Brazil Is the Next Economic (and Political) Superpower

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Jonathan Power, [email protected]

Published — Monday 30 January 2006

Last Update 30 January 2006 3:00 am

It was Charles de Gaulle who once said, “Brazil has a great future. But it always will have.” Yet times are changing in Brazil and it is no longer inconceivable that Brazil will emerge in the next few decades alongside India and China as one of the world’s economic superpowers. As Dilma Roussef, chief of staff to President Luis Ignácio da Silva, “Lula”, put it to me with only a touch of hyperbole, “It’s more difficult to make this economy not grow than to make it grow.”

Can Brazil move itself from Third World to First World? Can Brazil, the world’s most successful country in terms of growth in the twentieth century, repeat this achievement in the twenty-first? Many, viewing the dismal inflation-consumed performance of the 1980s and early 1990s, with a currency adding zeros faster than the printing presses could turn, believed Brazil could never make it, especially with a former sociology professor, Fernando Henrique Cardoso, becoming president followed by a leftist populist, the present president, Lula. But indeed it is happening.

Cardoso practised fiscal prudence, stabilized the currency, and initiated the first real reforms of Brazil’s bloated bureaucracy and feudal inefficiencies. Lula, to everyone’s surprise — a mere six month’s before his election he was calling for Brazil to renege on its debts — continued the process.

Brazil under Lula has recently repaid its debts to the International Monetary Fund and the Paris Club well ahead of schedule. It is running a fast growing surplus on its trade account, its exports are booming, growing at a faster rate than China’s — in a range of products from soy to aircraft from mining to computers. Its economy is growing steadily at around 3 to 3.5 percent.

This is happening in a country that is the world’s fifth largest both in population and size. It is highly industrialized country with over 80 percent of its people urbanized. The city of São Paulo’s economy is larger than the whole of Argentina’s.

Moreover, Brazil is home to the world’s largest tropical forest and Brazil has the world’s largest reservoirs of freshwater and ample hyrdo electric power. It is self-sufficient in oil and gas.

Brazil has a head start on India and China. It has been developing in its sometime madcap way for over 100 years. Between 1960 and 1980 Brazil doubled its per capita income, an achievement that was only surpassed by the later growth spurts of the East Asian countries. Its income per head is almost $8000 (in purchasing power parity). This compares with China’s $4,500 and India’s $3000. If this doesn’t give Brazil’s economy with its 170 million people almost quite the clout as India’s and China’s with their billion people each, it certainly gives it a base to stand eye to eye with them in say 50 years’ time, when their growth rates will inevitably have long slowed and Brazil’s should have cruised for two generations at a comfortable 5 percent. At the very least Brazil will outgrow Canada, pace Russia and leave Mexico way behind.

Ms. Roussef says if Lula wins re-election in October, tax rates will come down, interest rates will continue to fall and there will be a public/private push to invest in a substantial increase in Brazil’s energy, steel and paper sectors.

There will be increased financing for construction and housing and inflation will stay under control.

She readily accepts what the World Bank has said of Brazil — “there is increasing evidence that inequality adversely affects growth, undermines, social cohesion and increases crime.” So Lula will continue to expand his income transfer program and will focus his energy on reforming the country’s moribund and inefficient education system.

His principal rival for the presidency, José Serra, the mayor of São Paulo, will trump all this, or so he says, partly because he, as a well known fiscal conservative throughout his long political career, will have more credibility with the financial markets and thus can afford to significantly increase the growth rate and partly, less beholden to the indulgence of the US than Lula has been forced to be as a one time Marxist-consorting leftist, he can up the ante on trade negotiations, confronting Washington to open up its protected markets.

Brazil has a good chance of emerging as the world’s first economic superpower without nuclear weapons — on which there is a consensus in all political corners. It hasn’t been to war for 135 years. It is the most tolerant of countries, one that never had Jim Crow laws and which abolished capital punishment in 1885. If Brazil succeeds it can only make the world a better place.

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