This article aims to demonstrate that the stagflation that affects the Brazilian economy will only be overcome with the end of Brazil's dependence on imports of inputs, components and products whose rising prices are mainly responsible for the increase in inflation in the country. The term stagflation comes from the combination of the words “stagnation” and “inflation”. In Brazil, high inflation and the stagnation of economic activity characterize this situation well. Brazil's general economic activity is too weak to be the main driver of pressures on domestic prices and generate inflation. In Brazil, inflation is not due to internal demand but to costs because it is being caused by shocks in the global supply of inputs, components and imported products whose prices interfere with domestic prices in Brazil. The lack of control of inflation in Brazil today is basically the result of the strong presence in the Brazilian economy of foreign companies that are closely linked to global suppliers linked to them of inputs, components and products whose price inflation is transferred to the Brazilian domestic market. This situation calls into question the logic of trying to control inflation by raising interest rates, which would only apply in an economy without external interference, which is not the case in the Brazilian economy. All of this leads to the conclusion that, not only will inflation not be controlled, but also the Brazilian government will not be able to promote the country's economic and social development without overcoming its economic and technological dependence on the outside world.

1. 1
HOW TO COMBAT STAGFLATION IN BRAZIL
Fernando Alcoforado*
This article aims to demonstrate that the stagflation that affects the Brazilian economy
will only be overcome with the end of Brazil's dependence on imports of inputs,
components and products that are mainly responsible for the increase in inflation in the
country. According to a report by the Institute of International Finance (IIF) released on
April 19, 2022, Brazil and other emerging countries are experiencing a process of
stagflation. The term stagflation comes from the combination of the words “stagnation”
and “inflation”. Basically, this occurs when a country experiences an accelerated rise in
prices in the midst of a drop in economic activity, as is the case in Brazil. In Brazil, high
inflation and the stagnation of economic activity characterize this situation well. Brazil
faces the phenomenon of stagflation that occurs when there is an accelerated rise in prices
in the midst of a drop in economic activity. The combination of rising inflation, a
slowdown in economic activity and rising unemployment is extremely worrying for
Brazil's economy.
The IIF report points out that the Brazilian economy had not recovered from previous
recessions, when the pandemic and more recently the war between Russia and Ukraine
occurred, which caused an insufficiency or shock in the global supply of inputs,
components and products, causing an imbalance in the production chains which were
reflected in the increase in prices in general. Global supply shocks boosted inflation in
several emerging countries like Brazil. Based on this report, it can be stated that the high
inflation rates in Brazil result from external factors with the drop in the supply of inputs,
components and imported products and not from factors internal to the Brazilian
economy. Recently, after a lack of imported parts and a drop in sales, Brazilian
automakers paralyzed their production and gave collective vacations to their workers. The
slowdown in economic activity, high inflation and high interest rates in Brazil are
frustrating the expectations of the automobile sector and leading companies to adjust their
production plans.
Brazil's general economic activity is too weak to be the main driver of pressures on
domestic prices and generate inflation. In Brazil, inflation is not due to internal demand
but to costs because it is being caused by shocks in the global supply of inputs,
components and imported products whose rising prices interfere with domestic prices in
Brazil. This means that inflation in Brazil is mainly caused by insufficient supply of
inputs, components and imported products on which the Brazilian economy depends. It
can be deduced from this fact that inflation is a consequence of imbalances caused by the
huge dependence of the Brazilian economy on foreign markets resulting from the
economic opening of the Brazilian market to imports since 1990, that is, with the insertion
of Brazil in the globalization process. In other words, the existing inflation in Brazil is a
consequence of Brazil's huge dependence on imported inputs, components and products.
This situation calls into question the policies that are commonly adopted by the Brazilian
government and the Central Bank of Brazil to fight stagflation because is much more
difficult to achieve for both to find the balance between their policies. If the Brazilian
government adopts developmental policies aimed at boosting the economy, increasing
the population's purchasing power and generating more jobs and the Central Bank reduces
interest rates to encourage economic activity, inflation can get out of control and, on the
other hand, if the Central Bank adopts policies to contain inflation by raising interest rates,
it could further slowdown the economy and generate more unemployment, as has been

2. 2
happening in Brazil, coming into contradiction with the development policy of the
Brazilian government.
This situation makes it impossible for the Brazilian government to promote the expansion
of the Brazilian economy and for the Central Bank to control inflation as currently occurs
between the Lula government and the Central Bank of Brazil because both have different
objectives. Brazil's external dependence on imports of inputs, components and imported
products whose prices have been increasing is the main cause of inflation in the country,
which can only be controlled with the Brazilian government breaking with this
dependence. To promote its development and control inflation, Brazil needs to overcome
its heavy dependence on inputs, components and imported products, whether in the
industrial, trade, services and financial sectors. The article Capital Estrangeiro no Brasil:
poder e controle sobre a riqueza in Capital estrangeiro no Brasil (Foreign capital in
Brazil: power and control over wealth in Foreign capital in Brazil) by Regina Camargos
et alli [1] informs that Brazil is enormously dependent on foreign capital, which has a
large participation in the Brazilian economy, whether in the industrial, trade and services.
Based on data from 2016 of the 200 largest economic groups, involving more than 5,000
companies, it is possible to have a basis for the presence of transnational foreign capital
in Brazil. The 200 groups add up to R$ 3.9 trillion in revenue, equivalent to 64% of GDP,
of which 27% come from foreign groups. When Petrobras, Bradesco, Itaú and Banco do
Brasil are removed, the participation of foreigners reaches 37%. Without the financial
sector, considering only the trade, industry and services sectors, the participation of
transnational groups is 36%. The Brazilian economy is transnationalized and is part of
the productive circuit of large transnational capital. In the industrial sector, transnational
companies account for 28% of revenue (37% without Petrobras) and are in dynamic
segments with the highest technological standards: transport material (vehicles and parts),
metallurgy, electronics, chemicals and food and beverages. They are at the heart of the
value chain in each segment. In the service sector, the participation of foreign capital
companies that acquired companies in the telecommunications and energy sectors has
been growing. These corporations are responsible for 44% of the sector's revenue (48%
without Telebras).
In the trade sector, transnationals focus on the commodities and large retailer segments,
central links of control in these chains. Within the groups, transnationals account for 47%
of revenues. Thus, the presence of large transnational corporations in the Brazilian
economy is clear. They occupy segments that are at the heart of value chains, allowing
them strategic control of production and marketing (back and forth) in each sector. This
fact guarantees them the appropriation of the value created in different links in the chain.
In the transport material segment, for example, automakers are in the control center of the
chain. It has the power to determine the prices of its suppliers and, therefore, appropriate
part of its profits through oligopsony power. It holds power over the forward chain, the
marketing and services of its dealers, also appropriating the value that would be added
there. Another example is the commodity chain. On one side are the large corporations
that control seeds and inputs; on the other, the big traders. The agricultural producer has
his profit margin squeezed between two giants that appropriate the value created by him.
Brazil's dependence on foreign countries in the financial sector is demonstrated in the
article A participação do capital estrangeiro no setor financeiro brasileiro in Capital
estrangeiro no Brasil (The participation of foreign capital in the Brazilian financial
sector in Foreign capital in Brazil) by Regina Camargos et alli [2]. According to recent
data from the Central Bank, foreign banks account for 14% of total assets and 31% of the

3. 3
balance of credit operations in the country's financial sector. In terms of participation in
credit, the current situation is a little better than in 2005 and even so because, since then,
there has been a vigorous expansion in the volume of credit operations in the country for
all financial institutions . In the years when the Brazilian economy grew the most – 2010
and 2011 –, the participation of foreign banks in total credit offered to society reached the
level of 40%, almost equal to that of public banks. As the economy slowed, participation
dropped to its current level of 31%.
Table 1 characterizes Brazil's great external dependence on imports of inputs for the
manufacturing industry.
Table 1- Brazil's external dependence on inputs
Source: https://portalclubedeengenharia.org.br/2019/03/07/cresce-dependencia-da-industria-de-alta-tecnologia-
por-importado/
Table 1 highlights the dependency of Brazilian industry on imports of more elaborate and
sophisticated inputs and components, as stated by Marta Watanabe in the article Growing
dependency of high technology industry on imports [3]. In the 2003/2004 biennium, the
share of imported inputs in relation to the total applied in Brazilian production was 16.5%,
a share that increased to 24.4% ten years later. The greatest advance was concentrated in

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the most technology-intensive sectors. While the import coefficient of low and medium-
low technology production increased from 10.8% to 13.6% in the period, that of high and
medium-high technology jumped more than twelve percentage points, from 26.3% to 38
.7%. The sectors that have very high coefficients of imported intermediate inputs are
information technology, electronics and optics, pharmaceuticals, other transport
equipment and chemistry. The information technology, electronics and optical sectors
have an extremely high import level. Several classes in this sector imported more than
70% of inputs and tradable components. A total of 60 industrial classes imported, in 2016,
at least a third of the inputs and components used in their production process. The group
represents less than a quarter of the total of 258 industrial classes existing in the country,
but includes 48 segments responsible for about two thirds of Brazilian industrial
production of high and medium-high technology.
Table 2 informs the economic segments in Brazil that most import inputs and
components.
Table 2- Economic segments in Brazil that most import inputs and components

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Source: https://portalclubedeengenharia.org.br/2019/03/07/cresce-dependencia-da-industria-de-alta-tecnologia-
por-importado/
Table 3 presents the 10 main products imported by Brazil in 2022.
Table 3- Products imported by Brazil in 2021
Products imported by Brazil
Value FOB
US$
1st Manures or fertilizers 24,7 billion
2nd
Fuel oils from petroleum or bituminous
minerals 12,1 billion
3rd
Other products - Transformation
industry 8,9 billion
4th
Medicines and pharmaceuticals, except
veterinary 7,3 billion
5th Thermionic valves and tubes 7,1 billion
6th Telecommunications equipment 7,0 billion
7th Motor vehicle parts and accessories 6,7 billion
8th Organic-inorganic compounds 5,9 billion
9th Natural gas 6,1 billion
10th Non-electric motors and machines 3,8 billion
Source: https://www.talura.io/blog/confira-o-top-10-produtos-mais-exportados-e-importados-pelo-brasil-
em-2022
The numbers shown in Tables 1, 2 and 3 show Brazil's great dependence on imported
inputs, components and products, which fundamentally results from the fact that a large
part of Brazil's production structure is made up of foreign companies connected with their
international suppliers. It is this situation of Brazil's dependence on inputs, components
and products imported from abroad, whose prices have been increasing, which explains
the inability of the Brazilian government to control inflation in recent years. It is a
herculean task for the Brazilian government to control inflation in Brazil due to the high
prices of inputs, components and imported products that occur outside the country.
Inflation control can only occur when the country's dependence on imports of inputs,
components and products with its production in Brazil is overcome.
Brazil is the 29th largest importing country in the world, according to data from the MDIC
(Ministry of Development, Industry and Foreign Trade) of the country. Table 4 presents
the Value of Imports from Brazil from 2016 to 2019.
Table 4- Value of Imports from Brazil from 2016 to 2019
Year Amount Imported by Brazil in US$

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2016 137.6 billion
2017 150.7 billion
2018 181.2 billion
2019 177.3 billion
From the above, it is evident that, in order to control inflation in Brazil, it is necessary for
the Brazilian government to exercise price control on imports of inputs, components and
imported products and promote its domestic production by adopting the import
substitution policy. This solution will take a long time until overcoming Brazil's
dependence on imported inputs, components and products has the desired effects. One
fact is indisputable: Brazil will not control inflation or promote its development without
putting an end to dependence on imports of inputs, components and products imported
from abroad. However, overcoming dependency cannot happen abruptly because it would
lead to the collapse of its economic structure, which is deeply dependent on the outside
world. This is a stalemate of gigantic proportions. In view of this fact, overcoming the
country's dependence on foreign countries must occur gradually, planned and sustainably
over time, with the adoption of import substitution policies and the strengthening of
national industry, scientific and technological research centers and of public and private
universities to promote the substitution of imported inputs, components and products in
order to ensure national self-sufficiency, and, consequently, the economic and social
development of Brazil [4].
Everything that has just been exposed makes it clear that controlling inflation cannot be
limited to the search for balance in government accounts and the adoption of adequate
basic interest rates for the economy (Selic), which is being the subject of extensive
discussion today in the Brazil. The lack of control over inflation in Brazil today results
fundamentally from the very strong presence in the Brazilian economy of foreign
companies that are closely linked to global suppliers linked to them of inputs, components
and products whose inflation in their prices is transferred to the Brazilian domestic
market. This situation calls into question the logic of trying to control inflation by raising
interest rates, which would only apply in an economy without external interference, which
is not the case in the Brazilian economy. All of this leads to the conclusion that, not only
will inflation not be controlled, but also the Brazilian government will not be able to
promote the country's economic and social development without overcoming its
economic and technological dependence on the outside world.
REFERENCES
[1]. CAMARGOS, Regina; BRESSER-PEREIRA; SAWAYA, Rubens; STUDART,
Rogerio; CAMPOS, Pedro Henrique; FUSER, Igor; METRI, Paulo e FÓRUM
POPULAR DO ORÇAMENTO. Capital Estrangeiro no Brasil: poder e controle
sobre a riqueza in Capital estrangeiro no Brasil. Available on the website
<https://www.corecon-
rj.org.br/anexos/E6C63BBDDAB6A3E26D95630A862E4FB0.pdf>.
[2]. CAMARGOS, Regina; BRESSER-PEREIRA; SAWAYA, Rubens; STUDART,
Rogerio; CAMPOS, Pedro Henrique; FUSER, Igor; METRI, Paulo e FÓRUM
POPULAR DO ORÇAMENTO. A participação do capital estrangeiro no setor

7. 7
financeiro brasileiro in Capital estrangeiro no Brasil. Available on the website
<https://www.corecon-
rj.org.br/anexos/E6C63BBDDAB6A3E26D95630A862E4FB0.pdf>.
[3] Watanabe, Marta. Crescedependência da indústriade alta tecnologia porimportado.
Available on the website <https://portalclubedeengenharia.org.br/2019/03/07/cresce-
dependencia-da-industria-de-alta-tecnologia-por-importado/>, 2019.
[4] ALCOFORADO, Fernando. A dependência do Brasil em relação ao exterior e
como superá-la. Available on the websites <https://www.slideshare.net/Faga1939/a-
dependncia-do-brasil-em-relao-ao-exterior-e-como-superlapdf?next_slideshow=true>
and <https://www.youtube.com/watch?v=dvUiHvZWpSY>.
* Fernando Alcoforado, awarded the medal of Engineering Merit of the CONFEA / CREA System, member
of the Bahia Academy of Education, of the SBPC- Brazilian Society for the Progress of Science and of
IPB- Polytechnic Institute of Bahia, engineer and doctor in Territorial Planning and Regional Development
from the University of Barcelona, college professor (Engineering, Economy and Administration) and
consultant in the areas of strategic planning, business planning, regional planning, urban planning and
energy systems, was Advisor to the Vice President of Engineering and Technology at LIGHT S.A. Electric
power distribution company from Rio de Janeiro, Strategic Planning Coordinator of CEPED- Bahia
Research and Development Center, Undersecretary of Energy of the State of Bahia, Secretary of Planning
of Salvador, is the author of the books Globalização (Editora Nobel, São Paulo, 1997), De Collor a FHC-
O Brasil e a Nova (Des)ordem Mundial (Editora Nobel, São Paulo, 1998), Um Projeto para o Brasil
(Editora Nobel, São Paulo, 2000), Os condicionantes do desenvolvimento do Estado da Bahia (Tese de
doutorado. Universidade de Barcelona,http://www.tesisenred.net/handle/10803/1944, 2003), Globalização
e Desenvolvimento (Editora Nobel, São Paulo, 2006), Bahia- Desenvolvimento do Século XVI ao Século
XX e Objetivos Estratégicos na Era Contemporânea (EGBA, Salvador, 2008), The Necessary Conditions
of the Economic and Social Development- The Case of the State of Bahia (VDM Verlag Dr. Müller
Aktiengesellschaft & Co. KG, Saarbrücken, Germany, 2010), Aquecimento Global e Catástrofe Planetária
(Viena- Editora e Gráfica, Santa Cruz do Rio Pardo, São Paulo, 2010), Amazônia Sustentável- Para o
progresso do Brasil e combate ao aquecimento global (Viena- Editora e Gráfica, Santa Cruz do Rio Pardo,
São Paulo, 2011), Os Fatores Condicionantes do Desenvolvimento Econômico e Social (Editora CRV,
Curitiba, 2012), Energia no Mundo e no Brasil- Energia e Mudança Climática Catastrófica no Século XXI
(Editora CRV, Curitiba, 2015), As Grandes Revoluções Científicas, Econômicas e Sociais que Mudaram o
Mundo (Editora CRV, Curitiba, 2016), A Invenção de um novo Brasil (Editora CRV, Curitiba,
2017), Esquerda x Direita e a sua convergência (Associação Baiana de Imprensa, Salvador, 2018), Como
inventar o futuro para mudar o mundo (Editora CRV, Curitiba, 2019), A humanidade ameaçada e as
estratégias para sua sobrevivência (Editora Dialética, São Paulo, 2021), A escalada da ciência e da
tecnologia e sua contribuição ao progresso e à sobrevivência da humanidade (Editora CRV, Curitiba,
2022), a chapter in the book Flood Handbook (CRC Press, Boca Raton, Florida United States, 2022) and
How to protect human beings from threats to their existence and avoid the extinction of humanity (Generis
Publishing, Europe, Republic of Moldova, Chișinău, 2023).