SAO PAULO, April 18 (UPI) -- Nagging economic injuries and an up-for-grabs presidential election in October aside, Brazilians are feeling pretty confident about the direction of their economy and are receiving encouraging nods from officials around the globe.
Newspaper headlines on Wednesday trumpeted a few remarks that Horst Koehler, managing director of the International Monetary Fund, made during a press conference in Washington. Koehler was asked if Brazil was safe from any economic contagion that sickly Argentina might transmit to Latin America.
"I think what we should be happy, first, to recognize is that Brazil has nearly totally decoupled from financial contagion from Argentina, and this is due because the Brazilians did a very good job, with sound policies," Koehler said.
Brazil followed the IMF's advice and has puffed up its chest of late. It is pleased with how far the country has come from the deep crisis when it devalued its currency in January 1999 and undertook painful austerity measures under President Fernando Henrique Cardoso. But the band is waiting to strike up that old tune of political instability in Latin America, with the government-backed candidate Jose Serra playing catch up with a battle-savvy leftist, Luiz Inacio "Lula" da Silva from the Workers Party, who is leading the polls with 35 percent of the vote.
"I have a lot of confidence that this good track record and the commitment of the current government, and even more so the experience the Brazilian people have had, with more order in the fiscal, in the monetary and with structural reforms at the end bringing growth and jobs, that there will not be a major risk of contagion from Argentina," Koehler continued. "So I have a lot of trust in the Brazilian economy and also in its policy fundamentals."
Koehler -- who might have then pulled out a Serra campaign button and pinned it to his suit -- was clearly sending the message that Serra, or anyone but Lula, is the IMF's Mr. October, the man they next want to see in power. Koehler is pleased with how Brazil has progressed, and how the IMF can point to the country as an example of something it has done right in Latin America in the face of criticism about its handling, or non-handling, of the Argentina fiasco. Additionally, the IMF reported in its latest World Economic Outlook report on Thursday that Latin America will see benefits from a turnaround in the U.S. economy, with Brazil's economy expanding 2.5 percent in 2002 and then 3.5 percent in 2003.
Finance Minister Pedro Malan, in a show of confidence, announced earlier this week that Brazil was forgoing a $4.6 billion IMF loan and will pay back $4.65 billion it borrowed last year. The government said it has raised enough cash in foreign capital markets to make the move. A local newspaper reported that Brazil saw $11 billion in foreign investments between October and March. Along with Mexico and small but stable Chile, Brazil is one of the few relatively safe havens for investors looking at opportunities in Latin America.
"The combination of higher investments, issuance of foreign bonds and the commercial results indicate that there are no problems of (cash) flow for Brazil," said local economist Roberto Padovani.
Meanwhile, the political landscape is being simplified. A convenient investigation into Roseana Sarney, a former front-running and right-leaning presidential candidate, means Serra will get a bigger share of the centrist voting bloc come October, which gives investors hope that Lula will fail on his fourth try for the presidency.
But the sun does not always shine on Brazil, and as with all emerging economies, investors cannot ignore those little "Here Be Dragons" warning signs that pop up from time to time.
On Wednesday, the country's central bank went the traditional economic route, blaming rising fuel costs and the dangers of inflation therein for declining to lower a key interest rate. The decision to keep the rate at 18.5 percent comes after two consecutive 0.25 percent rate cuts, which investors called too timid at the time.
While the country's trade surplus is in the black, this is mostly because of lack of consumer demand as average Brazilians have little to spend. And, as the IMF noted in a previous World Economic Report, the country's trade ties to the outside world, while more resilient than other Latin American countries, must grow to catch up with the emerging economies of Asia.
Then there is the chance that Lula will actually win the presidency this time around and begin implementing his populist, anti-free market policies that will set foreign capital on a one-way street out of the country.
There is gridlock within the country's Congress, which is holding up key bills, namely the financial transactions tax known as the CPMF. The tax is a key revenue source for the government. Each week the bill is delayed, the government loses some $180 million.
This has already forced Cardoso to increase other financial transactions taxes that aren't so investor friendly. The optimist will say that Brazil's outlook looks good, but that is normally qualified with the phrase "in comparison to other Latin American countries." While solid economic policies have been implemented by the Cardoso government, like all politicians, he must at times play the populist.
The big question for Brazil's economic direction is clearly who will win the presidency, how many populist stances the winner must make to get there, and how far the country is willing to continue along the path of reform, its painful and politically dangerous passages included.
