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Foreign trade

 

In the period between 1995 and 1998, Brazil’s exports totalled US$ 198.3 billion, reaching a record level of US$ 53 billion in 1997. In turn, during the same period, the accumulated import total reached US$ 222 billion, also achieving its maximum level in 1997: US$ 61.4 billion.

 

The accumulated commercial deficit of US$ 23.7 billion in the four years, began to show signs of reversal in 1998. Estimates of the commercial balance for 1999, after the exchange rate regime became more flexible in January, followed by a devaluation of the Real with relation to the American dollar, vary between 2 and 6 billion dollars. With such exchange rate alterations, it is expected that the recent commercial deficits cycle, during which the export increase was surpassed by the import growth, has come to an end.

Between 1980 and 1998, Brazilian foreign trade was made up of different phases with relation to its volume and profile, during which there was growing international integration. During the 1980s, the foreign debt crisis led to a policy of raising the industrial and economic export coefficients as a whole, whilst imports were kept at low levels. In turn, during the first half of the 1990s, there was a sharp climb in the imports coefficient.

Within the development of Brazil's foreign trade, in spite of the growth in exports during the 1990-97 period, with a slight drop in 1998, the significant positive credit balance suffered a reduction as from 1992 and showed improvement in 1995. This trend in relation to export and import largely reflected the guidelines adopted during the period by trade and exchange rate policies as well as by other economic policy mechanisms affecting overseas trade.

During most of the 1980s, trade surpluses took precedence as a result of the problems with the foreign debt, leading to efforts to ensure that exchange rates did not lag behind in relation to inflation. At the same time, protectionist policies - both tariff and non-tariff - were retained from the industrialisation period. During the 1990s the opening up of the economy resulted in increased imports. The renegotiation of the foreign debt and a new and intense inflow of short-term capital removed the trade mega-surpluses from the agenda of priorities of those formulating economic policy. As from mid 1994, the exchange rate base instituted by the Real Plan played an important part, forcing down the price of tradable goods.

Many of the economists considers that an important exchange rate valuation, in real terms, has taken place at the beginning of the exchange rate base operation. The consequent explosion in Brazilian imports in 1995, as well as the exchange rate crisis in Mexico at the end of 1994 (a system that until then had been considered as a model of stability based on the in-flow of short-term capital and exchange rate appreciation) provoked a debate on the sustainability of the exchange rate and trade policy in force at the time.

On the one hand, there were economists who regarded the exchange rate and trade policy and the economic growth as being incompatible. Forced to keep interest rates at an extremely high level in order to keep the economy and imports at a low level and/or to continue attracting capital, the Government was presiding over an unsustainable expansion of the net public sector debt. This grew from US$ 153 billion at the end of 1994 to US$ 211 billion in December 1995 and interest charges jumped from 3.8% of GDP in 1994 to 5.4% in 1995. Interest charges became explosive, being added to other budget items with tendency to growing deficits (particularly social security). In December 1998, the net external debt of the National Treasury (excluding the internal movables debt with the Central Bank) reached US$ 360 billion. On the other hand, other specialists in the sector argued that structural reforms to reduce the the Brazil cost and lower local interest rates would be sufficient to maintain the balance of payments at an acceptable level, without the need to make major modifications to exchange rates or to the commercial policy currently in force at that time. Besides, after the Mexican crisis, the exchange rate regime had become partially flexible with the introduction of exchange bands and with the previous announcement of gradual exchange rate devaluation (from 5% to 7% annually). The Asiatic financial crisis in 1997, followed by Russia’s moratorium in mid 1998 and by contaminating effects of the latter, altered the exchange rate regime more rapidly until it became completely flexible, by provoking an important capital exodus between August and December, 1998.

Total import and export flows between 1980 and 1998 also went through major changes in their composition. Basic products (iron ore, soy bran, soy beans, coffee beans, leaf tobacco, chicken, unrefined sugar, beef, etc.) comprising 42% of the export tariff in 1980, accounted for only 25.4% in 1998. Manufactured goods (automotive, orange juice, piston engines, pumps and compressors, tyres, instant coffee, paper, engines and generators, refined sugar, cigarettes, furniture, chemical products, iron and steel laminates, textiles and footwear, etc.) went from 45% to 57.5% during the same period. In turn, semi manufactured goods (cellulose, iron and steel products, unrefined aluminium, sugar crystal, unrefined soy oil, leather and fur, pig-iron, iron alloy, gold for non-monetary use, aluminium alloy, etc.), rose from 12% in 1980 to 15.9% in 1998. With relation to imports, petroleum fell back after peaking at US$ 10.6 billion in 1981 to US$ 2.6 billion in 1995. Imported fuel and lubricants totalled US$ 4.1 billion in 1998, receding with relation to the US$ 5.8 billion of the previous year, partially resulting from the drop of their international prices. There was a remarkable increase in the importation of metal-mechanical and electro-electronic products during the 1990’s, corresponding to consumer durable and capital goods. In 1998, external acquisition of automobiles amounted to US$ 2.7 billion. Importation of capital goods totalled US$ 16 billion in 1998, corresponding to 27.9% of the sector, whereas external acquisition of durable consumer goods (excluding automobiles) came to US$ 2.5 billion (4.4% of the sector). In turn, raw materials and intermediary products comprise the largest import group: US$ 26.7 billion in 1998, that is, 46.4% of imports of the sector.

Nowadays the Brazilian economy presents a general trade perspective in which on the exports side, manufactured and semi-manufactured product lines using natural resources and energy are expanding and becoming strongly competitive. Dependence on basic products has been reduced but there is an increasing specialisation, as a whole, in industrialised products with a relatively simplified technological content and a small aggregate value. On the other hand, opening up of trade has led to the adoption of rationalisation plans by Brazilian companies, resulting in an increase in productivity expressed in value ratios aggregated by worker employed. Specialisation in product lines or production segments has resulted in leaner and more competitive production. However, the coefficient of imports has increased with components or raw materials with a greater technological content, reinforcing the trend towards specialisation shown in exports. The restrained investment in fixed capital for the modernisation, expansion or construction of new plants is reflected in the results of the opening up of trade - in terms of employment, balance of payments and technological content of the remaining production machinery - which has not yet come anywhere near the required level. The Brazilian export business has also been developing in different ways according to international economic regions. In each and every case, the trade pattern has been accentuated or subdued. For example, the European Union, Brazil’s largest regional customer, recently increased their purchase of basic products (soy bran). In the United States, footwear is individually the greatest Brazilian export, competing with Asian suppliers (particularly China). Asia-Pacific and Eastern Europe have become growing markets for soy oil, sugar crystal, leather and fur as well as the more traditional orange juice and semi manufactured iron and steel goods. In the case of Mercosur (Argentina, Paraguay and Uruguay), Brazilian sales of vehicles, parts and engines are prominent. The table relating to Brazilian overseas trade shows the development of overseas trade by region during the 1990s. The growing importance of trade with Argentina may be observed by looking at that country’s position in relation to Brazilian exports and imports: Brazilian exports to Argentina soared from US$ 645 million in 1990 to US$ 1.5 billion in 1998, increasing from 2% of total exports at the beginning of the decade to levels of around 13.2% in 1998; in turn, purchase of Argentine products reached levels of around 13.9% of Brazilian exports in the same year. Latin America and the Caribbean almost doubled their share as a channel for Brazilian exports whilst their sales in Brazil held up well in the period, following the general trend for imports. It should be noted that the recent growth in imports has been particularly aimed at the United States and Europe, whilst exports to those markets have decreased in relative terms. Reduction in Brazilian trade protection aimed at the local metal and mechanical industry and demand for imported consumer durable goods have been responsible for that trend in relation to imports.

Importance should also be attached to trade with the developing countries of Asia: Brazilian exports went up by 70% whilst imports soared by 400% between 1990 and 1994. The proportion of those Asian economies included within the volume of Brazilian trade accounts for slightly more than 10% in 1994 but the expansion rate indicates its likely significance in the future, with renewed growth in the region after the financial crisis. In 1998, during the course of the Asiatic crisis, Brazilian exports to the region corresponded to 6.7% of the total, while 9.7% of imports were originated in that region. A close analysis of Brazil’s foreign trade reveals the country’s increasing integration in world market circuits. The latter offer opportunities and challenges: on the one hand they provide opportunities to expand the production of goods for export, as well as the acquisition of equipment and technology for technological renewal; on the other hand they offer serious competitive challenges and in several cases, discourage local production.

The final balance between stimulation and restriction offered by trade in connection with economic growth will depend on the response in terms of private local investment and consequently on the greater or lesser capacity demonstrated by macroeconomic policies and industrial policy to maximise the taking up of opportunities offered by overseas trade.