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BRAZIL
Brazil's economic freedom score is 56.7,
making its economy the 105th freest in the 2009 Index. Its modest gain in
financial freedom was largely offset by poorer government spending and
fiscal freedom scores. Brazil is ranked 21st out of 29 countries in the
South and Central America/Caribbean region, and its overall score is well
below the regional average.
Brazil is a regional economic power and has achieved
moderate but stable economic growth. Lower inflation has contributed to
macroeconomic stability, and high commodity prices have helped export
performance. Bank credit has continued to grow as well.
However, the state presence remains heavy in many
areas of the economy. The efficiency and overall quality of government
services remain poor despite high government spending as a percentage of
GDP. The overall tax burden is high in comparison to other developing
countries. The high cost of credit and frequent regulatory changes impede
private investment. Regulatory inflexibility makes starting a business
take much longer than the world average. The judicial system and other
areas of the public sector are inefficient and vulnerable to corruption.
Background
Brazil, the world's fifth-largest country, is
dominated by the Amazon River basin and the world's largest rain forest.
The population of almost 200 million is heavily concentrated on the coast,
where a dozen major metropolitan areas with populations of a million or
more offer direct access to the Atlantic Ocean. The current democratic
constitution dates from 1988. Workers' Party President Luiz Inacio
"Lula" da Silva was elected in 2002 and re-elected in 2006, and
though his rhetoric is socialist, he is pragmatic and pays attention to
fiscal and monetary funda-mentals. A strong currency regime has
contributed to rising living standards, and Brazil has a growing middle
class. Agriculture/agribusiness and industry account for 25 per cent and
33 per cent, respectively, of GDP. Brazil has benefited from surging
prices for its booming exports of commodities.
Business freedom 54.4%
The overall freedom to start, operate, and close a
business is limited by Brazil's regulatory environment. Starting a
business takes about four times the world average of 38 days, and
obtaining a business license takes more than the global average of 225
days. Closing a business is difficult.
Trade freedom 71.6%
Brazil's weighted average tariff rate was 6.7 per cent
in 2006. Import bans and restrictions, market access barriers in services,
prohibitive tariffs, border taxes and fees, restrictive regulatory and
licensing rules, export support programs, non-transparent government
procurement, and problematic protection of intellectual property rights
persist. Fifteen points were deducted from Brazil's trade freedom score to
account for non-tariff barriers.
Fiscal freedom 65.8%
Brazil's top income tax rate is 27.5 per cent. The
standard corporate tax rate is 15 per cent, but a surtax of 10 per cent
and a 9 per cent social contribution on net profit paid by most industries
bring the effective rate to 34 per cent. In December 2007, the legislature
vetoed a bill that would have renewed the financial transactions tax. In
the most recent year, overall tax revenue as a percentage of GDP was 38.8
per cent.
Government size 50.3%
Total government expenditures, including consumption
and transfer payments, are high. In the most recent year, government
spending equaled 40.7 per cent of GDP. Public debt is still around 50 per
cent of GDP. Besides debt service, government spending is focused mainly
on pensions, transfers to local governments, and bureaucracy.
Monetary freedom 77.2%
Inflation has been better controlled in recent years,
averaging 4.1 per cent between 2005 and 2007. Although such public
services as railways, telecommunications, and electricity have been
privatised, regulatory agencies oversee prices. The National Petroleum
Agency fixes the wholesale price of fuel, and the government controls
airfare prices. Ten points were deducted from Brazil's monetary freedom
score to adjust for price controls.
Investment freedom 50.0%
Foreign investors are granted national treatment.
Foreign investment is restricted in nuclear energy, health services,
media, rural and border property, fishing, mail and telegraph services,
aviation, and aerospace. In firms employing three or more persons,
Brazilian nationals must constitute at least two-thirds of all employees
and receive at least two-thirds of total payroll. Foreign specialists in
fields where Brazilians are unavailable are not counted in calculating the
one-third permitted for non-Brazilians. Bureaucracy and administration are
non-transparent, complex, and subject to corruption. There are few
restrictions on foreign exchange transactions. Foreign investors, upon
registering their investment with the central bank, may remit dividends,
capital (including capital gains), and royalties. The central bank
approves outward direct investment in some cases, including transfers and
remittances, where it has broad administrative discretion. Foreign
investors may own real estate but must obtain specific authorisation to
purchase land along the country's borders.
Financial freedom 50.0%
Brazil's financial system is South America's largest
and one of the largest among all emerging markets. Despite lingering state
involvement, banking and capital markets are increasingly diversified,
dynamic, and competitive. Domestic banks lead the industry, but foreign
banks are gaining more presence. About 200 public and private commercial
banks and many non-banking financial institutions conform to international
best practices. Bank credit has continued to expand. The insurance market,
while growing, remains fairly small. The stock market is not a major
source of domestic corporate finance but there were 64 new IPOs in 2007, a
noticeable increase from only seven in 2004.
Property rights 50.0%
Contracts are generally considered secure, but
Brazil's judiciary is inefficient, subject to political and economic
influence, and lacking in resources and staff training. Decisions can take
years, and decisions of the Supreme Federal Tribunal are not automatically
binding on lower courts. Protection of intellectual property rights has
improved, but piracy of copyrighted material persists.
Freedom from corruption 35.0%
Corruption is perceived as significant. Brazil ranks
72nd out of 179 countries in Transparency International's Corruption
Perceptions Index for 2007. Businesses bidding on government procurement
contracts can encounter corruption, which is also a problem in the lower
courts.
Labour freedom 62.7%
Brazil's inflexible labor regulations hinder
employment and productivity growth. The non-salary cost of employing a
worker is high, and dismissing a redundant employee can be costly.
Benefits mandated by rigid labor legislation amplify overall labor costs.
The high cost of laying off a worker creates a disincentive for companies
that would otherwise hire more people.
Courtesy: The Heritage Foundation
Quick Facts
Population
189.3 million
GDP (PPP)
$1.7 trillion
3.8% growth
3.3% 5-year compound
annual growth
$8949 per capita
Unemployment
9.3%
Inflation (CPI)
3.6%
FDI Inflow
$18.8 billion
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