Brazil takes off - from "The Economist"
Nov 12th 2009
From The Economist print edition
Now the risk for Latin America’s big success story is hubris
WHEN, back in 2001, economists at Goldman Sachs bracketed Brazil with Russia, India and China as the economies that would come to dominate the world, there was much sniping about the B in the BRIC acronym. Brazil? A country with a growth rate as skimpy as its swimsuits, prey to any financial crisis that was around, a place of chronic political instability, whose infinite capacity to squander its obvious potential was as legendary as its talent for football and carnivals, did not seem to belong with those emerging titans.
Now that scepticism looks misplaced. China may be leading the world economy out of recession but Brazil is also on a roll. It did not avoid the downturn, but was among the last in and the first out. Its economy is growing again at an annualised rate of 5%. It should pick up more speed over the next few years as big new deep-sea oilfields come on stream, and as Asian countries still hunger for food and minerals from Brazil’s vast and bountiful land. Forecasts vary, but sometime in the decade after 2014—rather sooner than Goldman Sachs envisaged—Brazil is likely to become the world’s fifth-largest economy, overtaking Britain and France. By 2025 São Paulo will be its fifth-wealthiest city, according to PwC, a consultancy.
And, in some ways, Brazil outclasses the other BRICs. Unlike China, it is a democracy. Unlike India, it has no insurgents, no ethnic and religious conflicts nor hostile neighbours. Unlike Russia, it exports more than oil and arms, and treats foreign investors with respect. Under the presidency of Luiz Inácio Lula da Silva, a former trade-union leader born in poverty, its government has moved to reduce the searing inequalities that have long disfigured it. Indeed, when it comes to smart social policy and boosting consumption at home, the developing world has much more to learn from Brazil than from China. In short, Brazil suddenly seems to have made an entrance onto the world stage. Its arrival was symbolically marked last month by the award of the 2016 Olympics to Rio de Janeiro; two years earlier, Brazil will host football’s World Cup.
At last, economic sense
In fact, Brazil’s emergence has been steady, not sudden. The first steps were taken in the 1990s when, having exhausted all other options, it settled on a sensible set of economic policies. Inflation was tamed, and spendthrift local and federal governments were required by law to rein in their debts. The Central Bank was granted autonomy, charged with keeping inflation low and ensuring that banks eschew the adventurism that has damaged Britain and America. The economy was thrown open to foreign trade and investment, and many state industries were privatised.
All this helped spawn a troupe of new and ambitious Brazilian multinationals. Some are formerly state-owned companies that are flourishing as a result of being allowed to operate at arm’s length from the government. That goes for the national oil company, Petrobras, for Vale, a mining giant, and Embraer, an aircraft-maker. Others are private firms, like Gerdau, a steelmaker, or JBS, soon to be the world’s biggest meat producer. Below them stands a new cohort of nimble entrepreneurs, battle-hardened by that bad old past. Foreign investment is pouring in, attracted by a market boosted by falling poverty and a swelling lower-middle class. The country has established some strong political institutions. A free and vigorous press uncovers corruption—though there is plenty of it, and it mostly goes unpunished.
Just as it would be a mistake to underestimate the new Brazil, so it would be to gloss over its weaknesses. Some of these are depressingly familiar. Government spending is growing faster than the economy as a whole, but both private and public sectors still invest too little, planting a question-mark over those rosy growth forecasts. Too much public money is going on the wrong things. The federal government’s payroll has increased by 13% since September 2008. Social-security and pension spending rose by 7% over the same period although the population is relatively young. Despite recent improvements, education and infrastructure still lag behind China’s or South Korea’s (as a big power cut this week reminded Brazilians). In some parts of Brazil, violent crime is still rampant.
National champions and national handicaps
There are new problems on the horizon, just beyond those oil platforms offshore. The real has gained almost 50% against the dollar since early December. That boosts Brazilians’ living standards by making imports cheaper. But it makes life hard for exporters. The government last month imposed a tax on short-term capital inflows. But that is unlikely to stop the currency’s appreciation, especially once the oil starts pumping.
Lula’s instinctive response to this dilemma is industrial policy. The government will require oil-industry supplies—from pipes to ships—to be produced locally. It is bossing Vale into building a big new steelworks. It is true that public policy helped to create Brazil’s industrial base. But privatisation and openness whipped this into shape. Meanwhile, the government is doing nothing to dismantle many of the obstacles to doing business—notably the baroque rules on everything from paying taxes to employing people. Dilma Rousseff, Lula’s candidate in next October’s presidential election, insists that no reform of the archaic labour law is needed.
And perhaps that is the biggest danger facing Brazil: hubris. Lula is right to say that his country deserves respect, just as he deserves much of the adulation he enjoys. But he has also been a lucky president, reaping the rewards of the commodity boom and operating from the solid platform for growth erected by his predecessor, Fernando Henrique Cardoso. Maintaining Brazil’s improved performance in a world suffering harder times means that Lula’s successor will have to tackle some of the problems that he has felt able to ignore. So the outcome of the election may determine the speed with which Brazil advances in the post-Lula era. Nevertheless, the country’s course seems to be set. Its take-off is all the more admirable because it has been achieved through reform and democratic consensus-building. If only China could say the same.
Presidential politics in Brazil
Her master's voice
Nov 12th 2009 | SÃO PAULO
From The Economist print edition
Dilma Rousseff, Lula’s preferred successor, is a more interesting politician than she appears to be. But would she be different from her boss?
WHEN Brazil’s president, Luiz Inácio Lula da Silva, identified Dilma Rousseff, his chief-of-staff, as his preferred successor in the top job, the collective response of people who follow such things was a puzzled frown, as if perhaps there had been a misprint in the newspaper. Ms Rousseff had proved herself an able administrator. But if she had the natural political gifts required for electoral success in the world’s fourth-largest democracy they had been well hidden. Her campaigns for local office in Rio Grande do Sul, her political home, were unsuccessful. Her sentences go on for a long time and contain lots of subclauses. But she has one thing that nobody else in Brazilian politics has got: Lula’s unqualified backing. Given that the president’s approval ratings are still north of 80% as he enters the final year of his second term, this is worth a lot.
Despite their difference in manner, Ms Rousseff has become Lula’s political shadow. Her duties include the government’s “Growth Acceleration Programme”, which aims to mobilise investment of $301 billion in infrastructure between 2007 and 2010. So the two constantly traverse the country opening roads and the like, or even just announcing that they might be built.
Their views are impossible to tell apart. Her answers to questions about Brazil’s future tend to begin with the words, “President Lula’s government has…” before going on to list recent achievements. Her concern with keeping inflation low, her faith in the government’s wisdom to plan and “induce” economic activity, and her refusal to criticise undemocratic actions by other governments in the region, especially that of Venezuela’s Hugo Chávez, are identical to the president’s. So it is slightly surprising that she only switched her political allegiance to the Workers’ Party, a vehicle built around Lula, nearly two decades after it was founded.
Though it has been smothered recently, Ms Rousseff in fact has an interesting political identity of her own. Born to a Bulgarian immigrant father and a teacher in Belo Horizonte, the capital of Minas Gerais, her childhood was much more comfortable than Lula’s. But she became a middle-class radical, involving herself in the far-left resistance to the military governments that ruled Brazil for two decades from 1964. Quite what she did is the subject of some mythmaking. But it seems that she helped to plan a celebrated robbery in which a gang stole $2.4m from the safe of Adhemar de Barros, a former governor of São Paulo (who rejoiced in the tag “he steals but gets things done”).
Her punishment was real enough. She suffered torture by electric shock for 22 days and was jailed for almost three years. Ms Rousseff does not talk about this much, and her language when discussing the military government is surprisingly detached. She talks about how “possibilities shrink” and “life becomes impoverished for everyone” under a dictatorship.
With democracy restored, Ms Rousseff (who has been married and separated twice) settled down to a career in public administration. Her success as state energy secretary in Rio Grande do Sul at a time of electricity shortages brought her to Lula’s attention. As his first energy minister, she gained a reputation with businessmen as a tough, but fair, negotiator. She was promoted to chief-of-staff when the incumbent was felled by a vote-buying scandal, in 2005. Lula appears to credit Ms Rousseff with getting his government back on its feet again after it nearly fell apart.
Like Lula, Ms Rousseff’s political views have mellowed. “You can’t be fundamentalist about anything,” she says while discussing the government’s wish that equipment used to extract oil from new offshore fields should be made in Brazil. “We respect contracts—we are part of the West,” she adds, explaining that she would honour the terms on which foreign oil firms currently operate in Brazil. She describes herself now as a “Brazilian democratic socialist”. She wants to reform the state to make it more effective but not smaller.
Asked whether a technocrat like her can be elected president, she replies “I think so.” Her task before the election next October is contradictory. She needs to stick close enough to Lula to benefit from the heat he radiates, while distancing herself enough to convince voters that she is her own woman. The opinion polls have Ms Rousseff lagging the opposition’s José Serra by between 15 and 20 points. Neither of them has officially declared their candidacy yet, and the campaign will start in earnest only in April. The question that Ms Rousseff will have to ponder is whether seamless continuity is indeed the path to the presidency.
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