Crossing the Copacabana: the wooing of Brazil after Lula.

Apresentei o economista Tim Harcourt à CT Boucherie, no Leblon, e estava uma delícia nossa picanha. Mantivemos contato depois da entrevista que fiz com ele em Sydney, na Austrália, publicada em outubro pela Revista Conjuntura Econômica, da FGV. Recebi agora este artigo dele e é sempre interessante ver o que economistas estrangeiros perceberam de nosso país.  
 
Crossing the Copacabana: the wooing of Brazil after Lula.
Tim Harcourt*
Chief Economist
Australian Trade Commission
Sydney
In economic history, you can see how times change. Once upon a time, a century ago, and even 50 years ago, Argentina was one of the richest economies in the world, and Brazil one of the poorest. But on my recent trip to Brazil one of my hostess’s in Rio de Janeiro commented that “even her maid took her holidays in Buenos Aires because it was now so cheap!” I thought this was symbolic of the recent changes of fortunes for the two South American neighbours.

But can you really see an economy changing before your eyes? A century or even 50 years is a long time but even I have noticed remarkable changes in Brazil in just under a decade of regular visits there.
In 2002, on my first trip to Brazil, times were tough (see my previous article Blame it on Rio). Neighbouring Argentina was in the midst of economic crisis, (see the article Don’t buy from me, Argentina) and Brazil was concerned about contagion from her neighbour. In fact, Brazil had just got over a significant crisis in 1998 and didn’t want a repeat of those events. In 2002, Brazil was also facing a presidential election, with the perennial candidate, Lula from the Workers Party (PT) running for the fourth time. Whilst I noticed Lula had great support in Porto Alegre at the World Social Forum where I was a guest speaker, the business people and journalists I spoke to in Sao Paulo were apprehensive, and in any case, pessimistic about his chances of winning.

What a difference eight years makes. Lula did win in 2002, won re-election in 2006 and left office at the end of 2010 with a massive 80 plus percent plus approval rating which is an amazing result for a democratically elected politician at the end of their term anywhere. Even his successor, Dilma Rouseff, who has just entered the Presidential palace in Brasilia, has an equally healthy approval rate of 73 per cent.

So why the popularity of Lula and now Dilma? To use the old Clinton campaign line: It’s the economy stupid. Brazil avoided a major recession during the global financial crisis (GFC) and chalked up an impressive 7.5 per cent economic growth rate in 2010, which is expected to be followed by a solid 4.5 per cent this year should inflation risks be contained. In short, the Brazil of 2011 is a different place to the Brazil of 2002. The country is more confident, it is playing a significant role on the world stage, (Lula opened 53 new Brazilian embassies in his term including 30 in Africa) its economy is now talked about as an emerging economic superpower along with China and India (now it is part of both the BRICs (Brazil, Russia, India and China) and the big emerging economies, the BEEs).  Historically we used to think of Brazil and other South American countries as causing a crisis themselves or being a victim of one. It’s very rare for them therefore to get through a major global economic crisis unscathed. And whilst they say Brazil is emerging, by the time of the Rio Olympics in 2016, will we be able to say that it has emerged? After all, it is the world’s 7th largest economy and after Rio 2016 it could well be in the Top 5.


The success of the macroeconomic and fiscal performance of the Lula administration, which was accompanied by effective monetary policy by the Central Bank, is also demonstrated by some of the strong improvements in various social indicators. Under Lula, around 29 million people have been added to the middle class generating a strong consumer culture, with 187 million cell phone users and strong improvements in car and home ownership. All this has been achieved whilst undergoing robust growth in population and a reduction in the levels of absolute poverty and lower crime rates.
According to a distinguished Brazilian economist and past adviser to the government in Brasilia, Professor Fernando Carvalho, of the Federal University in Rio de Janeiro (UFRJ), these outcomes are the result of success on two major policy fronts.


Firstly, there was the expansion of social programmes – essentially an extension of thecomunidade solidaria, started by Lula’s predecessor President Fernando Cardoso a famous Brazilian sociologist who later entered politics. According to Professor Carvalho: “Lula extended the programme and made it effective. Also by-passed local and state government and made more use community organizations and churches for delivery. This policy effectively has doubled the income of the very poor and at the same time has expanded the Brazilian middle class adding the to the power of Brazilian consumers at the same time. As a result, infant mortality has been reduced, education retention levels are higher, and the overall standard of living of the average Brazilian has increased.”


Secondly, there has been a new approach to fighting crime. According to Professor Carvalho: “Instead of the US style ‘more cops on the beat’ approach, the Government handed over responsibility to the communities in the favelas, to provide their own community policing.” As a result, there is less crime in the favelas, and because of higher incomes and education levels amongst poor Brazilians, less incentive to commit crime.


So has international trade helped? Sure. China, like in the case of Australia, is Brazil’s number one trade partner. Of the nations that have benefitted from China’s rise, Brazil and Australia are the standout with rising commodity prices and significant gains in the terms of trade of each country. Brazil, like Australia, avoided the worst of the GFC due to its own fiscal and domestic economic reforms and because of its strong trade links to China. However, unlike Australia, Brazil, with its 193 million population also has a large internal economy (60 per cent of GDP is domestic) and a massive industrial sector (manufacturing accounts for 40 per cent of the Brazilian economy with a globally significant automotive and aviation sector, spearheaded by Embraer).


According to Professor Carvalho: “Brazil is the only place in Latin America that has scale. Mexico is big but closely tied to the USA economically, Chile is a niche player with strength in copper etc and the rest are either oil and gas (like Venezuela) or agriculture (like Uruguay). Only Argentina could challenge Brazil in terms of size, but their economic problems have kept them out of the race for some time. In short, it’s Brazil, Argentina and the small trading nations,” he explained.
In fact, according to Carvalho, Brazil, ironically has traditionally been isolationist.
“When I was growing up, few Brazilians even spoke Spanish. In fact, there were three times more English speaking Brazilians than Spanish speakers. There was interest in Argentina, mainly because Brazilians have a fascination with the tango, but not many Brazilians had even been to their neighbours in South America let alone the rest of the world. Immigrants whilst sentimental about their origins became fully fledged Brazilians, and Brazil had unlike her neighbours, never been involved in any conflict or major border disputes,” he recalled.


Clearly, Brazil is a special case. As Greg Wallis, Australia’s Trade Commissioner in Sao Paulo puts it: “Brazil is the prize of Latin America and we have to make the running. Countries like Chile, Peru and Colombia like us and woo us but in Brazil’s case we have to do the wooing.”
And as Brazil plays a stronger role in the world economy, and the 2014-2016 World Cup-Olympics double approaches we will have to do more than just woo the girl from Ipanema, we’ll have to woo the hearts and minds of a globally very strong and popular Brazil. And Buenos Aires can expect more tourism spending by a wider spectrum of Brazilian society than ever before!
 
*Tim Harcourt is the chief economist of the Australian Trade Commissionwww.austrade.gov.au/economistscorner and a Visiting Fellow, School of Economics, Australian School of Business at the University of New South Wales (UNSW).
He is also the author of The Airport Economist:  www.theairporteconomist.com
Thanks to Greg Wallis, Ana Carolina Bonin, Alexandre Pundek, Eduardo Loyo, Danielly Ramos, Marcelo Andrade, Malu Fernandes, Lia Valls Pereira, Armando Castelar Pinheiro, Ronaldo Veirano, Cristiano Souza, Samule Pessoa, Luis Neves, Tim Morris, Crispin Conroy, Goran Nuhich, Fabio Nave, Rick Allert, Patricia Monteiro, Patrick Carvalho, Fernando Carvalho, Daryl Hudson, Ambassador Brett Hackett, Ambassador Edileuza Fontenelle Reis, and Ambassador Americo Fontenelle.
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