President Lula's fiscal reforms have been accompanied by social programs
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He does not like admitting it, but once in the presidency, Lula embraced Cardoso's macroeconomic orthodoxy. He then used that as a base on which to weld social programs, such as Bolsa Família, a grant scheme that has paid out more than $20 billion in aid to poor families in return for parents getting their children vaccinated and making sure they attend school. Brazil's business leaders insist record profits during the 2005-2008 boom allowed Lula to aid the poor; Lula argues his antipoverty crusade fueled the economic growth. It's a chicken-and-egg debate, in which both sides are right. What matters is that social stimulus programs like Bolsa Família have been matched by fiscal measures like a reform of Brazil's engorged civil service pension system. "It's called doing things right," says Lula. "Allowing the rich to earn money with their investments and the poor to participate in economic growth."
A Better Life
Whatever the explanation, the philosophy has done the President well. Two years into his second and final term, Lula has an 80% approval rating. This suggests that despite the recession, most Brazilians still feel they're winning. "It was very difficult to change social class in Brazil 10 years ago, or even four years ago," says Luis Minori of the market-research firm Ipsos. "Now people have access to microcredit and computers and other means of social mobility." In that sense Brazil has outperformed even China and India, Neri claims, because "poverty is falling [in those places] but inequality isn't."
Easier credit fueled a rush of small business start-ups and car sales (admittedly the last thing São Paulo's insufferable traffic needed). Even the wine market, once a purely upscale domain, has been democratized. São Paulo wine retailer Expand has seen sales of its mid-priced bottles jump 25% each of the past few years, and it has opened new stores in provincial cities like Fortaleza, where beer and cachaça (cane liquor) were once the only tipples. Expand's owner, Otávio Piva de Albuquerque, says he spends as much time helping secretaries find $12 Concha y Toros as he does stockbrokers $75 Chambertins. "So many things Brazilians used to think of as unessential," he says, "are suddenly part of life here."
The downturn has slowed growth, but it has not stopped it. To make Brazil even more business-friendly, the government is spending $263 billion on tax breaks and infrastructure. Like Lula's social projects, the Growth Acceleration Program, which began in 2007, was funded largely by high commodity prices, most of which have now plummeted. But Brazil seems to have invested the windfall smartly. Exports have been diversified so as to reduce reliance on commodities, and before the downturn the nation socked away a record $208 billion in foreign reserves. The banking system has remained well regulated, and so far seems to have been less exposed to the toxic assets that have wrecked many U.S. and European banks. All this has "buffered Brazil quite a bit against the global downturn," says Paulo Leme, emerging-markets director at Goldman Sachs.
Then there's oil. In 2007 and '08, state-controlled Petrobras discovered up to 12 billion bbl. beneath the Atlantic floor about 155 miles (250 km) off the coast of Rio de Janeiro. The oil lies almost 3 miles (5 km) below sea level and is covered by a thick layer of salt, so extraction will be a massive undertaking. And while the discovery promised a windfall when oil was $140 per bbl., at today's price of $40, profitability will be a challenge. Nor is oil always the blessing that it appears; in nations from Nigeria to Saudi Arabia, its promise of easy money has crowded out other sectors of the economy, and fed corruption, too. But Lula, who keeps a jar of oil from the recent find by his desk, along with others filled with exotic beans and plants developed for biofuels, sees the oil as another resource to help end poverty. "God," the President crowed after the discovery, "is Brazilian."
If he is, of course, others will want to listen to him. Lula was one of the few leaders with whom both U.S. President George W. Bush and Venezuela's Chávez had decent relations. Lula told TIME he has "high expectations" that Obama will turn "a new page" on Latin America and "put aside traditional U.S. insistence on a narrow, one-sided approach that focuses almost exclusively on free trade and the drug war." Like most Latin leaders, Lula wants Obama to lift the U.S. trade embargo against Cuba. And he is keen (he may be disappointed) to see the U.S. throw its weight behind a last effort to save the Doha round of world trade talks, which could offer farm-export nations such as Brazil new opportunities.
For all the new confidence that Brazil is showing abroad, there's a lot to fix at home. Aside from corruption, Brazil's public bureaucracy is one of the world's most wasteful. Education, despite increased funding and access, is an embarrassment: students consistently score near the bottom of international math, science and reading tests. Exorbitant taxes and violent crime scare off foreign investors, and in the Amazon, deforestation remains a problem.
But Lula, like the brawny, business-minded megalopolis he has made his home, has set a sturdy example. São Paulo's vast, stalagmite horizon of skyscrapers can't match the glamour of Rio de Janeiro, but the city of 20 million people is a truer and smarter reflection of Brazil's bandeirante (pioneer) character. This year, work will start on the hemisphere's first bullet train, which will eventually link the two cities. High-speed rail won't mask all Brazil's flaws. But it does show, perhaps, that the country of tomorrow has a brighter future.