I was in Sao Paulo and other southern cities two years ago and hardly saw much of the country. My current trip will take me to the middle of the country. I have had some time to see Sao Paulo and, while there is much to be critical of, (see my last post about crime and congestion) there is much about one has to wonder and admire. From 1996 to 2001 I spent a great deal of time in Brazil--mostly in the middle and the north of the country. It was a dreadful place where wages were subsistence and graft was endemic. During that time government came and went and much did not (despite extravagant promises) change. The change that I now see is extraordinary.
The Brazilian economy rests of several pillars: oil (whose reserves are said to be only second to Saudi) agriculture (including coffee and beef) and mining (some of the best granite in world comes from Brazil). The turn around came with the election of Lulu, a professed socialist. It was feared that Brazil would again fall into promising government funded programs that it not afford. Laterally these promises lead to inflation that was a high as 40 per month! What happened, in fact, is that the confluence of events favoured Lulu's programs. Minimum wage was brought to more than subsistence levels, much of the endemic graft was removed (but considerable graft still exists) and an emerging middle and wealthy class started spending money at home. Oil helped finance that spending spree on social programs and inflation is a highly manageable 7% or so. Banks are flush with money and small and medium businesses can get the financing that is absent from the US recovery. So the lower classes moved up, a consuming middle class was born and the wealthy became more wealthy. What is required here is for the economy to become less protectionist (many import duties are 100% or more of value) and to fix its tax system that leaks so badly that the only way to keep the government afloat is to impose a30% VAT.
Sao Paulo has invested billions in infrastructure (but obviously not enough to dampen the inevitable traffic jams) and has wi fi and other electronic facilities that are equal to or better than any western G8 country. The lower class, once destitute can now have a low paying but sustainable job. Kids can go to school rather than resort to begging and everyone is moving up the ladder. The lower classes now have a tangible stake in the country by way of the Mia Casa program that makes home ownership affordable to the lowest wage earners in society. These folk now have much to lose and will therefore work hard to protect it. My taxi driver can now make enough money to send his kids to college. He lives in a nice apartment and, while his wife is working, can now look forward to a reasonable life and retirement. That is not to say that live in Brazil is Valhalla. But the country has taken positive steps to give the poor a stake in society. This is much more than can be said of India or China. In these countries the rich get richer and the middle class gets bigger but there is a running sore of poverty that never seems to get healed. This is what Lulu and his successor have done for the country.
This phenomena has not gone unnoticed in the rest of Latin America. Columbia, once controlled by the drug lords is now considered prosperous as is Argentina, Chile and Uruguay. If these countries go the way of Brazil, look out. The G8 will still be looking for a way to solve Greece, Italy and France (with the recent election of a socialist president) while Latin America leaves them in the dust.
Canada is well thought of in this country and in the region but is doing its best to become as hated as the US. Canadian mining interests are running roughshod over local communities. They have the backing of governments who are concerned about job creation at the expense of ecology. We have not had any luck in piercing the protective trade barriers in Brazil or (with the exception of a few central American countries) any other place in Latin America (with the exception of Chile). From person experience I can say that the federal trade people in Brazil are next to useless. Ontario has a successful and helpful presence here (and in Chile) in support of small business.
Canada has made the mistake of betting the farm on the US only to find that the farm had egregious systemic problems that may not be fixed for many years. Canada made a run on Europe but the party appears to be over there. The Euro has had a toxic effect on many economies who cannot correct downturns by devaluating money. Much of North Africa is in turmoil. The middle East is a mess. We have had very little luck with China short of selling it our natural resources and India is an enigma to which we export call centre, clerical and programming jobs. That leaves Latin America. We should be on the doorstep banging on the door until they let us in. Do whatever it takes.
Bernie.
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