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Brazil: Ready for take-off

Posted in Américas, Economia, Comércio & Finanças, Regiões by Rodrigo Felismino on 11/03/2010

Reino Unido – The Guardian – 06/03/2010

A sustained period of stable government and a responsible fiscal policy has helped Brazil’s economy to spread its wings and reach for the sky

If you have ever seen a chicken try to fly you have an idea of what Brazil used to look like: spindly legs hopping faster and faster, a flutter into the air, hovering, then crashing back to earth amid squawks and feathers. The pattern repeated itself through much of the 20th century. The economy would gather strength and speed, apparently poised for take-off, only to end up splat.

What analysts called the vôo da galinha (chicken hops) were all the more frustrating because the potential of such a vast, populous, dynamic country was immense. Brazilian schoolchildren were taught that they lived in the país do futuro, (country of the future) but political turmoil, hyper-inflation and reckless economic policies meant that future never quite arrived.

Look at South America’s giant today and the picture is transformed. The place is booming: a fast-growing consumer market, investment-grade status for sovereign debt, huge foreign reserves, surging commodity exports and agricultural productivity to rival the US. Foreign investment has tripled in a decade.

Brazil’s $1.48tn economy outweighs those of India and Russia, per-capita income is nearly double China’s and economic growth is clipping along at over 4% after shrugging off the credit crunch. Biofuels and recently discovered oil and gas deposits are set to make Brazil an energy exporter for the first time. Better jobs and social mobility are helping millions to escape poverty.

“I didn’t think I would see this in my lifetime,” said Marcelo Moura, a partner at Pinheiro Neto, one of Brazil’s biggest law firms. “I’m 45-years-old and experienced the military dictatorship, the hyper-inflation and all the other problems. The country has changed.”

Optimism is rippling across the stock exchange, boardrooms and factory floors. “The country has begun a good cycle. The fundamentals are in good shape,” said Luiz Fernando Furlan, co-president of Brazil Foods, one of the largest companies in the Latin American food sector. Families who previously could seldom afford meat are now driving demand. “We have just opened six new plants in the north-east,” said Furlan.

CCR, a private infrastructure concession group which administers highways and metro systems, is equally bullish. “We are living in a very special moment,” said CCR’s director of finance and investor relations, Arthur Piotto Filho. “I think sustainable growth is here to stay.”

But has the chicken really learned to fly – or has it taken an unusually high hop into the air? The global economic crisis, after all, showed irrational exuberance blinding western governments, financiers and business leaders, leading to hubris and disaster.

Brazil is good at exuberance. The annual carnival, a study in excess, started on 13 February and the samba keeps going into March. A presidential election in October is expected to produce a splurge in government spending. Hosting the World Cup in 2014 and the Olympics in 2016 will keep the country in party mood but rack up more bills. There are signs of overheating. January’s surprisingly strong inflation, 0.75%, nudged the annual rate up to 4.6%. The central bank has signalled it will raise the benchmark interest rate by April – the first time since September 2008.

There is little reason, however, to think Brazil is heading for a fall. Growth stems from prudent political and economic policies enshrined over the past decade. President Fernando Henrique Cardoso did the groundwork by taming inflation and reining in government spending before handing over power in 2003 to Luiz Inácio Lula da Silva. Markets took fright at the former trade union leader moving into Brasilia’s Palácio do Planalto but Lula surprised everyone by largely sticking with Cardoso’s policies.

The macro-economic stability unleashed capacity in the private sector and coincided with a commodity boom which drove exports. A virtuous circle of investment and consumption started spinning. Haunted by the ghost of past failures, everybody wants to keep the circle spinning. The central bank, an inflation hawk, does not hesitate to raise interest rates. Brazil’s political parties are fractious and their coalitions byzantine but they agree about maintaining the pillars of fiscal discipline and low inflation.

There is little to separate the ideology and policies of the two main candidates in October’s election. Dilma Rousseff, Lula’s chief of staff and José Serra, the governor of São Paulo state, are both centrists. “There is a conviction that neither will make important changes to the economic environment,” said Furlan, of Brazil Foods. Such equanimity is a far cry from the damaging market yo-yos which marked previous elections.

Some Brazilians now chafe at being lumped in with the other Bric economies, pointing out they are a democracy, unlike China and Russia, and have population growth more or less under control, unlike India.

However sturdy, Brazil’s renaissance comes laden with two burdens. One is the dreadful legacy of poverty and inequality. Not far from the pinstripes, cappuccinos and glass canyons of Avenida Paulista you find slums like Paraisópolis where squalor, joblessness and drug gangs are rife. Some rural areas, especially in the north-east, resemble sub-Saharan Africa. Over 36 million – out of a population of more than 190 million – suffer from poverty and malnutrition.

Things are improving. Economic growth and schemes like Bolsa Familia, which pays poor families $70 monthly on condition children go to school, have helped more than 20 million escape poverty since 2003. Some 32 million have joined the middle classes. Low-interest credit is helping people buy fans and fridges for the first time. Impressive gains but much more needs to be done. “Brazil’s greatest challenge is social inclusion, that’s why I think we haven’t reached the level of sustainability,” said Raul Cutait, head of the Sírio-Libanês hospital.

The other burden is the state’s resistance to reform. Politicians and business leaders agree taxes are too high and complicated, social security is ruinously costly, and bureaucracy and labour laws strangle initiative and jobs. Successive governments pledge action and then do nothing. Not even as popular and powerful a president as Lula proved willing to pay the political price of confronting vested interests – mayors, governors, trade unions and political parties – who paralyse change.

Frequent elections discouraged tough decisions, said Mario Mugnaini, president of Investe São Paulo. “It’s impossible to carry out a reform with some kind of electoral process every two years.” An urgent concern is infrastructure bottlenecks at state-run ports and airports. A longer-term worry is social security bankrupting the country. In the absence of bold action progress will stall, said João Doria, president of Doria Associados. “We won’t be able to go through critical transformations.”

But most analysts seem sanguine and say piecemeal pecking at the tax system, for instance, will correct distortions. For all its grumbles about red tape the private sector’s growth shows no sign of slowing, nor does foreign investment. “Like everybody we are anxious for reform but the direction we are headed on is OK,” said Líbano Miranda Barroso, president of Brazil’s flagship airline, Tam.

His confidence stemmed partly from the country’s fiscal discipline and political stability and partly from the sight at airport check-ins of a new type of passenger: low-income families who can afford to fly. “This market is growing fast and is going to be increasingly important for us.” Tam is spending $6.9bn on upgrading its fleet. The era of chicken hops, it seems, belongs to another era. Brazil is airborne.

Disponível em: Acesso em 6/03/2010.

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