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| World Marketplace |
Driving on the Left
William Summerhill
01/01/2005
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In a story line that seems more appropriate for one of Brazil’s overheated soap operas than for its halls of power, an erstwhile union-leader-cum-president, his guerrilla-trained chief of staff and a Trotskyite finance minister have somehow engineered an economic recovery in Latin America’s largest country, a coup of the economic variety that has greatly impressed the global investment community. While many question the government’s commitment to long-term capitalist reform, for the time being, its pro-market behavior—and the country’s economic resurgence—have calmed investors’ fears.
Returns on Brazilian investments were outstanding in 2003, and every conventional economic indicator trended upward through the third quarter of 2004. The São Paulo stock exchange performed extremely well, with its Bovespa stock index increasing nearly 100 percent in 2003. Between 2002 and 2004, the central bank reduced interest rates steadily, from 25 percent to 16 percent. Exports of a broad array of goods are booming, leaving Brazil with a strongly positive trade balance. The gross domestic product in 2004 grew faster than it has in eight years. Manufacturing output, including capital goods and consumer durables, is up nationwide. These industries have added jobs, and overall employment is climbing.
TOP VIEW
Led by an unlikely cadre of politicians from the left-wing Workers’
Party, Brazil is currently basking in the glow of a strong economic reemergence
and has become the darling of international investors. Yet endemic corruption,
chronic poverty and fears of a shaky political commitment to long-term reform
threaten to undo hard-won gains. |
This is not to say that all Brazilians have benefited from the country’s economic resurgence. There remains a huge disparity in wealth by region, economic sector and occupation. New money mingles with old in cosmopolitan São Paulo, the largest city in South America, where the affluent casually shop for Louis Vuitton, Tiffany and Cartier. Yet the grinding poverty of the rural northeast, where basic foodstuffs and clean water are scarce, is reminiscent of another continent, or even another century. In the south, highly efficient commercial farms easily compete with their counterparts in the United States, while the desperate residents of urban shantytowns scrape by on a few dollars or less a day.
Nonetheless, Brazil ranks as one of the first reemerging markets of the new millennium, where attentive investors can find opportunities. This rebirth began in the 1990s with hard-won victories in the policy arena. The government instituted a raft of neoliberal reforms that unwound rigid import controls, reigned in galloping inflation and, ultimately, dismantled many chronically indebted and inefficient state-owned companies. The state oil company survived, but all of the telecoms, a good number of banks and numerous other firms faced the auction block. The government liquidated those that could not attract buyers.
These policies produced strong inflows of foreign capital, beginning in 1994. Unfortunately, half a decade later, international turmoil, a currency devaluation and high interest rates took some steam out of the economy, and Brazil stumbled into the new millennium. By the 2002 presidential elections, the real was at a new low against the dollar, and a potential debt crisis loomed on the horizon.Whatever Lula Wants
With these and other problems looming, Luiz Inácio Lula da Silva of the Workers’ Party won the presidency—on his fourth attempt—in late 2002. Lula’s success in steering the country back from the brink since then have made him the darling of both the post–cold war Latin American left and the international financial markets. Before the election, there was no shortage of dire predictions about what a Workers’ Party government might do if it came to power. Historically, left-wing parties in Brazil had never paid much attention to the subtleties of public debt management, effective inflation control or trade agreements, much less to the anxieties of capital markets. But Lula’s policies confounded expectations and frustrated the pessimists.
Affinities for Castro’s Cuba and Chavez’s Venezuela aside, the Workers’ Party approach to governance has been more in line with the staid, European- style social democracy than with old-school, command-economy socialism. Lula’s victory did not reverse privatizations, repudiate debt or lead to profligate spending and financial meltdown.
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