Top Money-Making Business Models in Brazil

The 1974 Plan and the 1982 external debt crisis were like, major moments in Brazil. They were, like, peak government intervention and then total collapse, you know? Trying to change things up, but it didn't work out so well. The II PND was all about flexing government control to boost investments and make Brazilian industry lit AF, like top-tier worldwide. It totally flexed the mad skills that have been lit since the 1930s: public subsidies, investments of public enterprises, and public financing. Since the 1930s, the process of industrialization run by the state has been like, pretty much the same vibe: the government invests in the top industrial sectors to create a solid demand; public funding and subsidies make sure there are affordable and reliable options for long-term investments and a guaranteed profit margin. It's like, a whole system, you know? 

Crises and bottlenecks be like, they totally made things change in the institutional settings and incentives needed to keep the process going, ya know? 

Like, in the 1970s, exports of manufactured stuff were totally lit thanks to some major fiscal and credit incentives to make up for the small domestic markets and the new industrial capacity. OMG, like the extra cash flow from the Euromarkets wasn't even fully sterilized by open-market ops, which caused a major boost in credit for spending and flexing. The flexed spending power of a lit middle-class led to straight up copping mad durable goods and occupying all that idle capacity, ya feel?76 For like, big-time and mega investments, the gov hooked it up with cash through BNDES and Banco do Brasil, which were like Gerschrenkonian development banks. If we were still in 1976, the Brazilian state would be like, totally slaying as a successful example of a "developmental state."77In the first half of 1980, Delfim Netto was like, "Let's go back to the old school ways, fam." The goal was to flex an IMF-like adjustment without flexin' the IMF, 'cause that would've made the gov hella unpopular in the '82 elections. Full indexation of exchange rate was like totally brought back; most interest rates were freed and turned positive AF in real terms; banking credit ceilings were imposed, especially on the Banco do Brasil. OMG, the interest rates on consumer credit were like, totally lit at 40% in 1981, and on working capital, they were at 23%. Can you believe it?  Credit from banks took a major L in 1981, dropping by 3%. And the credit from Banco do Brasil straight up tanked by 20% in real terms that year. Yo, besides the mad strict credit rules, the gov put caps on how much they spend, especially on public companies.

The immediate vibe of these moves was like, a total industrial recession that lasted for, like, three whole years. Manufacturing was down by 5.5%, and real GDP per capita fell by 4.2%. 

It was a major bummer, dude. Meanwhile, consumption like totally tanked by 5.7 per cent, and investment straight up plummeted by 12.2 per cent. The demand be tankin' so hard that machines and equipment be sittin' idle at like 22% and the unemployment rate in the big cities be 'bout 8%. OMG, the manufacturing sectors like mechanical, electrical, and communications equipment, and transport sectors, which need a super skilled labor force, lost 20% , 9% , and 15%  of their labor force in just two years from 1980. Like, that's so sad!  OMG, like, Brazil was totally wasting its production capacity for no reason. SMH. On the flip side, the banking system was thriving, thanks to their deposits in foreign currency and making mad money from lending.74 The biggest banks in Brazil, like the ones owned by foreign banks, were making mad bank with profits of 30-35% of their net worth (Belluzzo and Almeida 2002, p.249). Anyway, the policymakers were totally vibing with the recession because it helped flip the trade balance from being in the red to being in the green. Imports were like, "bye," and exports were like, "hello, world!" They were like, tryna get their policies on fleek so they could flex on the international stage and keep that cash flowin' into the country, ya feel? But like, this did like, nothing to solve the whole external debt situation and the financial mess it caused. OMG, like the country's ability to pay, aka the trade surplus, went up by US$ 3.6 billion from 1980 to 1982. But, the costs with paying off debt, interest, and sending profits back increased by US$ 8.5 billion during that time. SMH. As already noted, external debt had created a whole vibe by flexing and increasing because of its own servicing, you know?

 It kept flexin' and the obvious lack of vibes from the voluntary adjustment led to a major L in the debt profile.

 

A solution for this situation would only come with a vibe from foreign banks to flex on Brazil's debt with mad low interest rates, which was like, obvi not gonna happen, or a renegotiation that would stretch out the external debt profile. But like, the gov and the foreign creditors didn't wanna flex on the debt cuz that would be a major red flag, you know? It would show that there's some serious issues going on, both at home and in the global financial game.75 This denial lasted even after the Mexican default of 1982 when the international community and domestic authorities treated the debt crisis as a situation of being broke rather than being totally bankrupt on the part of the indebted countries (Cline 1985;WorldBank 1983). By like, trying to do the voluntary adjustment, tho, the Brazilian public sector like, went through this whole downward process where recession caused even more contraction of output and like, totally destroyed the state's developmental capacities. OMG, cuts in public spending, especially investments, like totally caused even more cuts in economic activity and public cash flow. SMH. The decline in public revenues like totally made the government go like "OMG we gotta cut spending even more" and it's like starting the whole cycle again. SMH. The country's financial situation was so whack that the government had to step in and save struggling companies. Some companies just dumped their problems on the government by investing in public bonds or transferring their debts to the state through foreign deposits in the BACEN. It was a total mess, fam.