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Substitute strategy or substitution strategy was put in place by Brazil’s government following the 1930’s Great Depression because of the disastrous turn of events in its economy. With coffee being its main exporter at the time, Brazil had to change its economy. It did so during this time by creating an import substation strategy where the government would invest a massive amount of money and targeted key industries. Along with the investments and focus in other areas, Brazil’s government also safeguarded against competition using high tariff walls.
The article notes that the strategy worked for four decades. Brazil saw a 7% growth from 1950 to 1980. The strategy also led to the creation of a diversified and large industrial sector. However, in the 1980’s inflation soared, and disaster came once again. Along with high inflation, investment fell due to the fear of foreign investors in Brazil’s economy. As a result, growth stagnated, and Brazil became one of the developing countries with the highest external debt. While the strategy seemed to fair well early on, investor interest and inflation led to downfall. Could this have been prevented? Who knows, the strategy seems sound making it odd that it failed after only forty years.
A new strategy came forth in 1194 with new president Fernando Henrique Cardoso. He began to undue the work that the government laid out in the 1940’s and 50’s. He began to privatize state-owned firms, lowered trade barriers, and promoted deregulation of the economy. This was an attempt to embrace globalization. Again, the strategy seemed successful at first, but this time it didn’t even last for 5 years. In 1998 the Asian financial crisis renewed doubts and the economy became stagnant for two years....
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