brazil-international country risk guide worksheet

PAD 5342 Summer 2011, Yatskievych

Final Exam:International Country Risk Guide Assessment

BRAZIL

By:

Michael Yatskievych800132653 student ID512-633-2779 cellular

[email protected]

For:

PAD 5342Risk Analysis

(Summer, 2011)

INSS ProgramUniversity of Texas at El Paso

James Léiman

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International Country Risk Guide (ICRG) Analysis:

------BRAZIL------

X current score / X 10-year forecast / X 20-year forecast / X 50-year forecast

Brazil Risk Rating Assessment

I. Political Risk Rating (100 points total): 70 / 71.5 / 65.5 / 61

The aim of political risk rating is to provide a means of assessing the political dangers to investor in the countries covered by ICRG on a comparable basis. In every case the lower the risk point total, the higher the risk, and the higher the risk point total the lower the risk.

A political risk rating point totals as a percentage from maximum points allowed.

0-49.9% = very high risk50-59.9% = high risk60-69.9% = moderate risk70-79.9% = low risk80+% = very low risk

Current Pol. Risk Rating: 70/100 = 70% Low Risk10-year forecast: 71.5/100 = 71.5% Low Risk20-year forecast: 65.5/100 = 65.5% Mod. Risk50-year forecast: 61/100 = 61% Mod. Risk

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Risk Category Current 10-year 20-year 50-year

Political Risk 70 71.5 65.5 61Financial Risk 40 41 41.5 23Economic Risk 38.5 40.5 41 14Composite Score 74.25 76.5 74 49_____________________________________________________________________Risk Band Low Low Low Very High


A. Government Stability (12 points): 8 / 8.5 / 8.5 / 9This is a measure both of the government’s ability to carry out its declared

program(s), and its ability to stay in office. This will depend on the type of governance, the cohesion of the government and governing party or parties, the closeness of the next election, the government’s command of the legislature, popular approval of government policies, and so on. Government Stability is assessed on the basis of three subvariables:

1. Government Unity (4 points): 3 / 3 / 3 / 3The extent to which the government operates as a unified force

2. Legislative Strength (4 points): 3 / 3 / 3 / 3Does the legislature have its own power vis-à-vis the executive branch

of the government and can it act coherently as such?

3. Popular Support (4 points): 2 / 2.5 / 2.5 / 3A measure of how much the population being governed sees the

government as legitimate, whether or not it is the government they prefer.

Brazil’s government operates as federal republic, according to CIA world factbook, and has all the essential features of an accountable democracy:

-A government that has not served more than two consecutive terms;-Free and fair elections for the legislature and executive as determined by

constitution or statute;-The active presence of more than one political party and a viable opposition;-Evidence of checks and balances among the executive, legislative, and judicial

branches;-Evidence of an independent judiciary;-Evidence of the protection of personal liberties.

Executive Branch:

Current President, Dilma Rousseff, was elected and sworn into office as the chief of state and head of government on the 1st of January 2011. The previous president’s office, headed by Luis Inácio Lula da Silva, held served for two terms. Both leading executives represent the Brazilian Worker’s Party. The alternative political parties, with considerable political leverage, that presented a viable option other than the Worker’s Party include Brazilian Democratic Movement Party, Brazilian Social Democratic Party, and Party of the National Reconstruction (CIA, 2011).

Legislative Branch:

Brazil’s legislative component is comprised of a bicameral National Congress or Congresso Nacional consists of the Federal Senate or Senado Federal (81 seats; 3 members from each state and federal district elected according to the principle of

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http://www.ask.com/wiki/Christian_Labour_Party?qsrc=3044

http://www.ask.com/wiki/Brazilian_Social_Democratic_Party?qsrc=3044

http://www.ask.com/wiki/Brazilian_Democratic_Movement_Party?qsrc=3044


majority to serve eight-year terms; one-third and two-thirds of members elected every four years, alternately) and the Chamber of Deputies or Camara dos Deputados (513 seats; members are elected by proportional representation to serve four-year terms) (CIA, 2011).

Judicial Branch:

Supreme Federal Tribunal or STF (11 ministers are appointed for life by the president and confirmed by the Senate); Higher Tribunal of Justice; Regional Federal Tribunals (judges are appointed for life); note - though appointed "for life," judges, like all federal employees, have a mandatory retirement age of 70 (CIA, 2011).

Political Parties and Leaders:

Brazilian Democratic Movement Party or PMDB [Federal Deputy Michel TEMER]; Brazilian Labor Party or PTB [Roberto JEFFERSON]; Brazilian Renewal Labor Party or PRTB [Jose Levy FIDELIX da Cruz]; Brazilian Republican Party or PRB [Vitor Paulo Araujo DOS SANTOS]; Brazilian Social Democracy Party or PSDB [Senator Sergio GUERRA]; Brazilian Socialist Party or PSB [Governor Eduardo Henrique Accioly CAMPOS]; Christian Labor Party or PTC [Daniel TOURINHO]; Communist Party of Brazil or PCdoB [Jose Renato RABELO]; Democratic Labor Party or PDT [Carlos Roberto LUPI]; the Democrats or DEM [Federal Deputy Rodrigo MAIA] (formerly Liberal Front Party or PFL); Freedom and Socialism Party or PSOL [Heloisa HELENA]; Green Party or PV [Jose Luiz de Franca PENNA]; Humanist Party of Solidarity or PHS [Paulo Roberto MATOS]; Labor Party of Brazil or PTdoB [Luis Henrique de Oliveira RESENDE]; Liberal Front Party or PFL (now known as the Democrats or DEM); National Mobilization Party or PMN [Oscar Noronha FILHO]; Party of the Republic or PR [Sergio TAMER]; Popular Socialist Party or PPS [Federal Deputy Fernando CORUJA]; Progressive Party or PP [Francisco DORNELLES]; Social Christian Party or PSC [Vitor Jorge Abdala NOSSEIS]; Workers' Party or PT [Jose Eduardo DUTRA] (CIA, 2011).

Brazil has a stable government that is very unlikely to turnover due to regime change or other government altering rearrangement. Voter confidence is hampered due to the nation’s prevalence of crime, corruption, and safety shortcomings, however, these although these aspects may threaten the domestic stability of Brazil they do not undermine government stability. The likelihood of the government dissolving due to crime, corruption, or threats to domestic security is possible, but not probable as stringent bureaucracy protocols maintain the continuous authority of the Brazilian government.

B. Socioeconomic Conditions (12 points): 6.5 / 7 / 8 / 8.5This is an attempt to measure the general impact of the government’s economic

policies. In general terms, the greater the popular dissatisfaction with a government’s policies, the greater the chances that the government will

be forced to change tack, possibly to the detriment of business, or will fail.

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Socioeconomic Conditions are assessed on the basis of three subvariables:

1. Unemployment (4 points): 2.5 / 2.5 / 3 / 3While an unemployment level can mean different things to different

populations, this subvariable tries to weigh the impact of an unemployment level on the particular society. Thus

while the same percentage might translate as a rating of “3.5” in one country, it might be “2.5” in another.

Current Brazilian national unemployment rate: 7%, 2010 estimate (CIA, 2011)

Future forecasts predict a decrease in Brazil’s national unemployment rate. This is due to Brazil’s growing economy that is providing for increased international trade, the emergence of a growing middle class, and increased expendable incomes. Short-term, as well as long-term, forecasts predict that unemployment will steadily decrease as Brazil increases its global market presence and invests in renewable energy resources. The advancement of renewable, cheap energy alternatives will provide Brazil for an international market foothold in the renewable energy consortium, thus facilitating in the creation of more jobs.

2. Consumer Confidence (4 points): 2 / 2 / 2.5 / 2.5Now commonly measured around the world this is a rating on the population’s feelings

about whether they can spend or instead need to set aside resources for a cloudy future.

Brazil’s increasing GDP and GDP-PPP per capita has increased consumer confidence and has stimulated an economy that is encouraging greater consumer spending with less hesitation and worry to save fiscal resources for a cloudy future as the near future forecasts increased national economic performance.

After record growth in 2007 and 2008, the onset of the global financial crisis hit Brazil in September 2008. Brazil experienced two quarters of recession, as global demand for Brazil's commodity-based exports dwindled and external credit dried up. However, Brazil was one of the first emerging markets to begin a recovery. Consumer and investor confidence revived and GDP growth returned to positive in 2010, boosted by an export recovery (Howell, 2007).

Despite incredible economic improvements to bolster consumer confidence, Brazil has astronomically a large proportion of public debt (60.8% of GDP, 2010 estimate) and very high commercial bank prime-lending rate (44.65%, Dec. 2009 estimate). With such a large public debt and loan rates the common Brazilian consumer currently has difficulty acquiring competitive interest rates for loans, which inhibits consumer spending and confidence (CIA, 2011).

Future indicators predict that consumer confidence will increase as the Brazilian economy improves through increased international trade, which will most likely result in the lowering of prime interest rates for personal loans. The combination of increased

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disposable income and strengthening domestic economy will yield in more consumer spending and less saving for the years to come.

3. Poverty (4 points): 2 / 2.5 / 2.5 / 3Like with unemployment, an official poverty level can mean different

things in different countries, so a rating works better than a percentage. Poverty is the extent to which a section of the population cannot feed or sustain itself.

Poverty headcount ratio at national poverty line (% of population): 21.4%, 2009 estimate (World Bank, 2011).

Currently the disparity between those in poverty and those not in poverty is a very thick line. The household income by percentage share of total incomes acquired during 2007 among the lowest 10% was only about 1%, the top 10% of income earners acquired 43%. As the world becomes flatter and the strength of the Brazilian middle class grows the disparity between incomes will diminish. Short-term forecasts predict that the poverty ratio will slowly decrease, but will still be present. Optimistic long-term predictions will place Brazil’s poverty rating at about or below 10%, should international market commodities and securities trading continue to be in Brazil’s favor.

C. Investment Profile (12 points): 9 / 10 / 10 / 11This is a measure of the government’s attitude to inward investment. The

investment profile is determined by our assessment of three subcomponents.

1. Contract Viability (4 points): 4 / 4 / 4 / 4This is a measure of the extent to which the government and the

judicial system of the country uphold business contracts and treat foreigners and foreign firms the same way that host country nationals and firms would be treated, and treat them fairly in both cases.

Brazil is a safe nation for foreign investors as the government, although stained with an image of elevated corruption, actively engages in combining domestic with foreign interests. The likelihood of a foreign firm losing their contracts due to government favoritism for a domestically based national firm is very slim as the government demonstrates its interest in collaborating with the international business world. Proof of foreign investor interest can be identified by noting Brazil’s investments (CIA, 2011):

- reserves of foreign exchange and gold = $290.9 billion (31 December 2010 est.)Country comparison to the world: 6 (CIA, 2011).

Brazil’s prominent international position in foreign exchange and gold reserves means that Brazil’s domestic stability depends on the performance of other nations around the world. Should the value of internationally traded currencies reflect poorly

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https://www.cia.gov/library/publications/the-world-factbook/rankorder/2188rank.html?countryName=Brazil&countryCode=br&regionCode=sa&rank=6#br


upon Brazil’s Real then Brazil would likewise endure the hardships experienced by other faltering nations. Thus, by having outside investments in foreign exchange and gold reserves Brazil is in a symbiotic relationship where by rejecting foreign business contracts would devalue the Real compared to foreign currencies, as other nations would lose confidence in investing in Brazil.

-external debt (invested Brazilian money outside the country) =$310.8 billion (31 December 2010 est.)Country comparison to the world: 26 (CIA, 2011).

Brazil’s external debt is large enough so that should Brazil fail to pay for its outstanding debts the consequences would be dire and result in national instability for many years. In regards to international relationships and business building, a sizable external debt is an invitation for foreign businesses to invest as Brazil needs outside currency to aid in reducing their debts. Brazil has no immediate risk of defaulting on their loans as healthy consumer spending, export growth, accelerated real GDP improvements, and increased import demands ensure that outstanding external debts are responsibly addressed and will aid in maintaining foreign investor confidence.

-stock of direct foreign investment (domestic) =$349.2 billion (31 December 2010 est.)country comparison to the world: 13 (CIA, 2011)

-stock of direct foreign investment (international) =$131 billion (31 December 2010 est.)country comparison to the world: 23 (CIA, 2011)

-exports =$199.7 billion (2010 est.)country comparison to the world: 24 (CIA, 2011)

-imports =$187.7 billion (2010 est.)country comparison to the world: 22 (CIA, 2011)

The amount of investments Brazil makes to foreign businesses, both domestically and internationally, is a testament that its relationship with world business is competitive and symbiotic- with such sizable investments it can be determined that as Brazil’s national stability and economy improve so will those nations that have invested in Brazil. As the amount of exports approximately matches the amount of imports the relationship between foreign investors and Brazil is strengthened, whereas if Brazil had an import-export imbalance could hamper its international business relations.

2. Profits Repatriation (4 points): 2.5 / 3 / 3 / 3.5The ability of foreign firms to convert its profits to hard currency and to return those profits to the investors’ home country. Also to be

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considered here is the percentage of profits that can be repatriated.

High levels of government bureaucracy and an overcomplicated tax system are a detourant for foreign investors (Lloyd’s Brazil, 2011). Although foreign investments from outside nations could yield in positive returns, the acquisition of those profits could be delayed as Brazil’s government is notorious for withholding profits to be repatriated as that is currency that is leaving the nation and does not aid in Brazil’s benefit. Such behavior could be interpreted as hesitant or selfish as those profits accrued by foreign investors should be immediately handed over, to not do so damages foreign investor confidence and reduces the amount of incoming foreign investments into Brazil.

3. Payments Delays (4 points): 2.5 / 3 / 3 / 3.5The extent to which payments to foreign investors, whether on

government contract, as a part of a private partnership investment, or in direct sales, are able to obtain cash payment for goods and services in a timely manner.

Payment delays, like profits repatriation, are dependent on the Brazilian government and its reputation for operating under excessive levels of bureaucracy and an over complicated tax system makes for an increased delay in foreign investor payments (Lloyd’s Brazil, 2011). By delaying investor payments confidence is reduced among foreign investors, thus reducing the potential number of non-domestic investors in Brazil. By scarring away outside investors Brazil’s national stability would be compromised and its national debt would most likely never be dissolved.

D. Internal Conflict (12 points): 9.5 / 9 / 8 / 6.5This is an assessment of political violence in the country and its actual or

potential impact on governance. The highest rating isgiven to those countries where there is no armed opposition to the government and the government does not indulge in arbitrary violence, direct or indirect, against its own people. The lowest rating is given to a country embroiled in an on-going civil war. The Internal Conflict score is divided into three subcategories.

1. Civil War (4 points): 4 / 4 / 3.5 / 3The extent to which factions of the society are in open and physical

conflict. This may be the government on one side and a segment of the population on the other, or two factions, tribes, or religious groups fighting each other.

There is no presence of civil war within the borders of Brazil. The possibility of Brazil encountering a civil war in the future is not likely. Internal political bickering is the most active form of active conflict, however this does not compare to the formations of violent factions and physical conflict experience by civil war. However, as time progresses the possibility of Brazil experiencing a civil war increases as non-governmental factors could impose additional strain on national stability through climate change and its resulting consequences, i.e. reduced agricultural production, increased natural resource scarcity, reduced hydroelectric generation, could yield in heightened civil tension that could result in a civil war.

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2. Terrorism (4 points): 3 / 2.5 / 2.5 / 2

Terrorism is the level of violent acts perpetrated by individuals or groups with a political purpose.

According to Mauro Marcelo de Lima e Silva, Brazil’s Director-General of ABIN, Federal Intelligence Agency, “No operational activities linked to terrorism have been detected [in Brazil] by radicalized groups such as Hezbollah, Hamas or Al Qaeda, be they terrorist activities or efforts to develop or train new members for terrorist organizations, or so-called sleeper cells,” (Marcelo, 2001).

From 2000-2006 Brazil has experienced only one terrorist related fatality. However, due to the number of terrorist related incidences, 12 between 2000-2006, Brazil has been identified as the 16th most dangerous country for terrorism out of 160 other nations. (Nationmaster, 2011).

More recently, a 2009 incident involving the theft of an airplane from Brasilia exposed Brazil's vulnerability to terrorist acts. Furthermore, drug and gang related violence continue to undermine national security and harbor terrorist interests (Lehman, 2010 and Noticias, 2010). Since the beginning of Friday May 12, 2006 there have been 299 attacks against public establishments such as police stations, justice forums, buses, etc; which are allegedly organized by drug gangs and disenfranchised nationalists. The violence represents the bloodiest assault of its kind in the history of Brazil's richest state, São Paulo (Huffington, 2010).

It can be assumed that these terrorist related incidents will increase in number, as Brazil’s domestic security cannot address these issues as a problematic government mired with excessive bureaucracy hinders the development of advanced and updated counter-measures. The terrorist elements that affect Brazil today are often more advanced than the government agencies assigned to prevent them- terrorists are evolving faster than Brazil’s domestic security.

Future forecasts estimate an increase in terrorist related activity as natural energy resources become more limited with increased demand. Climate change may result in a reduction of agribusiness and hindered hydroelectricity production causing civil unrest and a heightened possibility for terrorism against the Brazilian government. Also, the growing presence of illegal drug production and trade is also potentially making for a worsening terrorism problem.

3. Civil Disorder (4 points): 2.5 / 2.5 / 2 / 1.5This covers those behaviors that would normally be contained by an efficient civilian police force in a country. These include violent demonstrations and strikes (both in level of violence and extent of involvement), criminal activity, kidnapping for monetary remuneration (i.e. income, not for the purchase of arms or other political objective), and extensive civil disobedience.

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The majority of violent crime is high in large cities. Associated crimes such as larceny and extortion are also prelevant. Gang-related violence is common with a great portion of violent encounters directed at police and other law renforcement officials. Crimes related to the drug trade are also prevalent, especially along border areas (Smarttraveler, 2011).

The chances of these types of civil disorder becoming more prevalent in the future is increased as the demands for natural resources and energy increases. Civil unrest due to the demand of limited resources will plague Brazil and yield in an increase of civil related crime. The occurrence of civil protesting will also increase, as already demonstrated by rioters protesting the construction of a new hydroelectric dam on the Amazon (South African Sunday Tribune, 2011). Furthermore, protests against government intolerance regarding excessive police force makes today’s Brazil scrutinized for its low ability to contain civil unrest, which will probably increase in frequency in the years to come (Gunn, 2010).

E. External Conflict (12 points): 10 / 10 / 9 / 7The External Conflict measure is an assessment of the risk to both incumbent

government and inward investment. It ranges from trade restriction and embargoes, whether imposed by a single country, a group of countries,

or the whole international community, through geopolitical disputes, armed threats, exchanges of fire on borders, border incursions, foreign-supported insurgency, and full-scale warfare. External Conflict is measured in three subcategories.

1. War (4 points): 3.5 / 3.5 / 3 / 2.5This refers to the extent of war fighting with forces of another

government or from another country. Thus, this category might include fighting with the host government forces on one side and an ethnic group from a neighboring country on the other, as well as fighting between two governments.

Currently, Brazil is not actively experiencing war with any other nation. The friction currently experienced between Brazil and Venezuela is only luke-warm, where political disagreements have only yielded in “sharp-elbow diplomacy,” where Brazil’s government is becoming increasingly assertive in expressing disagreements with Venezuela’s leftist leader, Hugo Chavez (Howell, 2007).

As the race for limited natural resources add to international diplomacy tensions, the possibility of Brazil entering an international war with its neighboring countries becomes more of a reality. Furthermore, as the international demand for oil increases and reserves become more scarce the power leveraged by petrodictators, such as Hugo Chavez, becomes more dominant and resembles Friedman’s 1st Law of Petrodynamics- as the demand for oil increases, the power of petrodictators increase, and civil liberties are diminuated (Friedman, 2008).

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Although Brazil does accommodate much of its energy needs with ethanol it is not enough to satisfy the demands of its nation and still imports oil to meet consumer demand:

- Oil Consumption = 2.46 million bbl/day (2009 est.)country comparison to the world: 7 (CIA, 2011)

-Oil Exports = 570,100 bbl/day (2007 est.)country comparison to the world: 27 (CIA, 2011)

-Oil Imports = 632,900 bbl/day (2007 est.)country comparison to the world: 20 (CIA, 2011)

-Oil Reserves = 13.2 billion bbl (1 January 2010 est.)country comparison to the world: 17 (CIA, 2011)

At the current rate of consumption it can be determined that Brazil will deplete its oil reserves within 15 years. As Venezuela is an immediate neighbor, the possibility of Brazil and Venezuela engaging in armed conflict for oil rights is a viable risk that must be addressed as the associated degree of risk increases over time with the deletion of oil.

2. Cross-Border Conflict (4 points): 3.5 / 3.5 / 3 / 2A measure of the extent of conflict- physical or verbal- that relates to

border issues. Territorial disputes are conducted in many forums ranging from media statements to UN resolutions to invasion by an army.

Currently, Brazil is experiencing friendly relationships with its bordering neighbors, with the exception of Venezuela’s leader Hugo Chavez. The list of commonalities shared between Brazil and its neighbors is lengthy, however Venezuela does not share as many diplomatic goals. Brazil, along with Argentina, Paraguay, and Uruguay, agreed to cooperate with free-trade commerce by signing the Mercosur signed in 1991, whereas Chavez opts to express his political and economic disinterest by challenging Brazil’s promotion of ethanol as a source of energy and undermining western economies. It was only until recently in 2006 that Venezuela was made a Mercosur member, even so their membership makes for a questionable alliance (Adam, 2006).

Present relations with Brazil’s bordering nations are non-aggressive and affable, with the exception of Venezuela, whose leverage of economic and politic power is not to be discounted. The near future looks to be even more promising over the next 10-20 years as current relations are considered at an all-time-high (Telam, 2010). Strengthened economic relations through increased continental commerce and international trade with the EU, China, and India will facilitate in the creation of a more stable Brazil, along with its bordering neighbors.

The possibility of cross-border conflict will most definitely occur as the demand for limited natural resources and developed land increases. A growing population, as well as a growing middleclass with increasingly more expendable income, will have a

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greater demand for the essential, yet limited natural resources. Increased scarcity will yield in cross-border conflict for the acquisition of these natural resources; although Brazil is very rich in many natural resources, its reserves are finite and will not sustain its population for more than 50 years considering its rate of current consumption.

3. Foreign Pressures (4 points): 3 / 3 / 3 / 2.5The extent to which the host government is influenced by another

government, whether an international power like the United States or a neighboring country that controls access to the sea…Such foreign pressure might be wielded by threat of armed force or by manipulation of economic dependencies.

Foreign pressures are not a dominant component with regards to Brazil’s political, economic, or financial risk rating, but neither is it to be neglected. Brazil is South America’s dominant nation, whose power has a large influence on the pace of diplomatic action and business transactions. The amount of foreign investments depending on the political and economic success of Brazil is so great, $310.8 billion at the end of 2010 (CIA, 2011), that it is Brazil’s political, economic, and financial responsibility to cater to its foreign investors by fulfilling their investment demands with custom-tailored negotiations. Yet, if Brazil were to neglect its foreign investors the consequences would be far from violent, but rather result in the defaulting of numerous accounts and agreements from non-domestic customers.

Brazil does not have an other government whose influence makes for a threat to economic dependencies. Currently, no other foreign pressure is wielding armed force to usurp Brazil’s continental, as well as, international presence. Venezuela, is the closest threat that is applying foreign pressure on Brazil, however Brazil has enough leverage to deflect attention away from the majority of threats that endanger national stability.

The next 10-20 years also holds a favorable position for Brazil as the continent’s dominant influential authority and respected global economic and political contender; however, after the next two decades Brazil could potential encounter greater adversity from foreign pressure, as Brazil’s natural resource reserves, whether oil or coffee, come into greater demand with an increasing world population. Furthermore, Brazil’s needs for resources to does not possess, such as refined chemical or finely engineered machinery, will likewise increase with its population.

The nations that will desire Brazil’s limited natural raw resources will be matched by Brazil’s needs, which will make for an increase exchange of demands that will create an environment of greater foreign pressures and influence. However, the likelihood of Brazil encountering a military offensive so as to present its natural bounty to its oppressors is distant within the next 50 years; chances are more likely that Brazil will not forfeit its dominance to another power without preparation and military planning, which will also aid in detouring prospective foreign pressures.

F. Corruption (6 points): 3 / 3/ 2.5 / 2This is a measure of corruption within the political system. Such corruption is a

threat to foreign investment for several reasons: it distorts the

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economic and financial environment, it reduces the efficiency of government and business by enabling people to assume positions of power through patronage rather than ability, and, last but not least, introduces an inherent instability into the political process.

In assessing the corruption risk, therefore, we look first at how long a government has been in power continuously. In the case of a one-party

sate or non-elected government, corruption, in the form of patronage and nepotism, is an essential prerequisite and it is therefore corrupt from its inception. A democratic government almost without exception begins to go wrong after an elected government has been in office for more than two

consecutive terms, that is, eight to ten years.

The highest risk ratings tend to signify an accountable democracy whose government has been in office for less than five years. An intermediate

rating often indicates a country whose government has been in office for more than 10 years and where a large number of officials are appointed rather than elected. The lowest ratings are usually given to one-party states and autarchies.

Brazil has a negative reputation with corruption, whether political, economic, or financial. The knowledge of governmental and business corruption is so commonplace that its prevalence is even found within the previous president’s office, Luis Inácio Lula da Silva. Although the president was not direct implicated in any wrong doings, cronyism and financial misappropriations were investigated throughout almost every office of the national government. Such acts of corruption, especially at the executive level of government, derail the president’s ability to command a legislative majority (Howell, 2007).

Today, the presidential atmosphere is slightly different as a new president resides in Brazil’s executive seat, Dilma Rousseff, although from the same political party as the previous president, the Workers’ Party. The capacity to engage in corruption immediately after a presidential inauguration is much less likely than that of a president enacting another term. Although the current president may not have any immoral engagements, it is the company that is under Brazil’s commander-in-chief that sways the influence of corruption.

Corruption will not fade away within the next 10-20 years as it is in the nature of not only the government to seize advantage of illicit funds, but also that of private business. The progression of time will yield a change in climate and natural resource demand, which will increase the prevalence of corruption within every facet of Brazil’s political, economic, and financial stability within the next 50 years. The demand for necessary resources through amicable and honored terms will be subverted by corrupted means, which is a grave risk for governmental confidence and consumer financial security.

G. Military in Politics (6 points): 5.5 / 5.5 / 5 / 4The military is not elected by anyone. Therefore, its involvement in politics,

even at a peripheral level, is a diminution of democratic accountability. However, it also has other implications.

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A full-scale military regime poses the greatest risk. In the short term a military regime may provide a new stability and thus reduce business risks.

However, in the longer term the risk will almost certainly rise, partly because the system of governance will become corrupt and partly because the continuation of such a government is likely to create an armed opposition.

In some cases, military participation in government may be a symptom rather than a cause of underlying difficulties.

Brazil’s military is not a governmental authority. Brazil has not a military authority in its political arena since the end of the Military Dictatorship period from 1964-1985. Although Brazil does require that males over the age 18 serve a minimum of 12 months in the military that is about as much military influence that is placed upon Brazil’s political agenda. The days of military dictatorship are over and are not to make a popular come back anytime soon.

The only possibility of Brazil returning to a military presence within its political sphere would involve the application of military force so as to defend or offensively acquire the necessary resources to maintain national stability; even so, the potential iron fist of the military will probably not overtake the overriding authority held by the New Republic, post-Military Dictatorship.

H. Religious Tensions (6 points): 5.5 / 5.5 / 4 / 3.5Religious tensions may stem from the domination of society and/or governance

by a single religious group that seeks to replace civil law by religious law and to exclude other religions from the political and/or social process; the desire of a single religious group to dominate governance; the suppression of religious freedom; the desire of a religious group to express its own identity, separate from the country as a whole.

The risk involved in these situations range from inexperienced people imposing inappropriate policies through civil dissent to civil war.

Brazil’s ethnic breakdown consists of white 53.7%, mulatto (mixed white and black) 38.5%, black 6.2%, other (includes Japanese, Arab, Amerindian) 0.9%, whose religious beliefs are made up of Roman Catholic (nominal) 73.6%, Protestant 15.4%, Spiritualist 1.3%, Bantu/voodoo 0.3%, other 1.8%, unspecified 0.2%, none 7.4%.

The gross majority of the nation’s population is Christian and is not immediately threatened by hostile religious minorities that feel oppressed by the dominant majority. In raw demographics Brazil has the largest population of Catholics in the world (CIA, 2011). Although pockets of Protestant-Catholic aggression has resulted in tragedy, where mostly inter-village vigilantism has yielded a minute number of fatalities and injuries.

It can also be argued that although Catholicism in Brazil is more prevalent than anywhere less in the world the introduction of Evangelical churches is a residual threat

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that creates minimal tensions. Flat-out suppression of religious beliefs is not found in Brazil and most probably never will (Freston, 2006).

Religious tension from Islamic Fundamentalists are an ever-present threat, however, Brazil is no more at risk than any other western country. The potential escalation of an Islamic Fundamentalist/ Sectarian threat could increase as limited resources become scarcer, primarily oil. Although Brazil does accommodate much of its energy needs with ethanol it is not enough to satisfy the demands of its nation and still imports oil to meet consumer demand:

- Oil Consumption = 2.46 million bbl/day (2009 est.)country comparison to the world: 7 (CIA, 2011)

-Oil Exports = 570,100 bbl/day (2007 est.)country comparison to the world: 27 (CIA, 2011)

-Oil Imports = 632,900 bbl/day (2007 est.)country comparison to the world: 20 (CIA, 2011)

-Oil Reserves = 13.2 billion bbl (1 January 2010 est.)country comparison to the world: 17 (CIA, 2011)

At the current rate of consumption it can be determined that Brazil will deplete its oil reserves within 15 years. The increased demand for oil will place extra strain on foreign oil importers and could potential yield in increased targeting from Middle East religious extremists as the balance of power shifts to give petronations more global authority, according to Friedman’s 1st Law of Thermodynamics.

I. Law and Order (6 points): 3 / 3 / 2 / 2

1. The Law (3 points): 1.5 / 1.5 / 1 / 1This component assesses the strength and impartiality of the legal

system, the extent of case precedent, and the consistency of legal legislation and practice.

2. The Order (3 points): 1.5 / 1.5 / 1 / 1This component assesses the popular observance of the law. This is, in

part, a willingness of the population to be self-regulating but also has to do with the numbers of police who enforce the law, the training of police forces and judicial employees, and the willingness of the forces to engage in enactment of the laws of the country.

Thus, a country can enjoy a high rating for Law (3 points) in terms of its judicial system, but a low rating for Order (1 point) if the

law is ignored for a political aim.

Enforcement of Brazilian law and order is does not meet superior standards.

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Reports of police brutality and corruption have harmed the reputation of police institutions in Brazil, especially state forces. Violence against suspects and extrajudicial executions are known to be employed by police (Kraul and Soares, 2009). In the cities of São Paulo and Rio de Janeiro, the Military Police has been involved in several controversial massacres of civilians, typically in poor neighborhoods were high profile criminals tend to hide in. There have also been massacres in prison facilities. One of the most notorious cases is the Carandiru massacre of 1992. Torture is still commonly used as means of questioning and punishing individuals; Brazilian police have murdered 11,000 people in the cities of Rio de Janeiro and São Paulo from 2003 to 2009 (Amnesty International, 2009).

Inefficiency in law enforcement is high, due to lack of appropriate infrastructure and qualified personnel. Careful investigation is the exception rather than the rule. In 2003, for instance, the state of São Paulo had up to 85% of homicide investigations archived before court proceedings due to lack of sufficient evidence. Order maintenance is also considerably inefficient, with levels of violence in the largest urban centers being compared to that of war zones by some studies. (TNI, 2007).

The underlying cause of such negative marks for law and order is due in great part because the presence of drug production and distribution. Drug trafficking and its related consequences have been, and continue to, result in corruption and street justice among law enforcement. The probability of Brazil alleviating its illegal drug crisis is not immediately foreseeable and will most likely get worse before it get better. The near future, 10 years from now, does not seem to hold promise for the improvement in the public’s confidence with its maintenance of law and order. Unless drug trafficking is grounded the consequences that follow will continue to undermine the capacity of Brazilian law and order.

Furthermore, political corruption is greatly disregarded. Although it may be common knowledge that a political authority figure is illegally acquiring public funds for personal benefit it is frequently ignored as investigatory missions are often awarded hush money so as to maintain silence. The prevalence of high-level corruption that undermines law and order is commonplace and will not change in the foreseeable future, as the components to monitor and prevent the circumvention of law and order is not in place.

J. Ethnic Tensions (6 points): 5 / 5 / 5 / 5This component measures the degree of tension within a country attributable to

racial, nationality, or language divisions. Lower ratings are given to countries where racial and nationality tensions are high because opposing groups are intolerant and unwilling to compromise. Higher ratings are given to countries where tensions are minimal, even though such differences may still exist.

Racial tension between the white majority and black minority are present, especially within slums and low-income neighborhoods. The black demographic experience a higher proportion of maltreatment from unprofessional law enforcers.

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However, this issue is localized only to small segments of Brazil. In great part, the ethnic tensions experienced attributable to race or any other division is minimal and does not pose as a great threat to the ethnic tensions risk rating. Even though minute social difference exist, primarily within socio-economic divisions, between blacks and whites the incidents of intolerance or unwillingness to compromise is a non-issue and will continue to not be a problem of national importance.

K. Democratic Ability (6 points): 3 / 3 / 2 / 1.5This is a measure of how responsive government is to its people, on the basis

that the less responsive it is, the more likely it is that the government will fail, peacefully in a democratic society, but possibly violently in a non-democratic one.

L. Bureaucracy Quality (4 points): 2 / 2 / 1.5 / 1The institutional strength and quality of the bureaucracy is another shock

absorber that tends to minimize revisions of policy when governments change. Therefore, high points are given to countries where the bureaucracy has the strength and expertise to govern without drastic changes in policy or

interruptions in government services. In these low-risk countries, the bureaucracy tends to be somewhat autonomous from political pressure and to have an established mechanism for recruitment and training. Countries that lack the cushioning effect of a strong bureaucracy receive low points because a change in government tends to be traumatic in terms of policy formulations and day-to-day administrative functions.

Democratic ability and bureaucratic quality suffers under unnecessarily high levels of government red tape. The government fails to immediately address the demands of its constituency and makes little attempt in mediating this shortcoming. The recent transition from military dictatorship to it current new era democracy has made for the exercising of greater civil liberties, however Brazil fails to have the political infrastructure to adequately hear and respond to its peoples’ demands. The end of Brazil’s military dictatorship was only in 1985, which is quite recent when acknowledging the speed of legislation. Improvements in the political system are possible with the passage of time and practice from Brazil’s juvenile government.

However, a possible detourant that will pose as a political road bump will be the need to acquire limited natural resources. Under times of extreme duress the nation might have to take a position that will not be popular among public opinion. The subversion of public demand for rapid legislation undermines democratic ability and bureaucratic quality. It seems an inevitability that Brazil’s government will have to make uncomfortable decisions that may not be aligned with popular consensus so as to maintain national stability. Should Brazil’s national stability be compromised due to the negative consequences of climate change, such as reduced agricultural yield, or increased natural resource scarcity, the inability to procure enough oil to meet national demand, immediate and drastic changes to not only meet future needs but also routine administrative functions.

II. Financial Risk Rating (50 points): 40 / 41 / 41.5 / 23

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The overall aim of the Financial Risk Rating is to provide a means of assessing a country’s ability to pay its way. In essence this requires a system of measuring a country’s ability to finance it official, commercial, and trade debt obligations.

A financial risk rating point totals as a percentage from maximum points allowed.0-24.5% = very high risk25-29.9% = high risk30-34.9% = moderate risk35-39.9% = low risk40+% = very low risk

Current Financial Risk: 40/50 = 80% Very Low Risk10-year forecast: 41/50 = 82% Very Low Risk20-year forecast: 41.5/50 = 83% Very Low Risk50-year forecast: 23/50 = 46% Very Low Risk

A. Foreign Debt as Percentage of GDP (10 points): 9 / 9.5 / 9.5 / 5The estimated foreign debt in a given year, converted into US dollars at the

average exchange rate for that year, is expressed as a percentage of the gross domestic product converted into US dollars at the average exchange rate for that year. The risk points are then assigned according to the following scale, note pg. 69 of Howell.

Brazil's foreign debt was $263 billion in March 2008 (Hugh, 2008).Brazil’s GDP was $2 trillion (2008 estimate) (CIA, 2011).$263 billion / $2 trillion = 0.13 or about 13% of Brazil’s GDP is comprised of foreign debt.

A commitment to primary surplus targets and declining interest rates have been helping contain the debt-load, and the ratio of gross debt to GDP declined to 55.6 percent in 2007 from 58.4 percent in 2003 (Hugh, 2008)

The continued improvements with a strengthening GDP will make Brazil’s economic forecast more promising and aid to reduce foreign debt as percentage of GDP. The near future, 10-20 years, shows margins for economic improvement with greater numbers of incoming foreign investors as Brazil’s political and economic performance improves. Percent ratios will decrease in the next 10-20 years, thus making for higher category point totals and safer risk.

However, the long-term forecast, 50 years from now, does not seem to be as promising as the consequences of climate change could potentially have adverse effects with Brazil’s agricultural trade and hydroelectric demands. This, in combination with a race for limited natural resources and developed land, will place an extra heavy burden upon Brazil and may need the financial assistance from foreign states, which will again

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increase the amount of foreign debt as a percentage of GDP. Should this happen, in about 50 years, Brazil will not have the immediate means of compensating for the loans accrued and will earn a poor credit rating will decreased international fiscal trust as Brazil may have to default on much of the newly acquired loans. Percent ratios will increase in 50 years, thus making for lower category point totals and higher risk.

B. Foreign Debt Service as a Percentage of Exports of Goods and Services (10 points): 7 / 7.5 / 8 / 5The estimated foreign debt service, for a given year, converted into US dollars at the average exchange rate for that year, is expressed as a percentage of the sum

of the estimated total exports of goods and services for the year, converted into US dollars at the average exchange rate for the year. The risk points are then assigned to the following scale, note pg. 69 of Howell.

The sum of the estimated total exports of goods and services:$199.7 billion, 2010 estimate (CIA, 2011).

Export of Goods = $193,752 million, 2010 estimate (Bladex, 2011)$152,995 million, 2009 estimate$197,943 million, 2008 estimate

Foreign Debt Service = $54,291 million, 2010 estimate (Bladex, 2011)$55,077 million, 2009 estimate$55,426 million, 2008 estimate

Foreign Debt Service / Export of Goods$54,291 / $193,752

= 0.28 or 28% for 2010

10 and 20 year forecasts will yield a decrease in foreign debt service as a percentage of exports of goods and services as Brazil’s strengthening economy will have less fiscal responsibility in paying as much foreign debt service. Speculations can be made that Brazil will also be exporting more goods internationally, thus further reducing the foreign debt service as a percentage of exports of goods and services.

Brazil’s 50 year forecast for foreign debt service expressed as a percentage of exports of goods will increase as adverse economic predictions will result in an increased need for Brazil to acquire more loans to ensure its national stability in the light of reduced agricultural distribution and sale and diminished goods exportation. Brazil will be increasing its need for imports in 50 years as its natural resources, namely oil, will be depleted, thus forcing Brazil to seek energy alternatives or acquire more funds to purchase more petroleum, and without means to compensate these loans will negatively effect Brazil’s foreign debt service while simultaneous reducing the export of goods.

C. Current Account as a Percentage of Exports of Goods and Services (15 points): 9.5 / 9.5 / 9.5 / 5The balance of the current account of the balance of payments for a given year,

converted into dollars at the average exchange rate for that year, is

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expressed as a percentage of the sum of the estimated total exports of goods and services for that year, converted into US dollars at the average exchange rate for the year. The risk points are then assigned according to the following scale, note pg. 70 of Howell.

Current Account Balance = $-53,722 million, 2010 estimate (Bladex, 2011)$-24,302 million, 2009 estimate$-28,192 million, 2008 estimate

Export of Goods = $193,752 million, 2010 estimate (Bladex, 2011)$152,995 million, 2009 estimate$197,943 million, 2008 estimate

Current Account Balance / Export of Goods$-53,722 / $193,752

= -0.28 or -28%

Recent economic performance trends show that Brazil’s current account balance, which is the balance of trade (exports minus imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aid) will continue to grow. A current account surplus increases a country's net foreign assets by the corresponding amount, and a current account deficit does the reverse. This means that Brazil is decreasing its net foreign assets. Its export of goods will increase. Although Brazil’s current account balance will continue to fall into the negative, its export of goods will increase, thus the current account as a percentage of exports of goods and services will remain about the same.

Long term forecasts, 50 year from now, will not be as favorable as Brazil’s export of goods will not be as strong and its account balance will fall deeper into negative territory. The ending result is a poor performing ratio and low point score, which means heightened risk.

D. Net International Liquidity as Months of Import Cover (5 points):5 / 5 / 5 / 3The total estimated official reserves for a given year, converted into US dollars

at the average exchange rate for the year, including official holdings of gold converted in US dollars at the free market price of the period, but excluding the use of IMF credits and the foreign liabilities of the monetary authorities, is divided by the average monthly merchandise import cost, converted in US dollars at the average exchange rate for the period. This provides a comparative liquidity risk ratio that indicates how many months of imports can be financed with reserves. The risk points are then assigned according to the following scale, note pg. 70 of Howell.

(basically provides how many months of imports can be financed with exchange reserves)

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“With more than 16 months of import cover, Brazil’s international liquidity position is excellent.” (Altradius, 2011)

Brazil’s net international liquidity as months of import cover is in very good standing and will continue to perform well with more industrial output and exporting. This trend will continue until international trade diminishes and/or Brazil assets become less liquid. The possibility of this scenario becomes a possible risk 50 years from now as increased resource demand and climate change will negatively effect trade and economic reserve.

E. Exchange Rate Stability (10 points): 9.5 / 9.5 / 9.5 / 5The appreciation or depreciation of a currency against the US dollar (against

the German Mark in the case of the US) over a calendar year or the most recent 12-month period is calculated as a percentage change. The risk points are then assigned to the following scale, note pg. 71 of Howell.

Exchange rates change from 2009-2010, Reals per US dollar1.77 = 20102 = 2009

2 - 1.77 = 0.230.23 / 1.77 = 0.13 or 13% change

III. Economic Risk Rating (50 points): 38.5 / 40.5 / 41 / 14The overall aim of the Economic Risk Rating is to provide a means of assessing a

country’s current economic strengths and weaknesses.

An economic risk rating point totals as a percentage from maximum points allowed.

0-24.5% = very high risk25-29.9% = high risk30-34.9% = moderate risk35-39.9% = low risk40+% = very low risk

Current Econ. Risk : 38.5/50 = 77% Low Risk10-year forecast: 40.5/50 = 81% Very Low Risk20-year forecast: 41/50 = 82% Very Low Risk50-year forecast: 14/50 = 28% High Risk

A. GDP per Head (5 points): 3 / 3.5 / 4 / 1The estimated GDP per head for a given year, converted into US dollars at the

average exchange rate for that year, is expressed as a percentage of the average of the estimated total GDP of all the countries covered by ICRG. The risk points are then assigned according to the following scale, note pg. 72 of Howell.

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According to the CIA World Factbook the world’s GDP, combined from 181 different countries, was $62,000,000,000,000 or $62 trillion.

Divide $62 trillion by 181 to determine the average GDP on the national level:

$62 trillion / 181 = $342,500,000,000 or $342 billion

World GDP per capita = $11,200; 2010 estimate

Brazil GDP per capita = $10,800; 2010 estimate

10800 / 11200 = 96.4%

B. Real GDP Growth (10 points): 10 / 10 / 9 / 1The annual change in the estimated GDP, at constant 1990 prices, of a given

country is expressed as a percentage increase or decrease. The risk points are then assigned according to the following scale, note pg. 72 of Howell.

GDP- Real Growth = 7.5%; 2010 estimate (CIA, 2011)

Brazil’s economy will continue to grow and prosper as Brazil acquires lower external debts and increase industrial production and trade. The long-term forecast of 50 years is less promising as adverse climate changes and resource demands will retard agricultural prosperity and diminish international trade. Real GDP growth will reflect a negative trend, where the GDP will lose value from previous years.

C. Annual Inflation Rate (10 points): 8.5 / 8.5 / 8 / 4The estimated annual inflation rate (the unweighted average of the consumer

Price Index) is calculated as a percent change. The risk points are then assigned to the following scale, note pg. 73 of Howell.

Inflation rate (consumer prices) = 4.9%; 2010 estimate (CIA, 2011)

Brazil’s currency inflation will increase dramatically in 50 years as the market will be less welcoming for investors. Consumers will be hesitant to spend and will save their funds, thus causing an inflation that will quickly rise due to economic pressures due to climate change and resource scarcity and the resulting consequences of these pressures.

D. Budget Balance as a Percentage of GDP (10 points): 6 / 7 / 8 / 3The estimated general government budget balance (excluding grants) for a given year in the national currency is expressed as a percentage of the estimated GDP

for the year in the national currency. The risk points are then assigned according to the following scale, note pg. 73 of Howell.

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Brazil’s budget balance as a percentage of GDP for 2009 is approximately -3%, which is 6 points for this category’s risk component. Forecasts show that this percentage will eventually level out within the next 20 years and possibly earn ratio numbers in positive percentages. However, 50 year indicator are not as promising as Brazil’s government will have a smaller budget, as well as a smaller GDP. The budget will be the first to rapidly sink should Brazil endure environmental and/or economic hardship in 50 years; this will result in a negative performance in the expression of budget balance as a percentage of GDP.

E. Current Account as a Percentage of GDP (15 points): 11 / 11.5 / 12 / 5The estimated balance on the current account of the balance of payments for a

given year, converted into US dollars at the average exchange rate for that year, is expressed as a percentage of the estimated GDP of the country concerned, converted into US dollars at the average rate of exchange for the period covered. The risk points are then assigned to the following scale, note pg. 74 of Howell.

Brazil’s current account as a percentage of GDP for 2010 is approximately –1.8% and, compared to only a few years ago, is demonstrating a trend of improvement, where percentages are slowly coming out of the negative into positive performance into plus-zero ratios. This trend will is likely to continue for the next 20 years, but further speculation is difficult to assess. We can assume that with more climatic change and its negative effects compounded with resource scarcity will result in negative listings for account balances, combined with reduced GDP performance will yield in increased categorical risk.

IV. Calculating composite Political, Financial, and Economic Risk Rating.A. The following formula is used to calculate the aggregate political, financial, and

economic risk: CPFER (country X) = 0.5 (PR + FR + ER)CPFER = composite political, financial, and economic risk ratingsPR = Total political risk indicatorsFR = Total financial risk indicatorsER = Total economic risk indicators

B. Degree of Risk0-49.9% = Very High Risk50-59.9% = High Risk60-69.9% = Moderate Risk70-79.9% = Low Risk80-100% = Very Low Risk

Political Risk Rating:Current Pol. Risk Rating: 70/100 = 70% Low Risk10-year forecast: 71.5/100 = 71.5% Low Risk20-year forecast: 65.5/100 = 65.5% Mod. Risk50-year forecast: 61/100 = 61% Mod. Risk

Financial Risk Rating:Current Financial Risk: 40/50 = 80% Very Low Risk10-year forecast: 41/50 = 82% Very Low Risk

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20-year forecast: 41.5/50 = 83% Very Low Risk50-year forecast: 23/50 = 46% Very Low Risk

Economic Risk Rating:Current Econ. Risk : 38.5/50 = 77% Low Risk10-year forecast: 40.5/50 = 81% Very Low Risk20-year forecast: 41/50 = 82% Very Low Risk50-year forecast: 14/50 = 28% High Risk

Brazil Risk Rating Assessment

V. Conclusion

Brazil’s current political, financial, and economic situation is much more promising than only a decade ago. A new political order has introduced a new economic model that is bring greater prosperity to Brazil have ever before. Diplomatic relations with its continental neighbors, even relations with Venezuela are improving with their addition to MERCOSUR, have made for greater commerce. Furthermore, Brazil has a very significant foreign exchange reserve, 7th largest in the world, valued at $316 billion. This number has skyrocketed from its earlier value of $50 billion in 2004. Healthy external debts to GDP ratio at 14% of GDP will continue to improve and a federal deficit at 2.3% of GDP is projected to further decrease. Brazil’s prosperity is strengthening its national stability on all fronts- political, economic, and financial (Houdard, 2010).

Both internally and externally Brazil is prospering and forecasts show the more improvement is to come. The government has reduced the level of public debt and is encouraging consumer to spend. However, import levels are expected to rise faster than Brazil’s exports, which will potentially strengthen international dependency and relations, but simultaneously increase the fiscal responsibility to repay loans acquired from foreign means. Current infrastructure shortcomings are retarding the maximum potential performance of the nation; to compensate the government has raised concerns as it is making plans to slash public sector funding from healthcare and education and re-route those funds into long term growth. These long-term stability plans include: updating an overstretched electrical grid, rebuilding roads and airports, and preparing for the upcoming World Cup in 2014 and Summer Olympics in 2016 (Altradius, 2011).

The limiting factors that will impair Brazil’s national stability and threaten it political, financial, and economic prosperity will be of two major parts: climate change and the race for finite natural resources.

Climate change will greatly negatively effect Brazil and will introduce severe

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Risk Category Current 10-year 20-year 50-year

Political Risk 70 71.5 65.5 61Financial Risk 40 41 41.5 23Economic Risk 38.5 40.5 41 14Composite Score 74.25 76.5 74 49_____________________________________________________________________Risk Band Low Low Low Very High


changes in the weather that will threaten agriculture, hydroelectric energy generation, as well as hinder the production of natural, reoccurring energy sources, namely ethanol. The consequences of climate change will be more than just a temperature change with less rain.

Water sources and agriculture:

Water resources: Changing rainfall patterns, especially in the drought-affected Northeastern region of the country, will mean poorer water re-sources and a reduced water supply. Agriculture will suffer of salinization of soils through irrigation and further decrease productivity of subsistence agriculture with all the social consequences on food security, migration and poverty. Traditional mechanisms to provide fresh water for human consumption would be at risk posing additional challenges to the already difficult water management. Agriculture, Food Security: Agriculture is likely to be one of the most affected economic sectors with forced shifts in the cropping zones and severe impacts on the profitability of the main cash crops; the possible increase in the periods of dry weather should cause problems for the productivity in practically every annual and perennial crop in Brazil. (Kuenzler, 2011).

Furthermore, Brazil is also the world’s biggest coffee producer and the world’s second biggest soybean producer, thus making Brazil a country that is vital to the global food supply. The U.N.'s Intergovernmental Panel on Climate Change predicts an increase in global temperatures of 3.6 to 7.2 degrees in the next 20 years, with even greater temperature increases in the Amazon. That could mean a 10% reduction Brazil's arable land for coffee by 2020 — and a one-third reduction by 2070 — as the crop's suitable climate migrates into the Andean foothills of neighboring Argentina and Brazil's soy crop, the largest outside the USA, would lose an estimated 20% of its cultivatable land by 2020 (Sibaja, 2009).

The next 10-20 years will prove to be an era of political, economic, and financial prosperity, however, after the 20 year mark Brazil will encounter climate change that will realign its national stability as it will have to redesign it political, economic, and financial blueprints so as to accommodate the change in climate and the resulting consequences. After the 50-year mark forecasts predict that climate change will alter Brazil’s ecosystem so radically that it will be a huge obstacle and possible the ruin of Brazilian agriculture, ethanol production, hydroelectric generation, and may introduce desertification where lush jungles once stood.

Brazil is rich in natural resources, which are used for the manufacturing and global distribution of transport equipment, iron ore, soybeans, footwear, coffee, and autos (CIA, 2011). However, as population increases, as with demand, the finite reserves of these resources will be tapped out. Furthermore, Brazil is consuming more oil than it has

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in domestic reserves and currently requires that it import supplement energy sources from outside of the country. As the demand for oil increases and reserves decrease the price for oil will increase and Brazilians may not be able to afford this necessity. Like oil, the quantifiable limits on natural resources, whether oil or timber or etc, will cause economic and political unrest as Brazil races against the rest of the world for the acquisition of such resources. In order to maintain national in 50 years stability Brazil will have to incur additional expenses to obtain necessary resources for the sake of domestic survival, which will result in greater fiscal borrowing. Without the natural resources that has made Brazil prosperous Brazil will have great difficulty in paying outstanding loans, which will severely increase its composite national risk.

The Final Word:

Brazil’s Composite Risk Rating encourages investments today and 10-years from now. At about the 20-year mark and after will incur heightened risk due to climate changes and increased competition for scarce natural resources. By the 50-year mark Brazil will be too much of a liability where foreign investments would prove to be too risky as climate change and the race for limited natural resources will overwhelm national stability, with regards to political, economic, and financial risk.

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(Howell, 2007)Howell, Llewellyn D. The Handbook of Country and Political Risk, 4th edition,

PRS Group Inc. 2007.

(Huffington, 2010)Lehman, Stan. “WikiLeaks: Brazil Vulnerable To Terrorism,” Huffington Post – World

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(Hugh, 2008)Hugh, Edward. “Brazil Economy Watch”. Brazil Economy, Blogspot website as of 1

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weather/climate/globalwarming/2009-02-19-brazil-coffee-climate-change_N.htm. Retrieved 22 June 2011.

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brazil-international country risk guide worksheet

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