Brazil: An Emerging Power

There’s a popular saying in Brazil: “We are the country of the future, and we always will be.”

That self-deprecating bit of wit has always held more than a little truth. Brazil was always a slumbering giant of a country – as big as the contiguous United States – that was never able to live up to the economic promise its generous supply of natural resources held. The fifth largest country in the world, with its fifth largest population, lay stagnant for decades, with a weak domestic industry and whose export-based economy was dependent on the fares of distant, far wealthier countries. Every financial hiccup across the world drove Brazil’s currency into rampant inflation, and Brazilian society – held back by decades of military dictatorship until the mid-1980s – was considered among the world’s most unequal.

Until now. When the worldwide financial crisis hit in 2008, few would have been surprised to see Brazil’s economy succumb to the international turmoil. It did fall into recession, but only for two quarters. By the second quarter of 2009, Brazil’s economy was growing once more. Since then, Brazil’s GDP has grown consistently, and its Central Bank predicts a growth rate of 7.3% in 2010.

How did this transformation happen? After decades of military rule and democratic administrations riddled with corruption, in 1994 President Fernando Henrique Cardoso was able to implement significant financial modifications and stabilized Brazil’s currency, ending years of rampant inflation. While the country had a limited domestic market for many consumer goods until the 1980s, Brazil opened its markets in the early 1990s to foreign goods, generating competition which in turn strengthened domestic industry. Many of Cardoso’s policies laid the groundwork for Brazil’s economic stability in later years, and his administration saw improvements in social programs, such as Brazil’s renowned AIDS program.

In 2002, Brazilians voted to change course, from Cardoso’s Social Democratic Party to Luiz Inácio Lula da Silva, known simply as Lula, of the Worker’s Party. Lula had been on the ballot in every presidential election since 1989, but many considered him too leftist for mainstream government. His election initially left many foreign investors nervous about the country’s stability, but Lula adopted many of Cardoso’s economic policies and Brazil’s economy remained on course.

Lula expanded on many social initiatives, developing what became known as the Bolsa Familia program. While providing a monthly stipend to the country’s poorest families in exchange for keeping their kids vaccinated and in school, the program also brought countless families into the economy, increasing consumption and significantly lowering Brazil’s inequality levels. The program is internationally known and is regarded as one of Lula’s major successes.

In the years since 2003, consumption in Brazil has grown, domestic industry has become stronger and as a result, when the financial crisis hit in 2008, Brazil’s domestic industry was strong enough to keep its economy afloat despite the turbulence elsewhere.

Brazil’s new-found domestic economic stability helped to keep things under control, but the country’s government also took a gamble that paid off. Once the crisis hit, the state-owned BNDES bank provided domestic banks with liquidity so they would keep lending money, and credit to consumers and small businesses was not cut off as it was in the United States and elsewhere. The economy continued to function, and people kept spending. Perhaps because Brazilians have withstood so many crises over the years and have developed a high tolerance for financial instability, domestic consumption was relatively unaffected by the crisis.

Today, Brazil’s star is on the rise. With a strong economy for the foreseeable future, and recently-discovered off-shore oil reserves that promise to put Brazil among the leading oil exporters, Brazil has simultaneously emerged as a leader in alternative, renewable energy such as ethanol. Brazil has assumed a larger role on the international stage under President Lula, and, best of all, it will play host to the two biggest sporting events in the world: the 2014 FIFA World Cup, and the 2016 Olympics, which will be held in Rio de Janeiro.

Despite much evidence to the contrary, for many Brazilians the aforementioned saying still rings true, and it’s too early to forget past experience. Lula’s presidency has been successful by most accounts (his polling numbers are the envy of democratic leaders worldwide: his personal approval rating in the most recent national poll fell to 80.5%), but he has already served two consecutive terms and cannot run for a third. The next president will have his or her work cut out: preparing the country for the FIFA World Cup and the Olympics, managing US$900 billion in public infrastructure initiatives as well as future oil revenues, and perhaps most significantly, negotiating the thin line between economic and industrial development and environmental sustainability in a rapidly developing country.