Land of contrasts

Brazil is enjoying high employment, low inflation and steady economic growth. But that comes with vast social and environmental problems. Rory Carroll reports

The Guardian
2008/03/14

Picture Brazilian exuberance and odds are you are not thinking economics. This, after all, is the land of carnival.
But picture this: a country where investment inflows are running at record levels, where exports of everything from soy to biofuels are surging and where the incomes of rich and poor alike are rising and driving a consumer boom.
Not quite as attention-grabbing as a beauty queen wearing just a smile and a feather, granted, but it adds up to a striking conclusion. Brazil, best known for soccer, samba and sensuality, has become a serious economic player.
After decades of ruinous boom and bust, South America's giant appears to have entered a new phase of sustainable expansion that could finally unlock the country's vast potential.
"Brazil is in a very positive moment, though we still have many things to do," says Fernando Henrique Cardoso, the former president widely credited with turning things around. If the country stays on track Cardoso thinks it could emulate Spain's belated, impressive development.
The figures range from good to spectacular: 1.4m jobs created each year; over $100bn in foreign exchange reserves (which exceed the external debt and make Brazil an international creditor); 4.7% inflation, which is tame by Brazilian standards; 4% economic growth, a slight closing of the gap with China. Oh, and last year the stock market zoomed up 60%.
"The exuberance we are experiencing is rational in the sense that the fundamentals are solid," says Henrique de Campos Meirelles, president of the central bank. "There is good reason for optimism. This is balanced growth. Brazil today is much less vulnerable than in the past." Brazil's expected investment-grade rating later this year will be a symbolic benchmark, he says.
Analysts agree that strong domestic demand, financial stability and exports that are well spread internationally offer some protection from the US slowdown. When the developed world gets flu, Brazil no longer gets pneumonia.
As well as footballers and samba it is exporting cars and planes, notably the executive jets and passenger liners of Embraer. Indian and Chinese demand for its commodities continues unabated, while sugarcane-based ethanol production is leaping off the charts.
There is a dark side to this growth. Environmentalists voice alarm that soy and cane crops are pushing cattle north into the Amazon and accelerating deforestation. Workers' conditions on some cane plantations have been compared to slavery.
Growth has also created horrendous infrastructure bottlenecks. Sao Paulo's traffic jams worsen every month, ports cannot keep pace with tanker volumes and air travel regularly descends into chaos.
The teething pains, say policymakers, of a maturing country. Difficult adjustments launched in the mid-1990s have been consolidated under President Luiz Inácio Lula da Silva, giving the government leeway to expand ambitious anti-poverty drives. A £3.2bn scheme unveiled last month followed the much-lauded Family Allowance initiative, which pays monthly stipends to more than 11 million poor families with young children.
Hike up into the favelas, the notoriously lawless hillside slums, and you find hairdressers, stationers and electrical goods shops reporting booming sales.
There are still, of course, the more traditional booms courtesy of drug-dealers in combat fatigues who sit on pavements making little piles of gunpowder. "A bomb for the police," explained one young bomb-maker in Rocinha, a Rio favela, after a shoot-out that killed an 11-year-old girl.
Gang warfare and police brutality remain embedded here, as does extreme inequality. Some shantytowns, with their legions of street children and shacks of wood and plastic, could pass for the more impoverished parts of sub-Saharan Africa. Except that overhead there are helicopters ferrying the super-rich to shopping appointments with Gucci and Jimmy Choo.
Economic and social indicators do suggest the gap is closing, albeit slowly. "What has been achieved looks more solid than in some other countries," concludes Michael Reid in a recent book, Forgotten Continent: the Battle for Latin America's soul.
Reid's upbeat assessment comes with a warning about the need for bolder pro-market reforms of byzantine taxes, red tape and outdated labour laws.
Some critics go further and argue that Brazil is glitzy but hollow, just like a carnival float, because it is coasting on benign global conditions and a domestic credit boom while shirking the hard graft of building a competitive economy.
"Everybody is making a lot of money," says Alan Goldlust, the head of Comexport, a big trading company. "I'm making more money than I've ever made. But nothing is being done to improve our schools or labour laws or bureaucracy. We're filling our stomachs but not our heads."
In the same vein some western diplomats credit Lula with raising Brazil's prestige but not its influence, partly because he lets Venezuela's Hugo Chavez shout as regional spokesman. A permanent seat on the UN security council is still a dream.
The president's vow to end the corrupt ways of the old elite has also faded in a slew of financial scandals tainting senior members of his ruling Workers' Party.
Dilma Rousseff, the president's chief of staff, disagrees. Lula was enthusiastically voted back into power last year, she points out, and the government is sticking with its commitment to low inflation and financial stability. "We have shown we are not afraid of taking tough decisions."
It used to be said that Brazil was a country with a great future condemned to its eternal contemplation. That future has not arrived, not quite yet, but it is closer now than it has been in generations.
· Rory Carroll is the Guardian's Latin America correspondent