In Brazil

THE INVESTMENT CLIMATE IN BRAZIL

Over the past 25 years, economic growth in Brazil has demonstrated substantial volatility around a relatively low mean. In the wake of chronic inflation which consumed much of the 1980s and early 1990s, the Brazilian economy is still tentatively but steadily finding its way to macroeconomic stability. Throughout the early 2000s, inflation has remained at historically moderate rates. Interest rates too have fallen, although they remain at high levels compared to other countries. Unfortunately, the recent period of stabilization has not thus far propelled rapid economic growth. Between 1979 and 2004, real per capita GDP has grown only $510. Brazil has some of the highest levels of economic inequality in the world, a fact that is reflected in substantial disparities between regions in per capita income and economic growth. Brazil’s richest area, the Federal District, has a per capita income that is some seven times greater than that of the poorest state, Maranhão. The Southeastern region – which includes the states of Espírito Santo, Minas Gerais, Rio de Janeiro and São Paulo – is the most prosperous in the country, although the Center-West region, which encompasses the Federal District, has grown much faster than other regions over the past two decades. The volatility of growth rates across all Brazilian states is extremely high – the standard deviation of GDP growth rates for Brazilian states between 1986 and 2004 was more than six times the mean.

(Info by World Bank)

Brazilian economic growth will accelerate in the coming years. Moderately favourable demographic dynamics and fiscal consolidation will increase the savings ratio. Greater macroeconomic stability, lower interest rates and the increased availability of credit will lift the investment ratio. The quality of human capital is low by international standards, but reforms introduced a few years ago should help improve it, supporting productivity growth. So will greater economic openness and greater macroeconomic stability. Improvements in the institutional and regulatory environment are likely to be gradual. Taken together, this should help underpin higher medium-term economic growth. In the baseline scenario, we expect Brazil to grow at an average rate of 3.3% a year over the next decade and a half, a considerable improvement relative to its past performance. In a realistic upside scenario, economic growth will average 4.2% p.a., while in a downside scenario economic growth will remain close to its ten-year average of 2.2% p.a. Population growth, fixed capital investment, human capital and economic openness are the four main drivers of economic growth in our proprietary growth model. The analytical framework is theoretically based on the neoclassical production function, which is extended by using human capital as a measure of the quality of labour input and trade openness to capture institutional efficiency. By taking human capital and openness on board, the analytical framework models technological progress explicitly and comprehensively. This contrasts with growth accounting models, which arbitrarily assume convergence of per capita income levels without providing a fundamental explanation for technological progress.

(Info by Deutsche Bank)

LAW

The Brazilian legal system is based on Civil Law tradition. The Federal Constitution, in force since October 5^th, 1988, is the supreme rule of the country and is the characterized by its rigid written form. The Constitution organizes the country as a Federative Republic, formed by the indissoluble union of the states and municipalities and of the Federal District. The 26 federate states have powers to adopt their own Constitutions and laws; their autonomy, however, is limited by the principles established in the Federal Constitution.

Municipalities also enjoy restricted autonomy as their legislation must follow the dictates of the Constitution of the state to which they belong, and consequently to those of the Federal Constitution itself. As for the Federal District, it blends functions of federate states and of municipalities, and its equivalent to a constitution, named Organic Law, must also obey the terms of the Federal Constitution.

The powers of the Union, as defined within the Constitution, are the Executive, the Legislative and the Judiciary, which are independent and harmonious amongst themselves. The head of the Executive is the President of the Republic, which is both the Chief of State and the Head of Government and is directly elected by the citizens. The Legislative, embedded in the form of National Congress and consists of two houses: The Chamber of Deputies (lower house) and the Federal Senate (upper house), both constituted by representatives who are elected by the citizens. The Judicial powers are vested upon the Federal Supreme Court, the Superior Court of Justice, the Regional Federal Courts and Federal Judges. There are also specialized courts to deal with electoral, labor and military disputes.

The Judiciary is organized into federal and state branches. Municipalities do not have their own justice systems, and must, therefore, resort to state or federal justice systems, depending on the nature of the case. The judicial system consists of several courts. The apex is the Federal Supreme Court and is the guardian of the Constitution. Among other duties, it has exclusive jurisdiction to: (i) declare federal or state laws unconstitutional; (ii) order extradition requests from foreign States; and (iii) rule over cases decided in sole instance courts, where the challenged decision may violate the Constitution.

The Superior Court of Justice is responsible for upholding federal legislation and treaties. The five Regional Federal Courts, have constitutional jurisdiction on cases involving appeals towards the decision ruled by federal judges, and are also responsible for cases of national interest and crimes foreseen in international pacts, among other duties. The jurisdiction of the Federal Judges include: being responsible for hearing most disputes in which one of the parties is the Union (State); ruling on lawsuits between a foreign State or international organization and a municipality or a person residing in Brazil; and judging cases based on treaties or international agreements of the Union against a foreign State or international body.

State-level justice in Brazil consists of state courts and judges. The states of Brazil organize their own judicial systems, with court jurisdiction defined in each state constitution, observing that their legal scope is limited by those that do not concern the federal judicial ordainment.

Source: OAS

BusinessmanTime.com / Marcis Skadmanis