Its GDP of $767.3 billion ($4803 per capita) is eighth highest in the world. The average tariff is 13.8%. The individual income tax rate ranges from 25% for higher income to 0% for the average income. The corporate tax rate and capital gain tax are 15% each, a value added tax that ranges from 0% to 365%, a state value added tax of 7% to 25%, plus a maximum municipal service tax of 10%.

The Brazilian government consumes about 15.2% of GDP. A privatization program is going quite slowly, keeping government ownership of petroleum, electricity, and telecommunications industries under their control.

Behind Brazil's economic problems is the refusal of the society at large as well as elected officials to eliminate the privileges of the generous civil service pensions and special compensation packages. However, caps have been placed on civil service salaries and pensions in an effort to eliminate big budget deficits as a first step toward reform.

Foreign direct investment was $26.1 billion in 1998 and privatization is still highly profitable.

Almost 30% of the population works in agriculture. Brazil accounts for 40% of the total economic output and 34% of the population of Latin American. It is one of the four founding members of Mercosur, created in 1991, and accounts for about 64% of that association's total GDP and 71% of its population.

The region was hit quite hard by economic problems from Asia and Russia, forcing governments to make adjustments to their balance of payments and tightening fiscal and monetary policies.

According to The Heritage Foundation's Economic Freedom Index, Brazil ranks 90th out of 160 countries (the U.S. ranks 6th).

The customs union and free trade area went into effect on January 1, 1995. Mercosur is the most important free trade zone in Latin America today. The members are Brazil, Argentina, Uruguay, and Paraguay (with two associate members, Chile and Bolivia). This zone and its associates have a population of 220 million and more than $1 trillion combined GDP, making it the third behind the EU and NAFTA.

Brazil plans to cut spending by 4.6% in 1999 for a total of $10.8 billion. According to Finance Minister Pedro Malan, the spending cut is designed to take control of a rising budget deficit and the outflow of dollars that had reached $1 billion per day by September 1998. The State of Sao Paulo alone has an annual budget of $34 billion, with 34 million people and an economy generating $280 billion—almost as large as the entire country of Argentina.

The Brazilian government has established as a top priority growth of infrastructure by targeting $95 billion through its Multi-annual Investment Plan. Brazil has approximately 162,000 km of paved roads, 1.51 million km unpaved.

Private investors are supporting a rail project linking the grain-producing region in the north center-west and the port of Santos. A 110-km project known as Ferronorte includes a two-level 2.6-km road/rail bridge. There is also a $2 billion super highway project from Rio de Janeiro to Buenos Aires to name a few projects.

The Minister of Transportation has earmarked $1.4 billion for upgrading of the nation's highway system. There are needs for up-to-date techniques on road building and the most modern equipment.

The World Bank has approved $300 million for road upgrading. The state of Rio Grande do Sol received approximately $70 million toward the reconstruction of its highway system, estimated by the World Bank to cost $170 million.

Under President Fernando Henrique Cardoso, the government has committed to a land redistribution policy. That initiative has led some landowners to hire private armies to retain control.

Absentee landlords leave a large percentage of land in Brazil idle. A comprehensive land reform would lead to higher rural incomes by helping industries provide employment other then agriculture. One percent of the population controls 45% of the land.

The Brazil auto parts market reached $21 billion in 1998 based on 800 local manufacturers imports levels reached $4.4 billion. U.S. exports of auto parts to Brazil are estimated to be around $600 million.

Brazil's component manufacturers are going through a difficult period. The Italian company Magneti Marelli purchased the largest Brazilian component manufacturer Cofap for $600 million. Sixteen foreign companies acquired 14 Brazilian companies while five local Brazilian companies also had acquisitions. As of 1996, 71% of component manufacturers were Brazilian-owned, 16.1% foreign-owned, and 1.2% were 50-50 partnerships.

Foreign direct investment amounted to $17 billion in 1997 and reached $26.1 billion in 1998Ñsecond only to China among emerging markets. Brazil trades actively with all the main world markets. Its largest commercial partners are the EU, the U.S., and other Mercosur members and associate members. The U.S. alone invested $28 billion between 1990 and 1997.

Brazil has attracted most of the world's vehicle manufacturers combined will invest $29 billion in factories. Vehicle sales dropped to its lowest level in five in December 1998, when sales reached only 75,000. Sales peaked in October 1997 at 200,000 units.

Renault will spend $670 million on a passenger car plant in Curitiba and an additional $100 million to build engines in the same area. Volkswagen has invested $625 million for a new factory in Sao Jose dos Pinhais in the state of Parana and is expanding an engine plant in Sao Carlos and in Resende. General Motors is investing $600 million in an assembly plant next to Porto Alegre. Ford is investing an estimated $750 million in a new plant in Guaiba. Hyundai is to invest $500 million in Camacari. Honda has made Brazil its main center for South America, investing $400 million in a new plant near Sao Paulo.

DaimlerChrysler will go ahead with its $310 million investment plan for Brazil, with about $130 million for a new plant at Juiz de Fora and the remainder to update Mercedes-Benz plants in the Sao Paulo state. Fiat, a pioneer in Brazil, is investing $300 million for the Marea passenger car and a planned $1.5 billion investment for commercial vehicles and pickup trucks. Toyota of Japan will invest $150 million in a new plant in Indaiatuba.

The fallout from the Asian crisis led Brazil's Finance Minister to tighten monetary policy. It was inevitable that fiscal measures would take place due to Brazil's large and increasing current account deficit; the Asian crisis was just the catalyst. The current account balance improved somewhat in 1998. The risk in Brazil is the country's heavy reliance on the proceeds of privatization to satisfy its current account deficits.

The FDI by country is listed below with export and import activity. The trade deficit was trimmed from $8.4 billion in 1997 to $6.43 billion in 1998. The trade deficit is expected to have a $7 surplus in 1999. The current account deficit is expected to fall from $35 billion to $15 billion in 1999.

Manufacturing represents 25% of Brazil's GDP, automotive being one of the main industries. The production of cars has been increasing since 1993, making Brazil a major global production center for automotive multinationals.

Passenger Car Production, by Manufacturer

Manufacturer 1998 2003 (estimated) Fiat Aytomoveis 450,000 480,000 Ford do Brazil 100,000 190,000 General Motors do Brazil 300,000 370,000 Honda 15,000 45,000 Mercedez-Benz 0 25,000 Renault 0 65,000 Toyota 20,000 45,000 Volkswagen do Brazil 455,000 540,000 Total 1,340,000 1,760,000

Passenger Car Sales, by Manufacturer

Manufacturer 1998 2003 Fiat 293,000 374,000 Ford 109,000 145,000 GM 207,000 289,000 Volkswagen 328,000 460,000 Others 215,000 435,000 Total 1,152,000 1,703,000

Country profiles were provided by Raymond Champagne