Lastupdated:August2,20116:09pm

Brazilenjoyssuccessamidglobalinsanity
ByJoeLeahyinSoPaulo

Oncenostrangerstoeconomiccrisisthemselves,Braziliansinrecentmonthshavesuddenlylanded intheenviablepositionofbeingspectatorstothefolliesofthedevelopedworld. CurrentaffairschatshowsonBraziliantelevisionhavebeenabuzzforweekswithdiscussionofthe problemssweepingEuropeandtheUS,fromtheWashingtondebtceilingstandofftotheGreek financialcrisisandtheNewsoftheWorldscandalintheUK. DilmaRousseff,Brazilspresident,seemedtosumupBrazilianperceptionsofanoutsideworldgone crazylastweekwhenshedescribedthedebtcrisesintheUSandEuropeasinsanity.Thepolitical incapacityofthedevelopedworldtofindsolutionstoitsproblems,shesaid,posedathreattothe globaleconomy. Astrugglingemergingmarketadecadeago,Brazilistodayapictureofpoliticalandmacro economicstabilitycomparedwithitsonceoverbearingpartnertothenorthandtheformercolonial powersofEurope. NotonlyisBrazilnowacreditortotheUS,with$327bninforeigncurrencyreservesasofJune,the countryseconomyisgrowingsteadilyandunemploymentisatrecordlows. Yet,withthedevelopedworldshowingtendenciesonceassociatedwithemergingmarkets,the challengeforBrazilishowtomanageitssuccess.Itcannotaffordtobecomplacentinthefaceofthe stilldauntingtaskofliftingitselfoutofthemiddleincometrapinwhichitseconomyhasbeenstuck fordecades. ThebreakthroughforBrazilseconomycameduringthe1990swhenformerpresidentFernando HenriqueCardosolaunchedaseriesofpoliciesaimedatstabilizingconsumerpricesandthe exchangerate. Hissuccessor,formerpresidentLuizIncioLuladaSilva,continuedthisfocusonmacroeconomic stabilitywhileexpandingsocialprogrammestoimprovethelivingstandardsoftheverypoor. Theresultswereimpressive.EconomicgrowthinBrazilhasaveraged4percentayearoverthepast eightyearsandnearly49mBrazilianshavebeenliftedintothemiddleorupperclasses.

Brazilhasalsoprovenrelativelyresponsibleinhandlingrecentchallenges.Itseconomicsuccesshas attractedafloodofmoneyfromstagnantdevelopedmarkets,drivinguptheexchangerateofBrazils currency,thereal,againstthedollarandthreateningthecompetitivenessoflocalindustry. Brazilshasrespondedwiththesocalledcurrencywaraseriesofcapitalandcurrencycontrols aimedatcurbingthisappreciation.ButBrazilhasmostlyresistedpressurefromdomesticindustryto takeextrememeasures,insteadimposingacomplexsystemoftaxesdesignedtodiscourageshort termhotmoneyflows. Onthefiscalfront,MsRousseffhassoughttoreininaspendingsplurgeduringfederalelectionslast yearbyreducingtheproposedsizeofthisyearsbudget. ThecentralbankhasalsotakenthepoliticallydifficultdecisionofincreasingBrazilsalreadyhigh benchmarkratesfivetimesthisyearto12.5percenttocrackdownonhighinflation.Ithascoupled thesemeasureswithstepsaimedatslowingrapidcreditgrowththatsomeanalystsfearis unsustainable. Onthepoliticalfront,MsRousseffhasbeencleaningoutcorruptionatthetransportministry,firing officialsalignedwithacoalitionpartnerofherWorkersParty.Herpoliticaltroubleshavebeen interpretedbythepublicasthespringcleaningofanewpresident. NoneofthisistosaythatBrazildoesnothaveitsownchallenges.Atightlabourmarket,weak educationsystemandalackofskilledworkersaredrivingupwageswhilepoorinfrastructureis pushingupcosts. Householddebtlevelsarebeginningtolookunaffordableforborrowersenjoyingthefruitsofacredit boom.Brazilneedstobecarefulnottoburyitsnewmiddleclassesundersomuchdebtthatwhenthe nexteconomicdownturncomes,theywillsinkbackintopoverty. Thecostofdoingbusinessremainsprohibitive,partlybecauseofhightaxesandemploymentcosts. Andalthoughcommoditypriceshaveskyrocketed,exportvolumeshavenot.Brazilhasmostlyused thebonanzafromtheglobalcommodityboomtoincreasethevolumeofitsimports. Brazilmayfeeljustlyproudofitselfatthemoment.Butitwillneedtoremainvigilanttoensurethatit doesnotsowtheseedsofthenextcrisisduringthepresentperiodofprosperity.

Printedfrom:http://www.ft.com/cms/s/0/0978312ebd2511e09d5d00144feabdc0.html

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