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Learn about the history, government and economy of Brazil.

Pedro Alvares Cabral claimed Brazil for Portugal in 1500. The colony was ruled from Lisbon until 1808, when Dom Joao VI and the rest of the Portuguese royal family fled from Napoleon's army, and established its seat of government in Rio de Janeiro. Dom Joao VI returned to Portugal in 1821. His son declared Brazil's independence on September 7, 1822, and became emperor with the title of Dom Pedro I. His son, Dom Pedro II, ruled from 1831 to 1889, when a federal republic was established in a coup led by Deodoro da Fonseca, Marshal of the Army. Slavery had been abolished a year earlier by the Regent Princess Isabel while Dom Pedro II was in Europe.

From 1889 to 1930, the government was a constitutional democracy, with the presidency alternating between the dominant states of Sao Paulo and Minas Gerais. This period ended with a military coup that placed Getulio Vargas, a civilian, in the presidency; Vargas remained as dictator until 1945. Between 1945 and 1961, Jose Linhares, Gaspar Dutra, Vargas himself, Café Filho, Carlos Luz, Nereu Ramos, Juscelino Kubitschek, and Janio Quadros were elected presidents. When Quadros resigned in 1961, Vice President Joao Goulart succeeded him.

Brazil is the only Portuguese-speaking nation in the Americas. About 80% of all Brazilians belong to the Roman Catholic Church; most others are Protestant or follow practices derived from African religions. With its estimated 177 million inhabitants, Brazil has the largest population in Latin America and ranks fifth in the world.

Government & Economy

Brazil is a federal republic with 26 states and a federal district. The 1988 constitution grants broad powers to the federal government, made up of executive, legislative, and judicial branches. The president holds office for 4 years, with the right to re-election for an additional 4-year term, and appoints his own cabinet.

Because of the mandatory revenue allocation to states and municipalities provided for in the 1988 constitution, Brazilian governors and mayors have exercised considerable power since 1989. Presidential, congressional, and gubernatorial elections last took place in October 2002. President Lula won the election with 61% of the vote. His challenger in the run-off was Jose Serra of the PDSB, former President Fernando Henrique Cardoso's party. The next presidential elections will be held in October 2006.  Municipal elections occurred in October 2004.

The economy was under critical stress in 2002 with election uncertainties, the 35% depreciation of the real, less foreign direct investment (dropping to $16.6 billion, $6 billion less than the previous year's total), and speculation that Brazil might follow Argentina by defaulting on public debt. Public debt briefly rose to 63% of GDP, 11% above the 2001 year-end level. Brazil was helped by the IMF, which stepped in with a record $30 billion program. Lula's incoming government further slashed spending and increased its primary-budget surplus target from 3.75% to 4.25% of GDP, consistently meeting and sometimes exceeding the requirements of the IMF agreement.

The Government of Brazil has given other positive signals to the international financial community, in particular, upholding impeccably strong fiscal and monetary policies and achieving passage by Congress of his tax and pension reforms bills, albeit in considerably watered-down form, by the end of his first year in office. The exchange rate recovered and stabilized dramatically, while the Central Bank benchmark interest rate was lowered from 26.5% to 16.5% between June and December 2003.

A giant step forward under the previous government had been the passage of Brazil's Fiscal Responsibility Law in May 2000. This law improved fiscal discipline at all levels--federal, state, and municipal--and in all branches of government. As part of his remaining plan for tax reform, President Lula proposes to unify the ICMS tax on goods and services into a standardized national VAT with five different rates. Currently, dozens of different rates are levied in the 27 states, all of which have their own tax code.

Market opening and economic stabilization have enhanced Brazil's growth prospects. Brazil's exports have nearly doubled in the last decade, and imports have more than doubled. In WTO and FTAA negotiations, the U.S. and Brazil share common goals such as global elimination of export subsidies and reduction in domestic agricultural support. Brazil has much to gain through free trade in terms of economic growth and realizing its trade potential.

Privatization triggered a flood of investors after 1996. The yearly investment average in the telecom sector the 4 years prior to the start of privatization was R$5.8 billion, and the annual average for the 4 years post privatization was R$16.3 billion, nearly tripling. Investment in the electrical power sector increased from R$5.3 billion annually in the pre-privatization era to R$7.2 billion. U.S. companies provided a great deal of this influx of cash. After 2000, many of these investors suffered huge losses in the face of adverse regulatory decisions and especially the sharp depreciation of the real. The energy sector was especially hard hit.