Leitura De Domigo

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Leitura interessante que me enviaram do FT.

November 1, 2013 4:28 pm

Brazil may finally escape from the samba clichés

By John Paul Rathbone

A more realistic vision of the country may now emerge, writes John Paul Rathbone

©Bloomberg

Black is a shade of brown. So is white, if you look,” John Updike once observed of the sun-burnished skin tones on Rio de Janeiro’s Copacabana beach. Sadly, however, not even in variegated Brazil is black a shade of red – and red is what investors saw this week after Eike Batista, Rio’s brashest businessman, declared bankruptcy by pulling the trigger on a $6bn default.

After Latin America’s biggest-ever corporate bust, some may wonder at Mr Batista’s exotic tale and conclude: so what? But his story is, in many ways, synonymous with Brazil’s rise and fall. Moreover, as Brazil is an emerging market archetype, it tells a global fable as well.

Only last year Mr Batista was the world’s seventh-richest man, boasting a self-made fortune that had grown to more than $30bn during the wonder years of Luiz Inácio Lula da Silva. Lula, as the charismatic former president is widely known, governed between 2002 and 2010 when Brazil, like Mr Batista, could seemingly do no wrong. Indeed, the two men were different sides of the same coin.

More

ON THIS STORY

• Batista sits on both sides of debt talks
• Brazil must embrace change to flourish
• OGX to test debt markets’ strength
• Person in the news Eike Batista, Brazil’s playboy oil baron
• Slideshow Rise and fall of Eike Batista’s empire

ON THIS TOPIC

• Global Insight Brazil celebrates auction with one bidder
• Trading Post Vigour of real revival may be waning
• New alliance in Brazil threatens Rousseff
• Global Insight Brazil economy risks lost decade

IN OPINION

• Paul Johnson UK energy chaos reflects lack of focus
• Mo Ibrahim The impediment of secrecy
• Jacob Frenkel JPMorgan’s payoff
• Paolo Scaroni Look to Russia and shale

Lula was by almost any criterion the most successful politician of his time. Even nature seemed to smile on his rule, with the discovery in 2007 of huge deposits of deep sea oil. Helped by a commodity price boom, the trade union leader turned president lifted millions of Brazilians out of poverty, projected South American diplomacy internationally by putting the B into the Brics, and became symbolic of emerging countries’ success, a rise that promised to reconfigure the world.

Mr Batista, like so many of the emerging world’s new billionaires, was the feted entrepreneurial agent of that reconfiguration. (While Lula certainly helped the poor, capital prospered even more: during his two presidencies, the Brazilian stock market quadrupled.) Indeed, Mr Batista’s stated aim was to become the world’s wealthiest man, thanks to the commodity boom that also burnished Lula’s political halo.

Today Mr Batista is in disgrace after it turned out that a prospective oil well, the main source of funding for his leveraged empire, was dry. Similarly, Brazil has seemingly lost its way, just as many emerging markets are also losing their appeal against a shale gas revolution that promises to transform the US and a eurozone that may be over the worst.

Certainly, Brazil’s go-go years of the mid 2000s are over; last year the economy expanded at half of Japan’s rate. The fiscal buffers that allowed Brazil to treat the 2009 global financial crisis as though it was only uma marolinha, a “ripple” in Lula’s phrase, are exhausted. The role of continental locomotive has been taken up instead, to Brasilia’s chagrin, by the more reform-minded Pacific Alliance economies of Chile, Colombia, Mexico and Peru.

Investment potential is also being left unfulfilled, as seen in Petrobras, the state oil company that raised $70bn in 2010 in the world’s largest-ever share offering but has since registered a slide in its shares of 37 per cent. Brazil is now even a locus of general investor fright, as happened after the market’s “taper tantrum” in May, when millions of dollars fled the country believing the US Federal Reserve was about to raise rates.

It is not only the capitalists who are fed up. In June, 1m people took to the streets toprotest at government corruption and the millions being spent on new football stadiums for next year’s world cup (the circuses of Lula’s winning “bread and circuses” political formula) instead of better public services. Much of the “new middle class” remains, in reality, only a month’s wages away from poverty. After 11 years in power, and the likelihood of another four after next year’s election, Lula’s Workers party has also grown stale and complacent. Reforms are being left undone.

This is a depressing trajectory. Yet is it all bad? Disappointment may at least release Brazil from the prison of its many clichés (samba, beaches, money, fun!) that Lula and Mr Batista often played upon and into which the world so eagerly bought.

Exhibit one of a more realistic vision of Brazil: Mr Batista is atypical of a business class which, by dint of long experience, is conservative and underleveraged. So fallout from his bankruptcy is expected to be limited. Exhibit two: the $2tn economy, comparable to the UK’s, remains an important market for multinationals, especially telecoms and consumer goods companies, and has developed pockets of true excellence, especially in commodities and agro-industry.

Exhibit three: even if Brazil’s rainbow diplomacy has not lived up to its promise, the country has maintained stability in a difficult neighbourhood that includes socialist Venezuela, prickly Bolivia and capricious Argentina. If the US is castigated for not paying attention to the region, that is perhaps because it does not need to. As a regional hegemon Brazil does a fair job, and without exercising the neighbourly brutality of China, Russia or India.

Mr Batista – garish and overleveraged – went from boom to bust in less than a year. By contrast, giant countries such as Brazil need a longer view. Modern Brazil was born in the late 1980s following its transition to democracy. That was also when the emerging markets asset class was created. Since then, crises have come and gone, but emerging market returns – and progress – have plodded on, not always in a straight line but alongside a not-coincidental secular fall in US interest rates.

The big question now for Brazil – and indeed all emerging markets – is whether that progress will continue as US rates start to rise. No, if you believe the past 30 years have only been about financial liquidity. Yes, if you believe that enough good habits have embedded themselves in the meantime. Despite Mr Batista’s example, I wager the latter – although it may be a rough ride.