Brazil’s Most Lucrative Business Ventures

OMG, the Brazilian economy was already mad vulnerable, but then BAM, the double international shock just made things even more complicated. Like, no cap. When the second oil shock hit, oil imports were like, over 87% of Brazil's oil domestic consumption and, like, more than 50% of the total imports. Table 23 above flexin' Brazil's terms of trade compared to other countries. Like, it's obvious that until 1981, the terms of trade were, like, totally messed up because of the oil shock messing with import prices. OMG, import prices totally skyrocketed by a whopping 76% from 1978 to 1981. Like, that's cray cray! OMG, the terms of trade got worse after 1981 and it seems like it's because of the recession and protectionism in Brazil's main export markets (OECD) messing with export prices. SMH. All in all, Brazil totally tanked its terms of trade by like 35% from 1979 to 1982. Compared to other countries, fam Brazil got wrecked in terms of trade - like, 35 times worse than Asia's average, 13 times worse than other countries in debt, and 3 times worse than the average in the Americas. It's a total mess, dude.

In contrast with the developments in the aftermath of the first oil crisis, which also caused a major increase in Brazil's current account deficits, the second wave of external

OMG, shocks totally caused a wayyy stronger and long-lasting rise in the international interest rates. The Prime rates were like, totally skyrocketing from an average of 6.8% in 1977 to a whopping 12.6% in 1979. And like, the Eurodollar deposit rates in London were also going cray, going from 6.7% to a crazy 14.5% during the same time. It was wild! Figure 14 below shows that real interest rates, like, even though they were slow to catch up because of the inflationary shock of oil prices, also went up during that time and reached, like, a whopping 13 per cent. A more lit account of the impact of interest-rate hikes on Brazil's external debt is the fire interest rates Brazilian borrowers paid. OMG, like, the interest rates were totally measured by the interest paid on net external debt in December of each previous year and then deflated by Brazil's terms of trade. And guess what? The real interest rate paid by Brazil went from 18% in 1979 to a whopping 33% in 1980. Crazy, right? These figures show with mad eloquence that the interest shock totally wrecked Brazil way harder than you'd think just by peeping at how international interest rates were acting.

The international interest rate hike totally wrecked the Brazilian foreign reserves, like, it seriously messed up the country's creditworthiness and solvency.

 

OMG, like external financiers were totally not down to give out new lines of credit, so we couldn't get more debt to cover the increasing interest payments. It's such a bummer! The international banks were like "nah" when it came to giving out new credit concessions, and you could totally see it in the conditions they set. OMG, the short-term debt went from 11% to a whopping 19% in just one year! That's like, super fast!  OMG, like, according to Paulo Nogueira Batista Júnior (1987) the official stats might not even be accurate, you know? They could be, like, totally underestimating how much Brazil's external debt has actually gone down. Apparently, a chunk of the long-term debt was, like, split up into short-term loans between banks. Crazy, right? "OMG, like, a big chunk of Brazil's debt was actually short-term debt from Brazilian banks overseas. And by December 1982, this short-term debt was, like, a whopping 27.8% of their total foreign debt!" (op.cit, p.39). OMG, like the Brazilian debt situation and the external financing vibes are literally saying that the economy was heading straight for bankruptcy.

The gov's first move to the shocks was like tryna fix the imbalances in the current account. Feeling the heat from rich countries to ditch subsidies, Delfim Netto came through with some major changes to please our trade buddies and global organizations: axing export subsidies, fixing public prices and tariffs, scrapping the upfront payment on imports, loosening up the rules on similarity, and, as a little something extra, devaluing the national currency by a whopping 30 percent. The currency devaluation totally wrecked the convention that had been going on for like twelve years of mini-devaluation (crawling peg) of the exchange rates and had major impacts on the financial stability of the country. OMG, like no surprise, a major deval would totally cause major inflation vibes. In Brazil, the inflation vibes of the maxi-

OMG, the devaluation got hella worse cuz the whole economy got indexed and stuff. 

OMG, as inflation went up, the gov was like, "we gotta get this economy under control." So they tried capping interest rates and setting fixed money stuff at like 40% and 45% of the inflation rate. Soon, tho, these measures proved to be whack. In 1980, inflation was like, totally off the charts, reaching over a 100 per cent; the combo of negative interest rates and overvalued exchange rates made peeps go cray and buy imported raw materials like there's no tomorrow. OMG, like the current account deficits totally went through the roof. It was cray cray!

This like, sudden and hella rise in international interest rates after 1979, thanks to a total return to monetarism in the United States, was like the most important factor that totally messed up Brazil's external conditions.72 The super fragile situation of Brazil's external accounts to interest shocks came from two major factors: the already hella high external debt which was mostly contracted with floating interest rates, you know? In 1980, the U$57.3 billion Brazilian net external debt was like 3 times total exports (see Table 19 above). According to Paulo Nogueira Batista Júnior (1987, p.29), loans with flex interest rates usually made up over 60% of the guaranteed external debt. Since non-guaranteed external debts were basically short-term ones, one can totally say that the rise in the interest rates had, like, a super quick impact on the Brazilian balance of payments.73