Brazil: Latin America's Superpower: Brazil comes into its own. Despite a wide range of challenges, local and foreign executives are bullish about the country's business outlook. And new President Dilma Rousseff is getting high marks thus far.

Author:Bamrud, Joachim
Position:COUNTRY REPORT
 
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When Luiz Inacio Lula da Silva left Brazil's presidency in January he did so with a record 83 percent approval rating. His eight-year administration had generally received high marks from local and foreign investors.

His successor, Dilma Rousseff, may become even more popular among business executives. "President Rousseff has demonstrated, in her short period in office, that she will be undertaking some complex and somewhat unpopular reforms to support Brazil's continuous growth," said Pablo Di Si, CFO of Fiat Auto Latin America.

Inflation appears to be a top priority, while Rousseff is also working to limit the minimum wage to 545 reals ($326) per month and to cut 50 billion reais ($30 billion) from the federal budget, he points out. "These decisions are a clear shift in policy making, compared to her predecessor, President Lula, and a means to start reducing inflationary pressures and improve the quality of government spending," Di Si argued.

Rodrigo Abreu, Brazil country manager for U.S.-based Cisco Systems (the world's largest provider of networking equipment), is also cheering. "First signs are encouraging," he said. "It should not be taken [lightly] that the president, on the first day of [her] mandate, announced that the passenger infrastructure at major airports will likely be privatized. One would probably not [have expected] that in the past, and it is a clear sign of change and understanding that some things need the speed and agility and entrepreneurial capacity of the private sector, in collaboration with policy and regulatory support from the public sector."

Some skeptics are less leery. "I'm not as worried as I was [before Rousseff assumed office in January]," said John Welch, New York-based Emerging Markets Strategist and Managing Director at Australian investment bank Macquarie Capital. He praises Rousseff's budget cuts and the plans to privatize some airport operations. "I'm still skeptical but encouraged by the little steps we're seeing."

Welch believes the new president move toward more deregulation, despite opposition within the rifling Workers Party (PT). "There's a romanticism of the 1970s' [protectionist policies] that PT has even though it's a failed model," he said.

He praises some of Rousseff's key appointments, such as Alexandre Tombini as Brazil's central bank president. "He's tough [and] a very competent guy," he said. He singles out Antonio Palocci, who served as Lula's first finance minister, for the key role he plays as chief of staff. Palocci had been a highly regarded minister until he was forced to resign in a corruption scandal.

There is also growing hope that Rousseff will reform Brazil's infamous tax system. "I firmly believe that economic policy will be maintained and that President [Rousseff] will make the necessary corrections so far not implemented [such as] the tax reform," said Miguel Dan, the chief operating officer of Azul Linhas Aereas Brasileiras, the national low-cost carrier formed in 2008 by JetBlue founder David Neeleman. "I also [believe] the current government will be more committed to the necessary measures to maintain growth, controlling inflation and reducing poverty in our country. We will have a government that will focus on results."

Welch is also changing his tune on prospects for tax reform, which he had seen as unlikely before Rousseff became president.

Now he says: "She may do it."

BELINDIA, INGANA OR SIMPLY BRAZIL?

For decades, Brazil was often nicknamed "Belindia"--a phrase coined by economist Edmar Bacha in the 1970s to describe a country that had an upper class similar in size to that of Belgium and a poor mass similar to that of India.

Bacha thinks the term is outdated and supports a new phrase by another local economist, Delfim Netto: "Ingana"--a country with the taxes of the United Kingdom ("Inglaterra" in Portuguese) and the public services of Ghana ("Gana"in Portuguese).

Independent of whether you call it Belindia, Ingana or Brazil, the South American country has seen enormous progress over the past decade and is now not only Latin America's undisputed economic super power but also a global powerhouse.

The $1.9 trillion economy accounts for 41 percent of Latin America's total GDP. It surpassed Mexico's economy in 2005 (after lagging for four years). But while Brazil's economy was just 4.8 percent larger that Mexico's in 2005, it was twice as big--101.5 percent--last year.

Brazil replaced France as the world's fifth-largest economy, as measured by GDP in 2010, according to the investment banking firm Goldman Sachs.

PricewaterhouseCoopers (PwC) predicts that Brazil's GDP, expressed in terms of purchasing power parity, will pass that of Germany in 2025 and Japan in 2039. By 2050, the advisory and consulting firm calculates that Brazil will be the fourth-largest economy in the world, behind China, India and the United States.

PwC also projects that Sao Paulo-Brazil's top business hub--will become the sixth-largest city economy in 2025 behind Tokyo, New York, Los Angeles, London and Chicago. That compares with its rank as the 10th-largest in 2008.

Gone are the days of missed opportunities and jokes about being the country of the future. "I think we always dreamed about it," said Rodolpho Cardenuto, a Brazilian native who runs the Latin America division of Germany-based SAP, the world's largest business-software company. "We always said Brazil was the country of the future, but the future never came."

Local business executives and economists credit the reforms and policies implemented by former presidents Lula (2003-2011) and...

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