Lula should read the article “Brazil takes off” from The Economist, Nov. 12th 2009

The Economist Brazil takes off cover  This week , the Brazilian economy was the topic on The Economist’ special edition. Brazil has been quite present in  The Economist this year. Most of the articles have presented the country in a positive fashion. In June,  they came with an article called “Not just straw men”. Back then, the point was that “the biggest emerging  economies are rebounding, even without recovery in the West“.

Why do I think that Lula should read this article? Well, despite the picture of the Christ launching from the Corcovado mountain, which suggests that Brazil is taking off into a new reality, this articles is not all on the strengths of the Brazilian economy. In this “Brazil takes off” piece the tone is  more critical.

Some comments on the article:

The reference to the other BRICs is inevitable. “China may be leading the world economy out of recession but Brazil is also on a roll. It did not avoid the downturn, but was among the last in and the first out.”

I think it is important to notice that, today, there are 4 countries over 100 million people, with an area of more then 4 million kms and a GDP of more then 8 billion dollars:Russia, China, the US and Brazil.

Political stability is also an issue. The Economist acknowledges  that  ” in some ways, Brazil outclasses the other BRICs. Unlike China, it is a democracy. Unlike India, it has no insurgents, no ethnic and religious conflicts nor hostile neighbours. Unlike Russia, it exports more than oil and arms, and treats foreign investors with respect. ”

In fact, president Lula, once feared for his “communists” ideas, sustained and developed the reforms initiated by President Cardoso.  He is not the champion of the Brazilian economy turn around, as he likes to say; “never before in the history of this country” but he had the wisdom to evolve from the dogmas of his party.

Inflation, for example, was a huge historical constrain until the 1990, when Fernando Henrique Cardoso begame the ministry of finance. On top of that, spendthrift  governments (all levels, federal, state and municipality) were required by law to rein in their debts. Following the model of contemporary central banks around the world, autonomy was granted  to the Central Bank. With the mandate of  keeping inflation low and ensuring that banks “eschew the adventurism  that has damaged Britain and America”, as the TE article points out.

Nevertheless this bright picture has flaws. President Lula is clearly not doing a good job on government spending. It “is growing faster than the economy as a whole”.

Investment is another issue: ” but both private and public sectors still invest too little, planting a question-mark over those rosy growth forecasts.”

Among the handicaps on the final part of the article, I’d like to highlight this part:

“… the government is doing nothing to dismantle many of the obstacles to doing business—notably the baroque rules on everything from paying taxes to employing people. Dilma Rousseff, Lula’s candidate in next October’s presidential election, insists that no reform of the archaic labour law is needed”.

In order to sustain the growth we have reached so far, awareness of risks is crucial. President Lula has a very good image abroad. As a self made man, he became the champion of  democracy in a way.No dough, a charismatic person.  But wisdom is knowing that even when it looks that you are going in the right direction, it is a good idea to check a different point of view. It would not hurt him to read an article from an important international economic review recalling that no matter how great you are, you should always look for improvement.

Hildete Vodopives

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About Hildete Vodopives

Hildete de Moraes Vodopives is founder of Brazil Global and of the Harvard Strategists. She is a member of the Brazilian Investment Analysts Association (APIMEC-Rio) where she served as Corporate Relations Director and later, on the board. Hildete advises companies doing business in Brazil.
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