Weathering the Storm

The specter of global stagflation looms, but in Brazil, things couldn't be better. How a sleeping giant became the world's hottest market.
Newsweek / By Mac Margolis
2008/08/04
The specter of rising food and fuel prices now threatens to destroy an era of unprecedented global prosperity, with two notable exceptions: Brazil and Canada. Both countries produce and export enough food and fuel not just to offset the worst of global inflationary pressures but even to turn the price spike from a menace to a boon. They are the only two major economies where prices have not burst the upper limit of the central bank's inflation target. And of the two, Brazil is by far the more surprising success story. The country that suffered the longest and perhaps the most debilitating bout of hyperinflation in recent history is now a rare island of relative stability and prosperity. Brazil's inflation is running at 6.5 percent, a rate that worries the country's money minders but thanks to their zeal is still the lowest level in all the major emerging markets.
Luck has helped. Brazil is blessed with vast resources, including timber, fresh water, gold and the world's largest cache of iron ore. Farms stretch from horizon to horizon, and while most of the world is running out of arable land, Brazil has more than 70 million hectares still to plow. Plumbing deep water reserves, the country has announced massive oil finds that may total 30 billion barrels, the largest discovery in the Western Hemisphere in three decades. For Brazilians, who once joked that "Brazil is the land of the future, and always will be," this good fortune is a serious shock. "Brazil has had interesting moments before, but this is extraordinary," says Otávio Vieira, executive director of private banking at the Swiss-owned Banco Safdie, who has seen his portfolio swell by 150 percent since 2006.
Although raw materials and semifinished goods still kick in two thirds of Brazil's export revenues, few nations have done as much to develop their natural bounty, whether in mining, energy or agriculture. Brazil has nearly doubled grain production in the last decade and is the only country producing cost-efficient biofuels without beggaring its food larder.