Brazil is the fifth largest country in the world. It has a total area of 8,511,965 sq. km. (3,786,463 sq. mls.)making it more than twice the size of Europe and India combined.

Demography

In 1992, Brazil's estimated population was about 156.3 million. Approximately 75% live in the urban areas, but by the end of the century it is predicted that 90% will be urbanised. The population is growing at some 2.8% per year on average and 35% of the total is under the age of 15. At this rate, the country's population will reach 179 million by the year 2000. The two main cities are Sao Paulo, probably the second largest urban centre in the world, and Rio de Janeiro, with populations of 17.2 million and 11.2 million respectively. Nine other cities in the country have populations of more than 1 million.

Income inequality in Brazil is probably greater than in any of the newly industrialising countries. There is little doubt that disparities in income have become greater since the mid-1960s, and particularly since 1980. In 1989 it was estimated that 24% of the adult population were illiterate. The quality of education has deteriorated dramatically since 1980, partly because the states have had to trim their expenditure.

Brazil's labour force has grown from 17.1 million in 1950 to 61.0 million in 1986, equivalent to 44.5% of the estimated total population, excluding large numbers of people who are "inactive" members of the workforce. The labour force is presently growing at approximately 1.4% a year in the country as a whole, although in some of the main cities the annual increase is as much as 4-5%. In general, Brazil is a labour surplus economy and over the past 30 years there have been substantial changes in the pattern and structure of employment.

In 1950, some 60% of the labour force was still engaged in agriculture and primary activities but this had dropped to 24% by 1988. Although agriculture still remains the most important occupation, there have been marked changes in the employment structure away from agriculture and towards industry, construction, retailing and services.

History and Political Situation

In 1950 the Portuguese discovered Brazil and the country's early economic development was entirely based on the export of sugar, tobacco, gold and diamonds. By the early 19th century, coffee dominated the Brazilian economy and by the early 20th century, rubber and cocoa became significant exports.

As a result of the Napoleonic wars, the Portuguese Royal Family came to live in Brazil. In 1822, when the country declared its independence from Portugal, the heir to the Portuguese throne, Prince Pedro, became the first Emperor of Brazil. Independence encouraged industrial development - especially in the South-East - the abolition of the slave trade from 1850, growing coffee revenues and immigration from Europe.

The constitutional monarchy was replaced by the first republic in 1889. During the subsequent years a weak central government and friction between the dominant State of Sao Paulo and the other states, led to a revolution in 1930 and the regime changed again towards a fascist dictatorship under Getulio Vargas, until he was forced to resign in 1937. In 1945 there were elections for a constituent assembly and a more liberal federal democratic republic emerged until its collapse in 1964. The new liberal republic saw the importance of industrial development, but financed it by massive borrowing, leading to inflation and consequent social unrest, and ultimately to a centralised republic dominated by a collective military leadership.

The oil crisis of 1973, the world recession at the beginning of the 1980s and the promotion of huge infrastructure projects by the country's military rulers, financed by massive external borrowings, and rising interest rates, contributed to the debt crisis of 1982 and created a period of economic recession until 1984. Power was handed back to civilian authorities in March 1985 when the "New Republic" was ushered in and Congress elected Tancredo Neves as President. However, he died before he was able to take office and the vice-president, Jose Sarney, became President in April 1985.

The change to civilian government brought about shifts in the structure of the political parties and a dramatic increase in their number. The military government had arranged existing parties into a government patronage machine, the Alianca Renovadora Nacional (Arena) and the official opposition, The Movimento Democratico Brasileiro (MDB). Arena became the Partido Democratico Social (PDS) while moderates from the old MDB formed the Partido do Movimento Democratico Brasileiro (PMDB). The Partido Trabalhista Brasileiro (PTB), the Partido Democratico Trabalhista (PDT) and the Partido dos Trabalhadores (PT) the most prominent parties of the left, were also established at this time.

Many of the PDS's supporters broke away in 1985 to form the Partido da Frente Liberal (PFL). The moderate alliance of the PFL and the PMDB, known as the Alianca Democratica, was responsible for Tancredo Neves' successful election in January 1985. In the November 1986 elections, the PDS ceded its dominant role to the PMDB, which took 22 of the 23 state governorships and returned 250 deputies.

A new constitution was promulgated in mid-1988. The form of legislature remains bicameral with the Senate reflecting the interests of the 23 states and the Chamber of Deputies reflecting the distribution of population to a greater extent than was the case in the 1960s, although in terms of economic contribution per seat the South is heavily under-represented, a source of much current friction. The powers of the Presidency have been considerably curtailed, the Senate must approve the financial operations of the Federal Treasury whilst Congress must not only "audit" the government's finances but also "oversee" financial and monetary policy, a recipe, in the view of many thoughtful Brazilians, for paralysis of the executive, given the diversity of interests in Congress.

In the presidential elections of December 1989 Fernando Collor de Mello gained a narrow majority over the left wing candidate, Luis Ignacio "Lula" da Silva. Collor took office in March 1990 with no established power base in Congress, but with a platform of deregulation and liberalisation. After 2 years of recession and high inflation, allegations of corruption and drug taking made by his brother, Pedro Collor, precipitated a major crisis. The treasurer of the president's election campaign in 1989, Paulo Cesar Farias, was alleged by many to be defrauding the state of large amounts of money, some of which was finding its way to President Collor himself and his wife. Popular opinion turned against the president and on September 29,1992, in a dramatic vote in Congress, he was impeached. Sr Collor was replaced by his vice-president, Itamar Franco, who has had great difficulty in forming a coherent and lasting administration. His political style is reactive and unpredictable, which has added greatly to the problems of stabilising Brazil's economy. The 1988 constitution, provided for a review after five years, and this process is due to start in October 1993. Most Brazilians expect what emerges to be better than they have at present, but inevitably the revised version will contain trade-offs.

Economy

It is difficult to remember that in the early 1970s Brazil was enjoying economic growth rates similar to those of South East Asia today, and immediately prior to the first oil shock in 1973/4 the inflation rate was 14% p.a. and falling. Like several other countries in Latin America, Brazil has enormous natural resources, a sophisticated industrial base, an extensive domestic market, and many well managed and successful private companies. The problem areas have been a bloated public service, which no recent administration has felt itself strong enough to slim drastically, a very high internal deficit, and an inflation mentality which has become ingrained following periodic bouts of rampant inflation. Various stabilisation plans - the Cruzado plan of February 1986, the Bresser plan of June 1987, the Summer plan of January 1989 - had attempted to address the problems through a mix of prices freezes, control of money supply and declarations of intent to slash government spending. All have foundered on political obstacles, which have made it impossible to combine effective monetary and fiscal measures. Thus by the time of Collor's election, Brazil's economic growth was virtually stagnant and the country appeared to be heading for hyper inflation.

The hyper inflationary spiral forced Sarney's successor to take drastic action with the New Brazil Plan, announced soon after Fernando Collor's inauguration on March 15,1990 including the freezing of financial assets, structural reforms aimed at raising revenues and reducing government spending, a large scale privatisation programme, dismissals of federal employees and administrative reforms.

However the plan soon ran into difficulties. The freeze on financial assets generated an unprecedented economic recession, and was only successful in the sense that it interrupted hyper-inflation. In January 1991, the Government opted for complete reversal of the liberalising policy pursued to that point and decreed a price freeze. The new stabilisation programme, called Collor Plan 2, had as its main element, besides the price freeze, a reinforcement of the de-indexation of the economy.

The new strategy enjoyed partial success, but by mid 1992, inflation was rising affected by the worsening political crisis and probably some deterioration in the fiscal accounts. Indeed as the Collar saga unfolded between May and September 1992, little attention was paid to the economy, so that when Itamer Franco (regarded as economically illiterate) was sworn in, he was confronted by a situation which demanded immediate firm action, particularly on the fiscal deficit - the prime cause of friction. Unfortunately it took three Ministers of Finance and several months before a Finance Minister of sufficient stature to command the respect of the private sector, Congress and the markets was appointed. Fernando Henrique Cardoso, a senior figure in the PDS appointed in May 1993 has the personal authority to negotiate with Franco and Congress, and the general direction of the Collor regime towards liberalisation has been retained, with a surprisingly strong emphasis on privatisation. Closing the fiscal deficit by increasing revenue and cutting spending (ahead of an election) will require both skill and luck.

Nevertheless, the recession bottomed in the fourth quarter of 1992, and a sharp rebound occurred in early 1993, led by the motor industry. Confidence is returning to business, 1993 will undoubtedly be a much better year for Brazilian companies which are now very lean, but sustained recovery requires both political reform (via the Constitutional discussions) and stabilisation of the economy.