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Brazil hopes exports will fund defense

  |   June 1, 2012 at 3:25 PM
BRASILIA, Brazil, June 1 (UPI) -- Brazil has set out a strategy of continuing to build defense spending on the back of earnings from raw material exports.

Senior Brazilian government officials told an international investment summit that increased defense expenditure was a response to the perceived urgency of securing the country's natural resources on land and offshore.

The comments contrast with statements that set out plans to expand earnings through manufacturing and processing of raw materials.

Brazil has been investing heavily in developing its industrial infrastructure, including aviation and defense industries but depends largely on exports of commodities and raw materials for revenue. Progress on industrialization has been rapid but the returns remain low.

Industrial production shrank for a second straight month in April, a development that took some officials by surprise. Heavy investment in industrial expansion has raised expectations of a move away from dependence on commodities and raw materials.

However, industrial output fell 0.2 percent in April after dropping 0.5 percent in March, data from the national statistics agency IBEG indicated. The output was down 2.9 percent from a year ago.

Brazil's central bank has been implementing various interest rate maneuvers to stimulate and speed up activities in sectors that are seen to be on the path to recovery. Both the government and central bank regulators have been trying to dampen revaluation of the real, the national currency which had rising in response to huge infusions of foreign investment drawn to Brazilian interest rates.

The real is down 7.1 percent against the U.S. dollar since the beginning of 2012, a move designed to make Brazilian exports more competitive.

That strategy ties into government plans to make greater use of raw materials earnings to boost industrialization and upgrade the long-neglected armed forces. As the country's earnings from commodities and raw materials grow, and more energy resources come on stream, Brazilian officials have been making references to the need for bolstering defense.

Brazilian Defense Minister Celso Amorim said in published comments Brazil must spend more to increase its preparedness and its ability to react to or dissuade anyone from attempting "to invade our territory."

Despite good relations with all 10 of its neighbors, Brazil is seeing a resurgence in support to build its defenses and to bring them closer to military spending elsewhere.

Current Brazilian spending on defense works out to 1.6 percent of gross domestic product compared to more than 4 percent by the United States, Russia and other countries. Brazil's defense spending total exceeded $30 billion, a figure that is likely to rise sharply when the government announces its decision on the air force jet fighter acquisition program.

Brazilian government officials said their current plans do not aim at matching U.S. or Russian defense spending levels. Instead, officials see 2 percent of gross domestic product as a more realistic figure. That defense spending level, if reached, would compare with defense spending in China, India and other major emerging markets.

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Topics: Celso Amorim
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