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Brazil

From 1991 to 1993, Sovereign supported the transition of several Latin American countries to democratic, free market economies. Overcoming Hyper-inflation Brazil entered the 1990s as the world's 10th largest economy with a population approaching 180 million. Its Gross Domestic Product ('GDP') of USD 377 billion was double that of Mexico, its nearest Latin American rival. But despite Brazil's huge potential, its people and its markets have struggled for generations under institutionalised political corruption that has inhibited economic development. Brazil was beginning to emerge from a decade of hyper-inflation (rates exceeded 1000%) towards an economy founded upon orthodox economic policies and fiscal responsibility. But the uncertainty caused by President Collor's impeachment proceedings in 1991 led to a sell-off of Brazilian equities as capital flight accelerated. Brazil's growth and development depended upon reversing the obstacles to capital and investment flows. Only when barriers to international capital were removed was the country and its corporations able to gain access to the investment necessary to build a sustainable economy. The Benefits of Deregulation Following the deregulation of the Brazilian stock market in 1991, Sovereign was among the first foreign portfolio investors to enter the Brazilian stock market, acquiring a significant position in Telebras, the state-controlled national telephone company. Other investments in Brazil included Electrobras, the Brazilian power generation and distribution monopoly, and Banespa, the bank of the state of Sao Paulo. During this time, Sovereign also invested in Latin American government bonds which were restructured following the 1980s debt default across the region.

Background The largest economy and by far the most populous country in South America, Brazil is endowed with a wide range of natural resources from minerals to natural gas. Heavy investment in ethanol fuel helped the country achieve energy independence for the first time in 2006. In recent years. an export-driven boom has stabilised public finances, boosted living standards, and spurred investment in infrastructure. However, economic inequality is pronounced, and, partly as a result of restrictive labour laws, 40% of the population operates in the informal economy. Nearly a fifth of Brazilians live in shanty towns, which are often controlled by violent drugs gangs. For more information, please visit the Legatum Prosperity Index country profile of Brazil: Prosperity Index Country Profile