Latin America's powerhouse grabs a place on world stage

The last six years under President Fernando Henrique Cardoso have heralded an economic renaissance for Brazil. Proud of its past and excited about the future, Latin America's biggest player must build on that strength to take a prime position among the global elite.

As it celebrates the 179th anniversary of its independence from Portugal, Brazil is looking to the future as much as it is commemorating its past. In general, Brazilians, their business community and foreign investors are looking forward to the possibilities of tomorrow.

Brazil is Latin America's richest, largest and most populous nation, with over 170 million inhabitants and a gross domestic product (GDP) in excess of US$1trillion. The economy is attracting international and local investors interested in its vast markets, diversified manufacturing activities, extensive raw materials and developed agricultural capacity.

That's led to a quickening pace of investment: in 1999, nearly $31.5 billion in foreign direct investment was registered by the Central Bank, up from $1.5 billion at the beginning of the decade. In 2000, Brazil received $33.5 billion of foreign direct investment.

Investor confidence in Brazil has remained steady, even during the several global economic shakeouts, with businessmen predicting that the world's seventh-largest economy will become an increasingly important player in the global economy.

According to Joelmir Beting, a nationally syndicated newspaper columnist and frequent commentator on business issues, the nearly 500 transnational corporations that have established operations in Brazil have brought in a total of $186 billion in registered investment.

Part of that confidence can be traced back to the early 1990s. At the time, the administration of President Itamar Franco launched a series of reforms authored by then Finance Minister Fernando Henrique Cardoso, who now serves as Brazil's president.

In July 1994, Cardoso launched the "Real Plan", designed to end years of high inflation and regain investor confidence by linking the Brazilian currency to the dollar.

It has been widely viewed as the most successful of many plans attempted over the last few decades to defeat Brazil's problems with chronic inflation, which in the early 1990s was running over 1,000 percent annually. At the end of 1993, a combination of favorable political, economic and historic circumstances made it possible for the Brazilian government to lay the groundwork for a long-term attack on high inflation.

Since that time inflation has been kept under control without having to resort to a price freeze, confiscation of bank deposits or other extreme methods. Inflation in Brazil today averages a reasonable 6 percent per annum.

But even with the Real Plan in place, there have been additional external challenges. The Mexican economic crisis in late 1994, the Asian bust in the second half of 1997 and the Russian deflation of 1998 all had a negative impact on the Brazilian economy.

In response to these crises and the deepening pressures on its exchange rate policy, the Cardoso administration allowed the real to float freely against the U.S. dollar in January 1999. a host of critics immediately issued gloomy forecasts about the future of the Brazilian economy.

But the negative predictions turned out to be wrong. There was neither a recession nor a return to high inflation. The economy bounced back, even showing positive (albeit modest) growth by the end of 1999. For this year, the economy seems to be rolling toward expansion of between 3 percent and 4 percent. The agricultural sector had a record grain harvest last season and will have another one this year.

"Brazil used to be a monetary alcoholic that, whenever it felt a bit depressed, would go on a binge, be merry for a night, and be sick for the rest of the week," noted Central Bank President Arminio Fraga recently. "Our approach is different now. We have to build the basis for the country to grow and develop once again. This means policies to allow interest rates to fall and exports to grow in a healthy climate of stability."

Fraga noted that Brazil had turned a fiscal deficit of 3 percent of GDP in 1997 to a surplus of 3 percent last year, with a forecast of a 4 percent budget surplus this year. "If this adjustment process continues, we shall have no problem returning to growth, without any fear of inflation coming back or of any problem with the currency."

Indeed, the list of planned investments in 2001 and beyond, by Brazilian and foreign companies, are varied and spread throughout the productive sectors. Food producer Nabisco has announced a $46 million market expansion program for its food products. CSN, Latin America's largest integrated steel maker, has earmarked $350 million for new facilities, production expansion and environmental improvements.

Local energy giant Petrobras and its partners will spend at least $570 million this year in oil exploration and production, and another $500 million in natural gas-based projects.

The shareholders of pulp maker Aracruz Celulose have voted to increase production by 700,000 metric tons a year, to a cost of $830 million, and the Sol/Melia hotel group has launched investments of $29 million in new hotels in Rio de Janeiro.

The spending surge covers both old and new aspects of the economy -- aluminum multinational Alcan is pouring several hundred million dollars into the expansion of its aluminum fabrication operations, while Gateway plans to spend $31 million on building personal computers in Brazil.

Most of the credit for the current investment can be attributed to a carefully crafted series of reforms over the past 15 years that have provided the stability needed to ride out the crises. These began with the return of democracy, the development of a fiscally responsible federal administration, fully committed to financial austerity, and sustained political support of financial reform. Reforms have accelerated since the Cardoso administration took office in 1995, with the end of economic protection that cost public coffers billions of dollars a year, a privatization program that opened up once-restricted areas to foreign competition, and vastly improved productivity across the board.

It's true that Brazil still has a long way to go to adapt to changing global conditions and development challenges. After all, Brazil is also beset by five centuries of accumulated problems: income distribution is unfair, health and education programs are sub-par and the social welfare system needs substantial reform.

The administration has targeted social programs for priority treatment. "Change of this order implies a true management revolution," President Cardoso said as he introduced the federal government's multi-billion dollar "Advance Brazil" development program.

"The federal, state and city governments are engaged in this effort that, allied to administrative, welfare, tax and political reforms, will open up the way to a new development project for Brazil."

Advance Brazil, a blueprint for investments up until 2003, calls for an outlay of $550 billion in 350 individual projects, 60 percent of them social programs. Financing is to come from both the public sector and private initiative. Cardoso boasts that the programs will create 8.5 million jobs and progressively raise employment by 2.7 percent yearly over the next four years.