ABSTRACT
The first oil shock posed a major challenge to the Brazilian economy. The development of a foreign exchange gap in Brazil after the first oil shock meant that external finance was absolutely essential to maintain economic growth and industrialization. A major structural change took place in Brazil in the 1970s and early 1980s as a result of the investments in the capital and intermediate goods sectors, in petroleum and hydroelectricity, and in infrastructure. The inter-relation between the investments in hydroelectricity and in the intermediate goods industries which make intensive use of electricity is a major factor behind Brazil’s increased international competitiveness. Expansionary fiscal policies in 1979 and 1980 were also detrimental to Brazil’s external balance. With the virtual cessation of international private lending to developing countries in 1982/1983, Brazil has prematurely been forced to make large transfers of real resources to the rest of the world.
