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In the
International
Spotlight
Brazil
After three centuries under the rule of Portugal, Brazil markets because it creates uncertainty and reminds business
became an independent nation in 1822. By far the largest of previous transitions that have been disruptive.
and most populous country in South America, Brazil has Brazil’s economy rebounded sharply from the global
overcome more than a half century of military intervention economic recession in 2009, with GDP growth of 5.5 per-
in the governance of the country to pursue industrial and cent expected in 2010. According to The Economist, Brazil
agricultural growth and the development of the interior. is likely to become the world’s fifth largest economy, over-
After crafting a fiscal adjustment program and pledg- taking Britain and France before 2025. Brazil’s progress in
ing progress on structural reform, Brazil received a $41.5 fighting poverty has been one of the most impressive of any
billion IMF-led international support program in November developing country. Brazil boasts a number of world class
1998. In January 1999, the Brazilian Central Bank companies, including Embraer, the global leader in short-
announced that the real would no longer be pegged to the and mid-range jet aircraft. In addition, Brazil will be host
U.S. dollar. The consequent devaluation helped moderate to the World Cup soccer match in 2014 and Rio will host
the downturn in economic growth in 1999, and the coun- the summer Olympic games in 2016. Substantial infrastruc-
try posted moderate GDP growth in 2000. Economic ture investment is expected in advance of these two events.
growth slowed considerably in 2001–2003—to less than Brazil announced in early 2007 the discovery of the Tupi
2 percent—because of a slowdown in major markets and and Carioca oil fields off the coast of Rio de Janeiro. The
the hiking of interest rates by the Central Bank to combat oil reserves in these fields are conservatively estimated at
inflationary pressures. President Luiz Inácio Lula da Silva, between 30 billion and 80 billion barrels, which would put
who took office on January 1, 2003, gave high priority to Brazil in the top ten countries in the world by reserves. In
reforming the complex tax code, trimming the overblown May of 2010, Brazil announced another large discovery in
civil service pension system, and continuing the fight the Santos Basin. Output from the existing Campos Basin
against inflation. By exploiting vast natural resources and and the discovery of the new fields could make Brazil a
a large labor pool, Brazil is today South America’s lead- significant oil exporter by 2015. Brazil’s national oil com-
ing economic power and a regional bellwether as it con- pany, Petrobras, is one of the largest in the world. The gov-
tinues toward a free-market society. ernment has created a new state-owned company called
After winning a landslide victory in 2002 on a campaign Petrosal to manage licensing in the new fields. This new
to revamp the economy and battle for the poor, President company will award some exploration and production rights
Lula da Silva reassured worried investors when he contin- straight to Petrobras without options for foreign firms. Also,
ued his predecessor’s plan of strict financial austerity. by mandate, it will award over half of the shallow-water
Instead of catching the jitters as predicted, the country’s contracts to locally owned Oil Service Companies (LOSCs).
bond and stock markets enjoyed stellar returns in 2003 and In deeper and more challenging waters beyond the capacity
are still going strong. But within a year, pressure was of local companies, foreign companies will be invited to bid.
mounting on Lula da Silva to keep true to his populist Those pledging to incorporate Brazilian “content” would be
roots. After riding a wave of popular support through his more likely to succeed. Higher taxes and fees are expected
first year, Lula da Silva faced some criticism from within as well. Nonetheless, this sector is likely to create substan-
his own Workers’ Party and governing coalition as well as tial new opportunities for foreign firms in Brazil.
from ordinary voters. Lula has also gained a reputation for
Questions
being thin-skinned when it comes to criticism; he expelled
a foreign journalist critical of his policies. Although Lula’s 1. In your opinion, is there still political uncertainty in
popularity dipped through this period, da Silva was reelected Brazil?
in 2006, and received more votes than any other Brazilian 2. What strategy would be the most useful to compa-
elected president. During his second term, Brazil continued nies interested in Brazilian investment?
its progress in modernization and da Silva’s support gained 3. Considering the economic and political environ-
steam again. In 2010, da Silva entered the final year of his ment, what types of companies would benefit the
second four-year term as one of the most popular Brazilian most by expanding operations to Brazil?
politicians of all time. But in Latin America, any change in 4. How should BellSouth, AES, and other companies
leadership is always met with nervousness from financial address concerns about government policies in Brazil?
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