A Real Problem: Brazil's Currency Depreciation and Inflation

The economy of Brazil is in the top ten largest economies along with the United States. It is the biggest in Latin America. Actually it is the seventh largest in the world. Brazil has used its newly found economic mechanism to syndicate its outcome in South America and show more of a role in the Global Businesses. The Obama Administration’s National Security Strategy recognizes Brazil as a developing center of effect, and greets the management of the country’s joint and global issues. The United States and Brazil associations mostly have been good in the recent years. But Brazil has other strengthening relations with neighboring countries and expanding ties with nontraditional partners in the South that’s developing.

There are only a few ways to increase production, which include hire more workers, increase hours, buy more equipment, and take advantage of technology to produce more. The government must form a way that the economy doesn’t grow too slow or fast so they can prevent disastrous events. The importance of modern currency lies in its purchasing power. Inflation signals the rising prices, but the way to think about it isn’t like that, but that the currency’s purchasing power decreases. With hyperinflation, fixed loans are impossible because nobody wants to risk it when the money can potentially become worthless. With moderate inflation, it can destroy wealth if it isn’t managed properly. Inflation is good for those who owe debt, but bad for those who lend money. Inflation may be bad, but deflation is worse. Prices fall because the economy is broken, but now the economy is broken because the prices have fallen.

The impacts of globalisation have dramatically reduced Brazil’s rates of inflation in the past two decades. The inflation rate in Brazil averaged 390.85% from 1980 until 2014; however, the competitive pressure brought forth by globalisation as well as the associated increase in efficiency and output has served to keep inflation rates low in recent years. The current inflation rate is 6.59% in Consumer Price Index. However, Brazil’s reliance on FDI inflows has resulted in the elevation of inflation rates by 4.5% following the Argentinean Economic Crisis, which saw the depreciation of import prices.

However, the economy recovered rapidly during 1968 to 1973 with averaging over 10 percent per annum. The GDP also increased at a rate above 5 percent per annum between 1974 and 1980, except for 1978 (see Exhibit 2). However, Brazil had incurred an extremely high level of indebtedness due to the support of this massive development program. The high interest rates on dollar funds and the unwillingness of foreign lenders to advance additional loans caused a deep economic recession in Brazil. Interest rates directly affect the credit market (loans) because higher interest rates make borrowing more costly. As a result, Brazilian government who aimed to balance the payment had to ask the International Monetary Fund (IMF) for funds.

For More than two decades Brazil suffered badly from high inflation, economic decline, domestic and foreign debt. In 1993 country’s Inflation reached 30 percent a month and as a result the country wouldn’t sustain growth. After many unsuccessful plans to control the inflation, finally Real Plan of Fernando Henrique Cardoso, minister of finance, worked out and brought the inflation down to a single digit.

This task request will be focussed on providing input for the development of Inflation Working Paper (WP) currently in draft phase. The recent version of the WP is attached for your reference purpose only.

There are two ways the economy can be assisted in growing and sustaining itself. First through fiscal policy from the national governments help of changing taxes and spending, then Monetary policy, the managing of money. The two are supposed to work together to help create a better economy but, at times fall short. Leaders in the government for the most part have a top priority to stay in their position, with that in mind they tend to give the people the immediate satisfaction they want which is increased spending and reduced taxes. With this approach fiscal policy is considered expansionary, restrictive monetary policy is what is needed to stop inflation to counteract this.

Brazil’s industrial sector is diversified, from agriculture to manufacturing. Agriculture is a main economic activity in the country and involves farming and herding. Being the 5thn largest country in the world there is enough land for farming and keeping livestock. Farming gives Brazil the ability to be the greatest exporter of sugarcane, coffee, tropical fruits, soya beans, and cotton, tobacco and forest products (Bekaert 2010).

Brazil, located in South America, is the fifth largest country for both for the land size and the population. With a country taking up almost half of a continent, the 200 million people only occupy about ten percent of the entire country. Twenty-two percent of the population is under the age of 15.9 There are three main cities; the first is the capital Brasilia, with a population of over two million. The other two cities are San Paulo and Rio de Janeiro; accounting for over 15 million of the people. Throughout Brazil, a majority of the population speaks Portuguese and are generally Christian-based, following the Catholic faith. The currency is called the Brazilian Real (BRL). The BRL is equivalent to about $0.3 United States dollar.

Brazil is thought to be one of the fastest growing economies in the Americas. On the world’s stage Brazil is currently the third largest agricultural producing country. The country produces roughly 150 million tons of grains and oilseeds; and thirteen million tons of meat annually.

Brazil has been said to be one the of the most beautiful and pleasant places on Earth, but with the secrets hiding behind their closed doors, will they even last long enough in their dying nation to see the success that tourists do? Brazil is on the path to collapse because they are unable to survive as a nation on their own. According to CNN, “⅓ of Brazilian Southerners vaguely favor some form of secession.” Brazil has a weak central government, they don’t pay much regard to the tremendous financial crisis and debt, and one of their most beautiful locations is on the verge of moribund. Citizens of Brazil have paradoxically been reported to feel “alienated” because their own government seems disinterested in public affairs and do not directly address them.

NE Brazil has long lagged behind the rest of the country in terms of technology and income. However, economic reforms instituted by Finance Minister Cardoso has seen the

The primary question that Brazil faces as it moves into the 21st century is whether the Brazilian style of capitalism, which harnessed their economy towards growth as a developing economy, is sufficient to drive them as a developed country. Averaging 3.8% GDP growth over the last decade, this transition seems inevitable; Brazil has shifted from an agricultural giant to a country in which 90% of the population works in the industrial and service sectors. However, as they make this conversion, they must examine their economic policies to ensure that they are still applicable and advantageous. For example, Brazil must keep promoting their industrial policies. Brazil may fall back into a commodity-driven economy if raw

The BOP of Brazil (exhibit 5) shows that since 2000 the country was constantly a net exporter until 2014. The profile of its exports consists mainly of raw materials such as crude oil, iron, raw sugar, soybeans, etc. The collapse of commodities prices (exhibit 9) in the middle of 2014 reduced the ability of Brazil’s economy to end 2014 with a positive current account. The fall of oil prices also strongly contributed to that and Brazilian economy finished 2014 with a deficit in the Balance of goods of nearly $ 4 billion. Brazil’s GDP as expected finished 2014 with just 0.1% growth, announcing that tough times would follow.

Inflation is blazing subject that delays the economic development of the country. It is becoming extra hectic to economists, politicians and even people also. Factors on both demand and supply effect the inflation. So the stabilization strategies ought to consequently focus on both demand manipulation as well as