt, their debt burden was transferred gradually to the government, further increasing the public debt. This, and a growing disorganization of the public sector, transformed the public debt into a major economic problem. By the mid-1980s, the financial burden stemming from the debt was contributing decisively to its rapid expansion.

The austerity program imposed by the International Monetary Fund in late 1979 continued until 1984, but substantial trade surpluses were obtained only from 1983 on, largely as a delayed result of the import-substitution industrialization programs of the 1970s and the reduction in imports brought about by economic decline. The austerity program enabled Brazil to meet interest payments on the debt, but at the price of economic decline and increasing inflation.

Inflation accelerated as a result of a combination of factors: the exchange-rate devaluations of the austerity program, a growing public deficit, and an increasing indexation of financial balances, wages, and other values for inflation. The first two factors are classical causes of inflation; the last became an important mechanism for propagating inflation and in preventing the usual instruments of inflation control from operating.

More about the Economy of Brazil.

The 1981-84 period

In 1979 a second oil shock nearly doubled the price of imported oil to Brazil and lowered the terms of trade further. The rise in world interest rates increased sharply Brazil's balance of payments problem and the size of the foreign debt. Nevertheless, the government continued borrowing, mainly to face an increasing debt burden, while it tried vainly to maintain the high-growth strategy. At the beginning of the 1980s, however, the foreign-debt problem became acute, leading to the introduction of a program to generate growing trade surpluses in order to service the foreign debt. The program was achieved by reducing growth and, with it, imports, and by expanding exports. As a result, in 1981 real GDP declined by 4.4 percent. The 1982 Mexican debt crisis ended Brazil's access to international financial markets, increasing the pressure for economic adjustment.

 
You can read more regarding this subject on the following websites:

Brazil Economy The 1981-89 Period, The 80's Cruzado Plan
Brazil Economy The 1990-94 Period, The 90's - Florida Brasil
Brazil The 1981-84 Period - Flags, Maps, Economy, History
Joe Dolce - Shaddap You Face (1981 Music Video) | #84
Wheat: three seeding time at Paranapanema. state of São


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