Elements of Brazil's external insertion in the 21st century
Within the collection of “Notebooks of Latin American Critical Thought”, CLACSO presents la researchn: "Elements of Brazil's external insertion in the 21st Century"Of Daniel Pereira Sampaio.
Daniel Pereira Sampaio*
Elements of Brazil's external insertion in the 21st century
Introduction
Despite the growth in international reserves provided by the tree At the beginning of the 21st century, there were no changes in the pattern of external integration of the Brazilian economy. In fact, there has been a strengthening of the historical legacies of subordinate external integration, for example, with the re-primarization of exports and the increase in the net liability in the international investment position (IIP) vis-à-vis the rest of the world.[1].
The re-primarization of exports[2].
External financing is one of the historical barriers that the Brazilian economy has faced throughout its development process. But how does this situation affect it today? An examination of the balance of payments helps to understand Brazil's role in the international division of labor and the problems of external vulnerability at the beginning of this century.
Chart 1 presents the role of the trade balance in the current account balance of the Brazilian economy's balance of payments (BOP). The trade surplus contributed to a positive current account balance (external adjustment) between 2003 and 2007 and almost another positive balance in 2017 with the re-primarization of exports (Chart 2). However, Brazil's terms of trade decreased by 10,9% between 2011 and 2014, reflecting the sluggishness of exports in the face of increased uncertainty in the international environment.
Chart No. 1. Balance in the BP current account and its main components
(US$ millions)
Chart No. 2. Brazilian exports by added value
(in %)
Two movements explain the re-primarization[3] of Brazilian exports. First, deindustrialization, which weakens national production[4] (therefore, exports of manufactured goods), and, secondly, the increase in international demand, especially for primary goods due to the China effect[5].
One of the characteristics of primary product production for export is the predatory use of the land.[6]with significant damage to traditional communities and the environment[7]Another is the latifundio, with a high concentration of land ownership.[8] and income in an already highly unequal economy[9].
Furthermore, the financialization of primary agricultural and mining products is observed, as shown in graph No. 3. Through futures and derivatives markets, speculative markets were formed that were more concerned with financial valuation than with food or energy security (Paula, Santos and Ferreira, 2015).
Chart No. 3. Dow Jones / B3 Commodity Index (BRL) TR – Brazil
(daily, 30/12/2010 = 100)
Therefore, the return to primary commodity production deepens historical legacies and generates greater vulnerability to global liquidity cycles.
Characteristics of investments in the financial account[10]
The two main functional categories of the financial account are foreign direct investment (FDI) and portfolio investment (PI). Inflows of foreign investment increase liabilities in the IDI, and outflows of domestic capital increase assets in the IDI. Thus, in the financial account of the balance of payments, net inflows are shown as negative (-) and net outflows as positive (+) (Chart No. 4).
Chart 4 – Balance of the BP's financial account and its main components (US$ millions)
Foreign direct investment (FDI) has a more enduring profile. However, it also incorporates purchases and sales of equity stakes since it grants voting power exceeding 10%, meaning it contains elements related to asset and decision-making power dynamics. Furthermore, it records loan transactions between parent companies and their subsidiaries, that is, a financial transaction. Thus, FDI also has financial and asset-related elements, which are more volatile.
Foreign direct investment (FDI) growth in Brazil occurred between 2006 and 2011. There was an initial wave of internationalization of Brazilian companies abroad with state support, which declined after 2014. Thus, denationalization and the weakening of internal decision-making centers have been advanced.
Portfolio investments are more volatile. They remain the largest category in the financial account, which explains why the sum of capital inflows and outflows exceeded US$500 billion in 2008, 2014, and 2016 (Chart No. 5). Since 2014, the Brazilian economy has continued to attract portfolio investments, despite the decrease in liabilities.
Chart No. 5. BP Portfolio Investment
(US$ millions)
Brazil's net liabilities in the IIP increased 127% between 2001 and 2018. According to Pinto and Gonçalves (2015), this is one of the largest expansions of this century, which has increased the structural external vulnerability of the Brazilian economy.
Finally, the financial account includes reserve assets, which are assets held by the monetary authority to guarantee financial exchange and international payments. International reserves have largely been invested in financial assets in international financial markets, sovereign debt securities, the International Monetary Fund (IMF), or monetary gold, for example. The favorable international economic cycle of the early 21st century contributed to increasing the level of international reserves in Brazil (Chart No. 6).
Chart No. 6. Brazil's International Reserves
(US$ millions)
However, starting in 2019, the Central Bank of Bolivia (BCB) resumed its policy of direct intervention in the foreign exchange market. Direct sales of international reserves reached US$36,9 million in 2019 (a 9,4% reduction). With international reserves at levels exceeding those necessary to address a currency crisis (Pellegrini, 2017), their sale serves to: contain sharp fluctuations in the foreign exchange market; inject liquidity; reduce the fiscal cost of maintaining reserves; and reduce assets in the International Investment Portfolio (IIP), among other fiscal adjustment and financial valuation mechanisms.
Therefore, external integration can be exacerbated during periods of increasing uncertainty, which can lead to capital outflows and a potential decrease in international reserves through a reduction in the trade balance or the financial account balance, due to external political or economic events. For example, the trade war between the United States and China; low GDP growth in developed economies; geopolitical tensions between the United States, Iran, Venezuela, and other countries; Brazil's alignment with the United States and Israel; Brazil's aspiration to join the Organisation for Economic Co-operation and Development (OECD); and the COVID-19 humanitarian, health, and economic crisis are all factors influencing the Brazilian economy and its international integration.
Conclusions
The analysis revealed Brazil's subordinate integration into the international market, characterized by a re-primarization and financialization of exports, a financial account capital flow pattern subordinated to international capital, and high capital volatility. Thus, it can be concluded that Brazil exhibits a high degree of structural external vulnerability, which has deepened in the 21st century. Consequently, the possibility of autonomous development appears more remote.
* Member of the Working Group “Regional Integration and Latin American Unity”. PhD and Master's degrees in Economic Development from the Institute of Economics at the State University of Campinas, UNICAMP. Bachelor's degree in Economics from the Federal University of Espírito Santo, UFES. Currently, he is a professor in the Department of Economics and the Postgraduate Program in Social Policy at the Federal University of Espírito Santo – UFES, Brazil. ORCID: https://orcid.org/0000-0002-6130-2753.
Bibliographic references
CANO, W. (2020). (De)Industrialization and (Sub)development. Development NotebooksRio de Janeiro, vol. 9, no. 15, pp. 139-174, Jul-Dec 2014. Available at:https://bit.ly/2SZ1lJK>. Accessed on 01 Jan. 2020.
NASCIMENTO, H. M. (2009). Agricultural quest, territory and environment in Brazil: The limits of the transition to sustainable agriculture. Economy, Society and Territory, Toluca, v. 9, no. 31, p. 723-758, Dec. 2009. Available inhttps://bit.ly/2Z4WD0S>. Accessed on: May 14, 2020.
NOGUEIRA, C. dos S. (2019). Revealing contradictions in the super-exploratory category of the work force in Ruy Mauro Marini: elements from the Brazilian economy. 2019. 157 p. Doctoral thesis – Universidade Federal do Espírito Santo, Post-Graduation Program in Social Politics, Vitória, ES. Available in:https://bit.ly/2zDCaFD>. Accessed on: January 01, 2020.
OXFAM (2018). Stagnant country: A portrait of Brazilian inequalities – 2018. OXFAM Brazil, 2018, 66p.
PAULA, NM; SANTOS, VF; PEREIRA, W. (2015). Financeirization of agricultural commodities in the agri-food system. Society and Agriculture Studies, Rio de Janeiro, v. 23, p. 294-314. Available at:https://bit.ly/2Z0s7W4>. Accessed on: January 02, 2020.
PELLEGRINI, JA (2017). International Reserves of Brazil: evolution, adequate level and cargo costs. Special Study nº1, Brasília: Instituição Fiscal Independente, Mar. 2017, 32 fls. Available in:https://bit.ly/3fOE1YQ>. Accessed on: January 10, 2020.
PINTO, EC; GONCALVES, R. (2015). Globalization and effective power: global transformations for the effect of Chinese ascension. Economy and Society, Campinas, v.24, n. 2, p. 449-479, Aug. 2015. http://dx.doi.org/10.1590/1982-3533.2015v24n2art8.
PINTO, LF (ET AL) (2020). Quem only the few donations of agricultural land in Brazil – The map of inequality. Sustainability in debate, Imaflora, no. 10, Apr. 2020. Available at:https://bit.ly/2WtjiSJ>. Accessed on: May 13, 2020.
SAMPAIO, DP (2015). Deindustrialization and regional production structures in Brazil. 2015. 234 p. Doctoral Thesis – State University of Campinas, Institute of Economics, Campinas, SP. Available in:https://bit.ly/35Xk5P3>. Accessed on: August 27, 2018.
SAMPAIO, DP; PEREIRA, VV Deindustrialization and reprimarization of the Brazilian external insertion. In: VARGAS, Neide C.; SAMPAIO, Daniel P.; BRAGA, Henrique P. (Org.). Brazilian economy: 20 years of conjunctureVitória/ES: EdUFES, no prelo, sf
SILVA, LG (2019). A dynamics of production and world trade of commodities (1995-2015). Doctoral Thesis – State University of Campinas, Institute of Economics, Campinas, SP. Available in:https://bit.ly/3fM6oXJ>. Accessed on: January 02, 2020.
[1] The data in version 6 of the Balance of Payments (BP6) of the Central Bank of Brazil (BCB) begins in 1995, but this study begins in the 21st century.
[2] Sampaio and Pereira (n.d.).
[3] Silva (2019).
[4] Regarding deindustrialization in Brazil, see Cano (2014) and Sampaio (2015).
[5] Pinto and Gonçalves (2015) have explained the China effect by demand (growth in prices and quantities of primary products from the rest of the world), contributing to the growth of exports from peripheral economies and, on the supply side (with growth in quantities and a reduction in prices of manufactured products from China to the rest of the world), with updating the consumption pattern and price control.
[6] Nascimento (2009).
[7] As well as in the environmental disasters in Mariana and Brumadinho.
[8] Pinto et al (2020) have calculated that 10% of the largest rural properties occupy 73% of Brazil's arable land.
[9] Oxfam (2018).
[10] Nogueira (2019).
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