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Lula: Still Rocking?
Alex Steffen, 15 Sep 04

We've written a lot about Lula and Brazil, and for good reason: Brazil is fast becoming a (if not the) center of innovation in the developing world.

But how is Lula doing? The doctrinaire Left is calling him a sell-out, the fascistic Right is foaming at the mouth over his recent meeting with Fidel Castro, his alleged drinking problem has watered a thousand gossip columns, but the Guardian -- reflecting the global consensus -- says he's kicking butt:

"When Brazilian president Luiz Ignacio Lula da Silva visited Haiti last month to inspect some 1,200 of his troops leading a United Nations peacekeeping mission there, he did more than watch both countries' soccer teams play a game designed to bring much-needed cheer to the troubled Caribbean nation.

"The trip reinforced just how much new-found visibility Lula's two-year-old government has gained on the world stage and, combined with recent positive economic news in Brazil, made many ponder the president's potential future at home."

Among the good news: the Brasilia Consensus continues to give the Washington Consensus a run for its money (almost literally) on the world trade stage, Brazil's economy grew by 5.7% last quarter, and Lula's Worker's Party is showing strong in the polls. Lula's no saint, but people who are serious about changing the world don't look for saints in politics. What he is, is one of a new breed of developing world politicians, who take for granted their nations' power and abilities in a multilateral world. That's enough.

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the FT thinks so too!

Brazil comes of age on the global stage (sub req'd, but here're the good bits :)
Growing competitiveness and more assertive trade diplomacy have helped lift exports. There is more confidence that this time the benefits are here to stay.

Traditionally one of the world's most isolated economies, Latin America's largest country appears finally on the way to punching its weight in the global market. Exports have increased to 17 per cent of gross domestic product, up from only 6.5 per cent in 1998. Numerous sectors - from steel and cars to agriculture to pulp and paper - have seen massive capital investment.

At the same time, economic dynamism has been accompanied by a more active and assertive foreign policy. Under Luiz Inácio Lula da Silva, its left-of-centre president, Brazil is pressing ahead with regional integration plans that include trade agreements and infrastructure projects. And it has begun to assume a leadership role for poorer nations. As the United Nations general assembly convenes in New York next week Mr Lula da Silva will reiterate his call for a global fund to fight world hunger. More than 50 heads of state are expected to lend him support. And with an eye on a seat in the UN security council, Brazil is also leading peacekeeping forces in Haiti and has pardoned more than $315m in debt by African nations.

Last year Brazil helped launch the G-20 alliance of developing countries, strengthening the voice of poor agricultural exporters at the World Trade Organisation. Brazil's initiative has helped keep world trade talks on track following the setback at last year's Cancún summit. Subsequently, Brazil has won two landmark legal actions that have increased the pressure for Europe and the US to dismantle agricultural subsidies.

Celso Amorim, Brazil's foreign minister, who held the same job a decade ago, is in no doubt about the change in the national mood. “There is a new self-awareness that just wasn't there before. Brazil was then in a fragile position and the conditions weren't ripe for Brazil to play a big role. Now we have a quality seal: a credible economic policy and stable politics.”


Brazil is better positioned to withstand a downturn in global markets than ever before. There are several reasons to think export expansion could be sustained over several years.

First, irrespective of recent falls in commodity prices, many economists argue that today's bull market conditions are part of a long-term secular trend. The entry of China and India into world markets will help sustain long-term demand and reduce the impact of cyclical downturns, they argue.

China's and India's increasing dominance in the global manufacturing and services sectors is likely to fuel per-capita income there and subsequently demand for commodities from competitive Latin American exporters, argues Walter Molano, head of research at Connecticut-based BCP Securities. “We are just at the start of the boom,” he says.

Furthermore, competitive advantages - abundant fertile land, mineral resources, cheap hydroelectric energy and low labour costs - mean Brazil is more able to defend market share than its rivals. Brazil produces raw sugar at a cost of around $160 per tonne compared with more than $250 in other leading sugar cane exporters and more than $500 for sugar beet growers in Europe.


More importantly, the export boom is now deeper and wider. Unlike Mexico, which depends heavily on the US market, Brazil's export destinations are more diverse (see chart). “Little by little we are starting to hit new markets such as South Africa, Malaysia and Thailand,” says Francesco Pallaro, regional commercial director for New Holland, the farm machinery manufacturer that transferred sugar harvester production to Brazil from Australia last year. “Brazil will continue to be an export base for us.”

In addition, manufactured products account for roughly 55 per cent of exports, marginally less than a few years ago but up from 10 per cent in the 1960s. Cheap raw materials are processed into high-value goods to be exported. The country's massive grain supply is fed to chickens; huge iron ore reserves are processed into steel and subsequently cars. Such advantages have attracted foreign investors, including American beef and poultry farmers. “The potential is simply huge,” says Roberto Moreira, head of Penasul, a chicken company in Rio Grande do Sul recently bought by US investors.

Brazilian fashion and jewellery designers are flooding boutiques and department stores in New York. Gourmet coffee sold in Bejing and Moscow is adding value to the country's most traditional export. Havaianas, sandals that sell for $3 in Brazil, have become all the rage in London and Los Angeles, selling for a minimum of $40. The emergence of brand names helps the prospects of manufacturing and processed food exporters.

Brazilian companies today are also more competitive because of an improving corporate culture, including more transparency and professional management that is receptive to shareholder pressure. Following stagnation in recent years, productivity in the first half of 2004 grew again and is now roughly 70 per cent higher than in 1992.

Smaller companies are also catching export fever. Last year exports of small and micro-companies grew by 30 per cent, faster than those of medium and large companies. Government initiatives, from internet marketplaces to export-friendly postal services, are seeking to consolidate these trends.

Government agencies offer workshops, credits and assistance to entrepreneurs in outlying areas. “Without the help of the government we would not be exporting today,” says Vitoria Coelho Castro, who in 2001 set up an export co-operative with seven other beachwear manufacturers in Salvador. Now 20 per cent of its income is from foreign sales.

“There has been a change in Brazil's export culture,” says Luiz Furlan, industry and trade minister. “Exports may grow more slowly but there is no chance they will fall.” Mr Furlan expects annual export growth of between 10 per cent and 15 per cent in coming years.

In its efforts to ensure long run growth Brazil faces many obstacles. Yet there is no doubt the country is charting new territory. After half a century of experience at the heart of Brazilian industry, Jorge Gerdau, the 67-year old president of the Gerdau steel company, is more confident than ever. “This is not Brazil's first attempt to become an export power,” he says. “But it is the most promising.”

Posted by: glory on 15 Sep 04



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