President Lula and his economic team have implemented prudent fiscal and monetary policies which have been credited with helping shield Brazil from the worst of the global financial crisis of 2008 and 2009. That said, Brazil's economy has not escaped the crisis unscathed. After posting growth rates of 5.7% in 2007 and 5.1% in 2008, Brazil’s GDP dropped 0.8% in the first quarter of 2009. Several steps have been taken by the government to minimize the impact of the crisis, including injecting more than U.S. $100 billion of additional liquidity into the local economy, providing tax cuts to manufacturers, and reducing Central Bank interest rates. Growth estimates for the second half of 2009 and 2010 are positive. Brazil is now a net creditor nation, and the current crisis notwithstanding, has in recent years experienced sustained growth, strong exports, healthy external accounts, moderate inflation, decreasing unemployment, and reductions in the debt-to-GDP ratio over the last several years. In early 2008, two major rating agencies upgraded Brazil to investment-grade sovereign debt rating.
However, significant vulnerabilities remain in the Brazilian economy. The total tax burden is high, income distribution remains skewed, and the private business community complains of burdensome regulation. The global financial crisis has hampered President Lula’s efforts to accelerate economic expansion.
Brazil is generally open to and encourages foreign investment. Brazil is the largest recipient of foreign direct investment (FDI) in Latin America, and the United States is traditionally the number one foreign investor in Brazil. Since domestic savings is not sufficient to sustain long-term high growth rates, Brazil must continue to attract FDI. In order to attract increasing levels of FDI, many business groups and international organizations have highlighted the need for Brazil to improve its regulatory environment for investments and to simplify the tax code. Brazil does not have a bilateral tax or investment treaty with the United States. Legislation promoting public-private partnerships, a key effort to attract private investment to infrastructure, was passed in 2004. In 2007, the Government of Brazil initiated an ambitious infrastructure development program, known as the Growth Acceleration Program (PAC), to address the country’s significant road, rail, energy supply, and other infrastructure needs. The program has been viewed by the government as a central component of its development strategy, which it believes has also served as a countercyclical factor in cushioning Brazil’s economy from the full effects of the world financial crisis. Critics of the program say that the program is cumbersome and weighted down with too many programs and too much bureaucracy, resulting in a program that some consider ineffective.
Information by U.S. Department of State
