Historical background

Following more than three centuries under Portuguese rule, Brazil peacefully gained its independence in 1822, maintaining a monarchical system of government until the abolition of slavery in 1888 and the subsequent proclamation of a republic by the military in 1889. Brazilian coffee exporters politically dominated the country until populist leader Getulio VARGAS rose to power in 1930. By far the largest and most populous country in South America, Brazil underwent more than half a century of populist and military government until 1985, when the military regime peacefully ceded power to civilian rulers. Brazil continues to pursue industrial and agricultural growth and development of its interior. Exploiting vast natural resources and a large labor pool, it is today South America's leading economic power and a regional leader. Highly unequal income distribution and crime remain pressing problems.

Economic overview

Characterized by large and well-developed agricultural, mining, manufacturing, and service sectors, Brazil's economy outweighs that of all other South American countries and Brazil is expanding its presence in world markets. From 2003 to 2007, Brazil ran record trade surpluses and recorded its first current account surpluses since 1992. Productivity gains coupled with high commodity prices contributed to the surge in exports. Brazil improved its debt profile in 2006 by shifting its debt burden toward real denominated and domestically held instruments. LULA da Silva restated his commitment to fiscal responsibility by maintaining the country's primary surplus during the 2006 election. Following his second inauguration in October of that year, LULA da Silva announced a package of further economic reforms to reduce taxes and increase investment in infrastructure. Brazil's debt achieved investment grade status early in 2008, but the government's attempt to achieve strong growth while reducing the debt burden created inflationary pressures. For most of 2008, the Central Bank embarked on a restrictive monetary policy to stem these pressures. Since the onset of the global financial crisis in September, Brazil's currency and its stock market - Bovespa - have significantly lost value, -41% for Bovespa for the year ending 30 December 2008. Brazil incurred another current account deficit in 2008, as world demand and prices for commodities dropped in the second-half of the year.