Brazil is often viewed as the economic giant of the Third World. Its economy and territory are larger than the rest of South Americas, and its industry is the most advanced in the developing world. Brazilian foreign debt is also the Third Worlds largest. The problem of foreign debt has plagued the Latin American economies since the 1960s, when foreign borrowing was the only way for Latin American nations to sustain economic growth. However, when international interest rates began to rise in the 1980s, the debt these nations accumulated became unmanageable. In Brazil, the debt crisis of the 1980s marked the decline of an economy that had flourished since 1967, when foreign borrowing enabled the nation to develop its own productive industries and lessen its dependence on foreign manufactured goods. Similar to other Latin American nations, Brazilian overseas borrowing between 1967 and 1981 became a drain on the economy when international interest rates rose; by 1985, its excessive borrowing resulted in economic disaster, political dissension and protest, and the rise of an opposition government in Brazil.
Throughout the beginning of the twentieth century, growth of the Brazilian economy remained dependent upon agricultural exports. The twentieth century witnessed a decline in the export of sugar from the northeast of Brazil and a rise in the export of coffee from the southeast of Brazil. This concentrated economic growth and political power in the developed southeast part of the nation, particularly in the states of Rio de Janeiro and Sao Paulo. Industrial growth in this region progressed gradually, and by 1919, domestic firms supplied over 70% of the local demand for industrial products and employed over 14% of the labor force.
However, by the 1980s, Brazil accumulated massive foreign debt, which ultimately caused the government to cut foreign spending and investment, drove interest rates so high that businesses could not borrow money for investment and expansion, and precipitated the bankruptcy of numerous companies, the unemployment of wage laborers, and growing social unrest. Between 1979 and 1982, the debt amassed by Brazilian banks increased from $7.7 billion to $16.1 billion. By 1982, debt-service payments were equivalent to 91% of Brazils merchandise exports, up from 51% in 1977. In mid-1988, inflation in Brazil ran above 500%, and the value of the foreign debt Brazil has to repay remains the largest in the Third World.
Brazils financial situation is improving. Currently, Brazil has been able to sustain a 5% economic growth rate and is encouraging expanded foreign investment. Inflation has fallen to 1.5% a month, while United States exports to Brazil jumped by 35% last year.
Rising international trade, which may culminate in a South African free-trade zone, has enabled the Brazilian economy to flourish once again. Brazils huge foreign debt, however, remains outstanding and continues to loom over its recent economic success.