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Shocks to the system

            At the start of the year, it was not uncommon to hear businessmen saying that Brazil was enjoying its best economic conditions for a generation. The country appeared to be well on the way to a period of sustained economic expansion. Most economists were looking to another strong year of growth, with gross domestic product expanding by 4.5 per cent in 2001, on top of 4 per cent in 2000. Real interest rates were about to fall to single digits for the first time in decades.

            However, within just a few months, the outlook for the Brazilian economy has deteriorated dramatically. A whole series of unexpected factors are to blame. "We have been confronted by a series of shocks", admits Armínio Fraga, president of the central bank.

            The main cause of this turnaround has been the energy crisis. It had been well known for several years that Brazil ran the risk of power shortages because the expansion of capacity was not accompanying growth in demand, leaving the reservoirs that fuel the power stations precariously low. Yet, even with so much advance warning, the introduction of rationing still came as a surprise.

Concerning the Brazilian economy, the year 2001 has been