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B. Foreign Loans and the Brazilian Economy in General
In 1974, Brazil incurred a trade deficit of $4.7 billion as a
result of higher prices charged for oil due to the energy crisis.
At that time, a trade deficit of this size was large for Brazil.
After 1974, Brazil greatly increased its reliance on foreign debt.
Its foreign debt increased dramatically from 1974 to 1983, and the
ratio of Brazil's total foreign debt to its foreign currency
reserves grew larger. The Brazilian Government sought to reduce
Brazil's trade deficit by decreasing imports, increasing exports,
and encouraging foreign borrowing for internal domestic
development. It hoped to increase the country's productive
capacity by stimulating greater investment in steel, oil, pulp and
paper, aluminum, petrochemical products, fertilizers, capital
goods, and other capital items.
Brazil's currency, the cruzeiro, was not convertible to
foreign currency in international markets. Although the cruzeiro
was freely tradeable, as a practical matter, foreign parties
outside of Brazil would not accept payment in cruzeiros.
Brazil needed to maintain adequate foreign currency reserves
to engage in international trade to finance its trade deficit.
During 1974 through 1975, the Brazilian Government sought to
maintain a foreign currency reserve of about $6 billion for this
purpose.
During 1974, Brazilian borrowers generally were reluctant to
take out foreign loans because the Central Bank required a minimum
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