Interactive map An oil­rich country that focuses on renewable resources FINANCIAL TIMES SPECIAL REPORT | Tuesday July 7 2009 FT.com/brazil­map www.ft.com/brazil­2009

A chance to celebrate amid the global gloom: Carnaval is renowned throughout the world but in north­east Brazil the annual Festival de São João is far more significant AP Dancing through the economic crisis

Is the Latin rancisco Alves and the local streets selling pened over the past three times,” Mr Alves says At Caruaru, about 1.5m Inbev – the world’s biggest manager, describes as his wife Fernanda Nestlé products – yoghurts, years, we plan to spend In fact his saleswomen people will visit the festival brewer, largely created and “spectacular”. American giant have just invested biscuits, coffee – door to another R$70,000 next have just had their best two between May 30 and July led by – are keen This is one corner of Bra- finally living up to R$70,000 ($35,860), door. year,” Mr Alves says. days ever. 10, up to 80,000 of them to get their products in zil’s huge domestic market Fsaved up over the past They used to distribute a And the global crisis? A couple of hours inland packing a square most days front of what has become of 190m people, a market its promise? three years, to install new competitor’s products but Of course, they say, there at Caruaru, the annual Fes- at the top of the town for 27 one of Brazil’s fastest grow- capable of supporting not Jonathan cold-rooms and other equip- switched to Nestlé because has been some cooling in tival de São João – a tradi- shows of pulsating, feel- ing markets. only distinct brands but ment at their “micro-dis- of the marketing and sup- the market. But this crisis tional winter party featur- good country music. AB Inbev recently also entire industries. Wheatley tributor” in Recife, north- port they were offered and is different from the many ing peasant costumes and This year, sponsors launched Brahma Fresh, a Take the “flex-fuel” car. investigates eastern Brazil. because their customers others that have shaken forró music – is in full funded the party to the milder-tasting but still More than 90 per cent of For two days their 15 could increasingly afford Brazil over the past couple swing. In much of the tune of R$6m, a 30 per cent potent brew, for distribu- new cars sold in Brazil have saleswomen, earning 30 per what is seen as an aspira- of decades. north-east, the globally increase on last year, tion only in the north-east – “flex” engines, capable of cent commission, have been tional brand. “Margins haven’t disap- renowned Carnaval is insig- according to the organisers. a region that Ricardo pushing hand carts around “Based on what’s hap- peared as they did the other nificant by comparison. Companies such as AB Neves, regional marketing Continued on Page 3 Voters want transparency and respect from leaders

POLITICS zil’s biggest steelmakers, Pernambuco, Alagoas and governor, the ones running and of the Movimento Sergipe in the less devel- for re-election who got the Old­fashioned Brasil Competitivo, a pri- oped north-east hired INDG highest votes were those greed and graft are vate sector organisation and are recognised as exam- who had demonstrated the dedicated to reducing Bra- ples of more modern, effi- best management skills.” under pressure, zil’s enormous tax burden- cient government. The con- As he points out, such writes Jonathan through efficiency in public sultancy also works for approval did not follow spending. “But there is also some of Brazil’s biggest party lines, with candidates Wheatley increasing public demand municipal governments and from government and oppo- for transparency and with the federal govern- sition parties doing equally respect for the electorate.” ment’s planning ministry. well. At the next presiden- Reading the political pages There is plenty of evi- Welerson Cavalieri, a con- tial election in October 2010, of Brazil’s newspapers it is dence to support this view. sultant at INDG, says his Mr Cavalieri says manage- easy to form the view that Mr Gerdau says his initia- company takes manage- ment ability will be among nothing has changed since tive got off the ground in ment systems that have the deciding factors. the bad old days of the the 1990s, when a group of been tried and tested in the It may well have been an early 1990s, when the coun- businesses from his home private sector and applies issue in the 2006 poll, when try teetered on the brink of state of them to public administra- President Luiz Inácio Lula collapse, with runaway in southern Brazil devel- tion. State budgets, he says, da Silva – the most popular inflation and a president oped a management quality president in Brazil’s his- soon to be defenestrated by programme that expanded tory, who was seeking re- impeachment proceedings into the public and “third” ‘There is a election – was forced into a for corruption. sectors. One example is a historical, cultural second round by Geraldo Then, as now, the papers charitable hospital where Alckmin, the former gover- were full of extraordinary the programme increased problem of nor of São Paulo state who revelations concerning the the usage of operating thea- backwardness seemed to epitomise mod- questionable behaviour of tres from 50 per cent of ern managerial efficiency Brazil’s political leaders. capacity to 80 per cent. which is very hard during his campaign. Then, as now, most of those Since 2003, INDG, a man- Unfortunately for Mr politicians were able, with a agement consultancy that to overcome’ Alckmin, personality also good dose of chutzpah, to works with the MBC, has still counts and his short- ride out the storm. been selling management are little more than state- age of social skills cost him The current head of the advice to state govern- ments of intent to which dearly in the final stages. Senate, a former president, ments. The first was Minas politicians have little com- Unless Mr Lula da Silva regards well-documented Gerais in south-eastern Bra- mitment. “Our work is to surprises everyone by try- revelations of nepotism as zil, where INDG helped set real budgets with effi- ing to run for a third term – “a lack of respect” for his 50 clear the state’s debts of cient systems of control, so which would demand a years of public service. His R$1.7bn in two years from that monthly targets are set change to the constitution predecessor saw nothing 2003. Its success in putting and evaluated at all levels,” and could cause severe wrong in an employee of a the state’s finances in order he says. damage to his democratic construction company helped secure the re-elec- Why should politicians credentials – his enormous delivering cash payments to tion of Governor Aécio bother? “Voters are paying personality will no longer his former lover. Congress- Neves in 2006. more attention to the qual- be a factor. men formerly regarded as INDG insists it is entirely ity of services provided by The two most likely lead- above suspicion have been non-political. Eight more the people they elect,” says ing contenders are José caught handing out airline states have become clients, Mr Cavalieri. “For politi- Serra, governor of São tickets paid for by the tax- led by government and cians today, management Paulo and a leader of the payer to friends and rela- opposition governors, and ability is synonymous with centrist opposition PSDB, tions and done little more not only in the more devel- votes. If you look at the last and , Mr than apologise, if that. Even oped south and south-east. round of elections for state Lula da Silva’s most power- former president Fernando ful minister and a member Collor de Mello, who of his leftwing PT. resigned in disgrace in 1992, Inside this issue Both will make much of is back in the Senate as a their management ability. Exchanges Even in the (pictured) Brazil’s finance powerful government fixer. global panic, Jonathan minister Page 3 Mr Serra earned a name as It is hard to reconcile Wheatley says trading has a potent manager as health such old-fashioned greed remained unshaken Page 2 World stage Jonathan minister under Mr Lula da and graft with the modern Wheatley explores the Silva’s predecessor and has Brazil emerging on the History Paulo Sotero country’s growing status as strengthened that reputa- world stage as an example peers into recent a global force Page 4 tion in São Paulo. Ms Rous- of successful government. historical events to seff is the president’s right- Yet these two Brazils do co- reflect on how the ‘Black is culture’ hand woman and in charge exist. And while the old country is developing The north­east’s of running the govern- ways will not disappear Page 2 slave heritage is ment’s flagship infrastruc- soon, new ways are growing a source of pride ture investment. up beside them. Interview and a millstone Given that neither has “There is a historical, cul- Jonathan around its much charisma and both tural problem of a certain Wheatley neck, writes are regarded as prickly, backwardness which is very talks to Oliver each will hope voters pay hard to overcome,” says Guido Balch more attention to their Mantega, Page 4 Jorge Gerdau, chairman of achievements than the Grupo Gerdau, one of Bra- warmth of their smiles. 2 ★ FINANCIAL TIMES TUESDAY JULY 7 2009 Brazil

Investors prepare for a rush to the market

If anyone still doubted Brazil’s prove fleeting. Even though bankers Exchange significance as a global equity market and investors are sounding more those doubts were surely swept away optimistic, the uncertain outlook last week as VisaNet, the Brazilian globally means that the durability of arm of the credit card giant Visa, this latest recovery is anything but completed the biggest IPO in Brazil’s certain. history and the world’s biggest this Then there are the scars left by the gains from year. The sale raised $4.3bn, priced at last boom and bust in equity markets the top of its target range, and the when “investor appetite was shares jumped 15 per cent as trading tremendous for anything new”, says began last Monday. The vast majority Mr Piper. That allowed investment of buyers were foreign investors. bankers to turn a fast buck. Not all The deal shows how ready many deals were well executed and many caution and Traders at the Brazilian Bolsa de Mercadorias e Futuros Bloomberg investors are to come back to Brazil did not perform well, he notes. and their appetite for a piece of its That means investors will be more make sure they do so. “Our rules are countries use guidelines laid down by huge domestic market – in this case, discerning than before. New deals more wide-ranging, even for qualified the Bank for International Settle- a play on its still largely unserviced from large companies that have a investors,” Ms Santana says. “We ments in Basel – the central bank of credit market. demonstrably successful track record really concentrate on getting good central banks – saying banks should VisaNet’s success will encourage and proven management should get a strict rules quality information to the investor.” have assets equal to at least 8 per cent other companies to come to market. good hearing. Mid­cap, small­cap and In the banking sector, too, rules are of their lending. The minimum in The next couple of months could see untested companies will mostly get stricter than in many other countries. Brazil is 11 per cent but the average one of the highest levels of issuance the brush­off, Mr Piper believes. This CAPITAL MARKETS between the two parties,” says Paulo Banks must publish consolidated real level is closer to 18 per cent. in the country’s history. But worries is a market that is selective and Oliveira, director for new business. results – no off-balance sheet vehicles , head of regula- persists about how sustainable the focused on confirmed stories, such as In spite of global panic, This is a legacy of times when traders or investments in non-financial com- tion at the central bank, says Brazil coming round will be. follow­ons, adds Mr Etlin. trading has remained in Brazil had little capital and often panies can be hidden away as they has tended to take a more conserva- A secular drop in interest rates to All may not be lost for companies did not trust each other to deliver. often were in the past. This is a leg- tive approach, after emerging from single digits and low levels of debt with a less obvious appeal. Mid­cap unshaken, says But as the market has grown – and acy of an overhaul of the banking decades of economic volatility in the suggest the country will suffer a companies are increasingly showing Jonathan Wheatley the BM&FBovespa is now the world’s sector carried out in the late 1990s and mid 1990s and shortly afterwards shorter recession than most of the interest in listing directly on US equity fourth-biggest exchange in terms of is something, says Ross Levine, a restructuring its banking system. rest of the world, says Jean­Marc markets, according to Mr Aguzin. market value, bigger than names such banking industry specialist at Brown “Where we have used frameworks Etlin, executive vice­president and The spotlight on the equity markets s often happens in times of as the London Stock Exchange, NYSE University, many developed nations established in other markets, we have head of investment banking at local means corporate debt issuance, long crisis, Brazil’s capital mar- Euronext and Nasdaq – it has proved could learn from. “If you are going customised them to our own economic Banco Itaú BBA in São Paulo. Brazil the wallflower at Brazil’s capital kets were the first choice last a valuable guarantee that trades will to ask for one major output from a reality,” he says. “Our calibration has implemented counter­cyclical policies markets party, still has a limited dance year for investors needing be completed. been very conservative.” early and while interest rates are down card. “But falling rates have stimulated Acash to cover losses in the first wave Mr Oliveira says stability is further Brazil’s regulators still face chal- substantially they are still as high as two sovereign deals and one of subprime panic. The sell-off was underpinned by Brazilian regulations ‘Our rules are more lenges. One of the biggest is bringing 9.25 per cent, leaving the government fixed­income bond from the BNDES, gigantic – and, as confidence has that force brokers to provide inform- wide­ranging, even for down the enormous spreads in the room for further stimulus measures, the national development bank,” says started to return, half the outflows ation on every trade executed by every banking industry – the difference adds Scott Piper, executive director Mr Aguzin. Furthermore, asset had already been reversed before the client. In many developed markets, qualified investors. We between what banks pay to depositors and portfolio manager at Morgan managers are starting to weigh up end of last month. brokers are obliged to reveal only the really concentrate on and what they charge to borrowers. Stanley Investment Management. corporate issuance more seriously as Yet throughout all the turbulence, net position of their clients – so that if While the central bank’s target over- Signs of economic recovery are yields on government debt tumble. Brazil’s capital markets have a client is long in one asset and short getting good quality night interest rate recently fell below laying the groundwork for the issuance This should provide a base for remained unshaken. in another, his exposure will count as 10 per cent a year for the first time in bonanza. Up to mid­August, Brazilian corporate fixed­income deals over the “At the height of the crisis and of zero. But if something goes wrong on information to the investor’ its history, rates for credit cards companies could raise as much as longer­term. In the short­term, volatility, when investors needed either side of any trade, he would still and overdrafts are often more than $8bn, according to Nicolas Aguzin, international markets will continue to liquidity, the markets worked,” says be a source of risk. 150 per cent a year. chief executive of Latin America at prove more fertile ground, with Maria Helena Santana, head of the This is true not only of equities regulatory authority it would be Among the reasons are high tax JPMorgan. $10bn­$15bn in new issuance expected CVM, Brazil’s securities commission. trades on the Bovespa segment but transparency about the riskiness of a rates, obligations on banks to lend to Cosmetics company Natura is in the second half of the year, a big “They stayed open and the counter- also of over-the-counter derivatives bank,” he says. sectors such as housing and farming, planning to issue more shares and increase over the first half, if nothing parties were there. Of course, this was trades – which must all be registered Other countries may also be watch- high reserve requirements – the multi­brand firm Hypermarcas has also spectacular by historical standards, in line with a narrow exit door. But at the BM&F. ing with interest as Brazil extends the amount of their deposits banks must prepared a prospectus for investors, says Mr Aguzin. the BM&FBovespa [the multi-asset Rules governing the fund industry role of public sector banks in the park at the central bank – not to men- although both have been coy about Brazilian companies are keeping exchange formed last year by the are similarly strict. All funds must be economy. While lending from private tion big profits. details and shares suffered on the their fingers crossed that the equity merger of São Paulo’s derivates and registered at the CVM. They must sector banks is only about 2 per cent But reserve requirements, while announcements, as investors fear rally of recent months will keep its stock exchanges] was solid through- publish their investment strategy and more than it was at the height of the outdated in the view of many observ- dilution. momentum. Their very haste to come out.” reveal the make-up of their portfolio credit crisis last September, lending ers, have proved useful as the central This jittery reaction shows how to market is already making investors One reason investors can operate within 90 days of any change. They by public sector banks has risen by was able to release R$100bn from brittle confidence remains. The rush to nervy and the irony is that the sheer with confidence on the BM&FBovespa must describe in their prospectus the nearly 20 per cent, according to the them to provide relief to liquidity- market comes because cash­starved volume of planned deals could is that the exchange itself acts as a way they will mark asset prices to finance ministry. starved banks when the crisis hit. Brazilian companies fear the window overwhelm a fragile recovery. central counterparty in all trades. market values – the rule in Brazil for Banks are more conservative than Expect Brazil’s regulators to keep err- of opportunity in equity markets may John Rumsey “The exchange interposes itself several years – and be inspected to in many other jurisdictions, too. Many ing on the side of caution. Natural advantages should sweeten deals

of Japanese trading houses such through consolidation, Brazil’s COMMODITIES as Mitsui, Brazil has become the agriculture industry could Javier Blas reports on world’s second-largest exporter emerge stronger from the crisis. of soyabeans – a key commod- Brazil’s capital-intensive agriculture’s itiy for livestock feed in China. sugar industry, which leveraged advantages and the The country is also the its expansion on cheap debt, has world’s largest exporter of sugar suffered under the weight of the pitfalls the sector and coffee and plays critical credit crunch and low prices for needs to avoid roles in corn, in which it is the most of 2007 and early last year. third largest exporter, livestock Five sugar companies with and lean hogs, in which it is the total production of about 1m A large landmass, warm cli- world’s largest and third-largest tonnes – about 4 per cent of the mate, abundant water and large exporter, and rice, where it is country’s exports – have applied amounts of unused fertile land – the 10th largest exporter. in the past 18 months for “judi- these are the elements that have Brazil’s natural advantages, cial recuperation”, the Brazilian made Brazil a leader in global particularly the large stock of form of US Chapter 11 bank- agriculture commodities mar- land and abundant water, will ruptcy protection. The sector is kets, according to President continue to enhance the coun- now undergoing a rapid consoli- Luiz Inácio Lula da Silva. He try’s critical role in global agri- dation, with companies such as also believes they are likely to cultural markets. However, the Cosan SA Industria e Comercio, facilitate further growth in its financial crisis has also high- the world’s biggest sugar-cane food exports. lighted vulnerabilities of the processor, buying troubled “Brazilian agriculture has recent expansion, notably a smaller rivals. undergone enormous improve- large accumulation of debt. Another key problem is the ment in recent decades, trans- In Mato Grosso, Brazil’s key lack of adequate infrastructure forming entire regions into rich state for soyabean production, – particularly roads – to trans- farmlands and achieving global banks are repossessing farm port crops from the frontier pre-eminence in the production machinery while credit for ferti- areas of the cerrado, near the of several agricultural commodi- liser and other inputs has dried Amazonian forest, to export ter- ties,” says Fabiano Costa and up. Some farmers are selling minals on coast of the Atlantic. Emma Cardy-Brown in their land or tractors to pay debts, Although Brazilia has invested Chopped down to size: the sugar industry is facing a period of consolidation because of low prices and a lack of credit AFP report “Investing in Agricul- while the government is trying considerable amounts in logis- tural Land in Brazil” by Agri to extend the terms of loans to tics, traders say the country aware of the problem and is One of these opportunities is weather – particularly rainfall – Investments Publications. ease pressure on farmers. lags behind its neighbour tightening regulations about the the local food market: Brazil’s application of the latest technol- “In the process, considerable Elsewhere in Brazil, finance is Argentina on infrastructure. expansion of farmland. 200m population is becoming ogy such as genetic modified wealth has been created where so tight that Bayer, a large Brazil’s environmental record Mr Costa and Ms Cardy- more affluent and is demanding organisms to achieve higher previously there was often little European chemical company, is is also a problem – the push to Brown, echo a widely-held view more and more varied food. yields and a move towards more than subsistence farming,” accepting grain as payment for increase agricultural production Brazil is definitely not among industry participants But the export market is large-scale farms that achieve they add. “Not only has the gen- agrochemicals as a way to stave has come, at least in part, at the for the uninitiated but, and acknowledge in their report likely to continue to dominate economy of scale: “As a conse- eral population seen an off a slowdown in sales as farm- cost of cutting down the fringes the current difficulties of farm- production as Brazil is a world quence of these factors – and improvement in living stand- ers struggle to obtain bank of the Amazonian rainforest. despite the turbulence ing in the country, but they add: leader in low cost agricultural despite some trade barriers – ards but also landowners have loans to raise cash. Although some in the indus- in world markets, it “Brazil is definitely not for the commodities, particularly soya- the trend has been for Brazil to seen their personal fortunes rise The sugar sector is emblem- try refers to this reputation uninitiated but, despite the tur- beans. consistently increase exports dramatically.” atic of the overall debt problem, damage as one of the “myths” continues to offers bulence in world markets, it Analysts also continue to year-on-year,” the Investing in Starting almost from scratch but experts say the sector also about the Brazil’s farming continues to offers huge oppor- point to natural factors such as Agricultural Land in Brazil in the early 1970s with the help serves as an indicator that, industry, the government is huge opportunities tunities.” high soil quality and favourable report states.

Contributors Jonathan Wheatley São Paulo Correspondent Stability and democracy are catalysts of success Javier Blas Commodities HISTORY is one of three plants being to predictions of a rise to much of the current good The roots of this historic mines the argument that per cent of South America’s Correspondent built by ETH, a subsidiary global prominence. That news coming from Brazil. change have grown deeper the recent economic success GDP, compared with 40 per The sugar ethanol of Grupo Odebrech with prosperity, however, proved Under president Cardoso, under current President of South American’s giant cent in 1980. Oliver Balch FT Contributor industry mirrors Sojitz Corporation, the Jap- short-lived and unevenly privatisation of telecommu- Luiz Inácio Lula da Silva. A was simply a byproduct of As the country anese trading company. distributed, aggravating the nications, mining, aviation former union leader who good luck made possible by approaches next year’s pres- Paulo Sotero the nation’s rise, Agriculture has histori- historic social inequality. and highways and the regu- built his career denouncing the rapid expansion of the idential election, the good FT Contributor says Paulo Sotero cally been associated with The oil shocks of the latory reform that ended the liberal reforms of the world economy before last news is that the world slavery and, in recent dec- mid-1970s exposed the fra- the monopoly of Petrobras 1990, rose to power in 2003 year’s crash. seems to have “brazilian- Tom Griggs ades, with the abuse of gility of Brazil’s position further contributed to Bra- after promising, in his While it is true that Bra- ised” its approach economic Commissioning Editor Presidente Prudente, a bus- workers rights. But, thanks and caused a crisis that zil’s international economic fourth presidential cam- zil was shielded from the policy, responding to the tling community of 206,000 to the rapid expansion of accelerated the end of mili- integration. Exposed to paign, to embrace and pre- worst effects of global melt- crisis with heavy state Steven Bird Designer in the south-western corner the sugar ethanol industry tary rule. It took almost a international competition, serve the economic stability down by the shallowness of intervention. of São Paulo state, offers a alongside flex-fuel cars that decade of civilian leader- companies historically asso- brought the reforms he its capital markets and its Furthermore, none of the Andy Mears good view into Brazil’s rise. were introduced in 2003, it ship and a series of crises ciated with Brazil’s state once criticised. limited exposure to the top candidates to succeed Picture Editor From its unremarkable is now being transformed for Brazil to find a route to driven development, such Stability, world growth international economy, the Lula in January 2011, in a beginning as a stop on the into an industry that is economic stability in a as Petrobras, CVRD and and income distribution country still increased its still unpredictable election For advertising details, Sorocabana railway when emblematic of the South politically plural, open and Embraer, became successful programmes have contrib- presence on the world scheduled for October 2010, contact: coffee was king, it is now American country’s emer- competitive environment. global enterprises. uted to a lowering of the stage. advocate a change in the John Moncure on: one of two dozen prosper- gence as a social innovator The feat was accom- Gerdau, Odebrecht, bus country’s notorious levels According to most meas- direction of the economic +1 212 641 6362; ous municipalities at the on the world stage. plished in mid-1994 by a builder Marcopolo, Natura, of inequality and to the ures, last year the country policies that helped propels fax: +1 212 641 6544; centre of one of Brazil’s suc- From 1968 to 1973 – the team lead by Fernando Hen- the cosmetics maker, and expansion of the middle took Canada’s place as the Brazil’s current rise. e­mail: cess stories – agro-industry. worst years of repression by rique Cardoso. The combi- other private companies fol- class, which now encom- second-largest economy of [email protected] Less than one hour to the the military regime that nation of democracy and lowed the trend of seeking passes half of the popula- the Americas, after the Paulo Sotero is director of or your usual west, a state-of-the art etha- ruled the country until 1985 price stability, achieved for expansion abroad, generat- tion. United States. It is 50 per the Brazil Institute at the representative nol plant is nearing comple- – impressive growth in the first time in the coun- ing further pressure for Brazil’s resilience to the cent bigger than Mexico Woodrow Wilson Inter- tion. Conquista do Pontal, gross domestic product led try’s history, is the root of international integration. current global crisis under- and represents close to 60 national Center for Scholars FINANCIAL TIMES TUESDAY JULY 7 2009 ★ 3 Brazil Interventionist basking in new economic orthodoxy

INTERVIEW they are his, and that he programmes such as Bolsa infrastructure projects, such as has more successful measures Família – a relatively cheap power stations, roads and rail- up his sleeve. income transfer programme that ways, being contracted out to The finance minster He begins with a romp has turned millions of poor peo- the private sector. tells Jonathan through the impressive array of ple into consumers for the first Mr Mantega says such stimu- initiatives the government has time – plus increases above lus to growth, along with falling Wheatley why his taken in response to the global inflation in the national mini- public debt, low inflation, a economic stimuli economic crisis: the R$100bn mum wage and pension pay- solid fiscal base and, above all, released from reserve require- ments – policies often criticised, Brazil’s healthy domestic mar- will work ments to rescue a banking sys- in contrast, for their expense ket, will push the country to the tem starved of liquidity; the and comparatively small impact forefront of a new world order. uido Mantega, Brazil’s additional R$100bn provided to on inequality. “Emerging markets will come finance minister, is the BNDES, the government’s Far from simply reacting to out of the crisis more quickly,” finally in his element. development bank, to finance the global downturn, he says, he says. “They have greater For years he lan- investment and working capital Brazil “was ready for the crisis dynamism and smaller fiscal Gguished in opposition as eco- for business; and the cuts in before it happened”. He cites the imbalances. The US is no longer nomic adviser to the leftwing sales taxes on motor vehicles, increase in the country’s rate of the locomotive of world growth. PT (Workers’ Party), his views construction materials and investment – from 16 per cent of Emerging countries will have to clashing with the orthodox, household electrical goods such gross domestic product in 2006 rely increasingly on their own market-friendly policies intro- as fridges, cookers and washing to 19 per cent in 2009 – although and each other’s economies.” duced by the previous govern- machines. economists say the rate still He says those with big domes- ment and which the Lula He says the cost of the meas- needs to be much higher to tic markets – China, India, Bra- administration surprised many ures is far outweighed by their zil – will take a lead in driving by keeping largely in place from benefit. Revenues lost from MORE ON FT.COM growth, while those with abun- 2003. vehicles sales taxes between dant natural resources – Russia, Since taking office in March December and June, for exam- For a map including political, Brazil – will benefit as exporters. 2006 – replacing the highly-re- ple, were just R$2bn, while sales economic and social statistics He is confident Brazil will garded , who and production have bounced www.ft.com/brazil­statistics meet his target of 1 per cent became caught up in scandal – back. economic growth this year – he has often been derided by “Sales of cars and buses are although “we will have to work market economists for indeci- now back to pre-crisis levels,” make Brazilian business com- hard and keep taking measures” siveness and for subverting the he says. “I know of only two petitive. to make that happen – and of 4 central bank’s austere monetary other countries that have done Increasingly, he says, invest- per cent in 2010. policies with a softer approach that: China, which is hors con- ment will be driven by the state. Among new measures in prep- to fiscal policy. cours, and Germany, which is Petrobras, the government-con- aration is what, by Brazilian But now that state interven- giving people a fat cheque to trolled oil company, will be standards, is a radical move to tion is fashionable, economic buy a car.” hugely important. cut the very high cost of labour. orthodoxy and Mr Mantega’s Policies such as these have Its investment plan of $174bn According to the World Bank/ instincts are more closely been criticised for indulging a between 2009 and 2013 will drive IFC’s annual Doing Business aligned. corporatist habit of picking win- demand for steel, ships, drilling report, Brazil ranks 121st out of Sitting pretty: Mantega is keen on state intervention – which is currently in vogue anderson schneider Often defensive in interviews, ners, instead of giving everyone gear, helicopters and a lot more. 181 countries in terms of the he began a recent conversation in business a smaller but equal “It’s at the head of a huge pro- ease and cost of hiring and fir- charges – equal to 25.5 per cent other measures – although he special incentives for labour- with the Financial Times in boost. duction chain,” he says. ing workers. The average cost of of employees’ wages – that com- does not say what those will be. intensive industries. subdued mood but during Mr Mantega is unrepentant. Other investment will be led firing somebody, for example, panies must pay into Brazil’s Other initiatives in the pipe- “We are going to deliver a 90 minutes warmed up to a “These are the sectors that most by the government’s “acceler- remained stuck at 37 weeks’ welfare system. He says he will line include subsidised credit for qualitative leap in productiv- cheerful ebullience, reflecting promote employment and earn- ated growth programme”, or wages from 2004 to 2009. do this without infringing lorries and for working capital ity,” he says. “We want to grab his confidence that Brazil’s eco- ings,” he says. PAC, which in addition to Petro- Mr Mantega is preparing to worker’s rights and that the loans from public sector banks, the opportunities open to Brazil nomic policies are working, that He stresses the central role of bras’s spending includes big announce the abolition of shortfall will be covered by lower taxes on investment, and in the post-crisis world.”

Dancing its way through the global economic crisis

Continued from Page 1 house in order that Brazil to veer off course into has become so attractive to adventurism of any kind. running on gasoline or eth- investors. And the govern- The country has been fol- anol or any mixture of the ment has been able to pro- lowing broadly the same two. This means motorists duce primary surpluses economic policies for the can decide at the pump largely because tax reve- past 15 years, under one which fuel to buy, depend- nues have been rising even centre-right and one ing on price. more quickly than public leftwing administration. Flex-fuel cars have helped spending – a trick it will That may not sound like Brazil become the world’s not be able to pull off for the full political spectrum sixth biggest auto producer ever. but – unlike, say, Mexico, but they are made almost Ever since Fernando Hen- which has yet to put a entirely for Brazilians. rique Cardoso – the prede- leftwing government to the And the global crisis? It cessor to President Luiz test – there is no serious hit the auto industry hard, Inácio Lula da Silva – contender for government because sales depend on launched the inflation-bust- in Brazil who could be credit and credit disap- ing Real Plan in 1994, there expected to jeopardise the peared from Brazil last year has been a well-known list achievements of the past as it did from the rest of the of “strategic” reforms that decade and a half. world. Brazil must enact if it is to One reason is that in the But the government achieve sustainable, faster 1980s and early 1990s, Bra- pumped liquidity into the rates of growth and the zilians tired of quick-fix economy by releasing developed nation status populism as its experiments R$100bn from banks’ that is coming into view but went badly wrong. reserve requirements – the remains tantalisingly out of Another is that Brazil, share of their deposits they reach. unlike Russia, India and must park at the central There is still ambivalence China, with which it is con- bank – and temporarily about how such reform stantly compared as a mem- removed vehicle sales taxes. should be achieved. Guido ber of the Bric group of big In May, a quarter of a mil- Mantega, finance minister, emerging nations, is not lion cars were sold in Brazil told the Financial Times in only a mature, stable and – 2 per cent up on May 2008. an interview for this report diversified economy but This is the Brazil that that he is preparing to do also one largely unthreat- finally, after years of unful- away with the 25.5 per cent ened by social, demographic filled promise, is catching “contributions” that or economic upheavals. the world’s attention – and employers must pay on top Its institutions have sucking in foreign direct of payroll to a slew of wel- developed slowly and sol- investment, while many fare and educational insti- idly. Some economists com- rivals go without. tutions. plain that the central bank It is a mature democracy needs de jure as well as de with a diversified economy, facto independence. Yet any a young, adaptable popula- There is no attempt by government, for tion revelling in increas- intention to tackle example, to make it cut ingly stable employment interest rates at the stroke and rising incomes. the rigidities of of a pen would risk its It is also a rising power in Brazil’s labour code board walking out en masse food and industrial com- and plunging the country modities, a big future – imported from into crisis. exporter of oil and home to “There are powerful con- the world’s fourth biggest Mussolini’s straints on the will of the derivatives and equities president,” says Maílson da exchange. This, without a doubt, Nóbrega, a former finance But it is also a Brazil would remove a big element minister and now head of where old, bad habits die of the custo Brasil that saps Tendências, a São Paulo hard and where policy mak- the competitiveness of Bra- consultancy. ers are still content, as the zilian business. As well as the strength of Brazilian expression has it, Yet there is no intention democracy and institutions, to push unappealing fiscal to tackle the rigidities of he points to Brazil’s inde- problems forward with their Brazil’s labour code – pendent, investigative stomachs. And the fact that imported wholesale from media and the population’s Brazil appears to be coming Mussolini’s Italy – to abiding intolerance of infla- out of the global crisis more deliver real dynamism and tion. quickly than expected does agility to the jobs market. Such constraints on not mean no damage has Similarly, the government power, he says, are akin to been done, nor that it is prefers to give targeted tax England’s Glorious Revolu- immune to further global breaks to labour-intensive tion of 1688 and are what downswings. parts of the economy rather makes Brazil different from Instead of consistently than tackle the much some of its neighbours and chalking up primary fiscal harder job of pushing a other emerging market surpluses (not including meaningful tax reform rivals. debt repayments) as it has through Congress, deliver- This does not mean Bra- for the past few years, the ing greater productivity and zil’s work is done. Every- government has recently competitiveness to all. where you look in the coun- gone into the red, reflecting Two storm clouds try, the old Brazil is not only a slump in tax rev- threaten to spoil Brazil’s present: in its dilapidated enues but also the high cost otherwise bright and sunny roads and other infrastruc- of its stimulus packages, outlook. One is the danger ture, its out-of-my-way driv- including tax cuts, subsi- of further trouble from the ers, the threat of violent dised credit and – most wor- global crisis. crime and the acceptance of ryingly for the future – The other is the danger graft as normal in public more public sector jobs and that this or a future govern- life. higher public sector pay. ment, emboldened by the But if talk of green shoots Why worry? After all, big- global distaste for free mar- makes sense anywhere in ger, more developed econo- kets, may drift away from the world it is in Brazil, an mies than Brazil’s are going the path of reform towards emerging world leader in into debt to a much more one of increasing state farming, mining, oil, even alarming extent. But it is intervention and control of investment banking, and precisely because it has the economy. with a home market its done much to put its fiscal Yet Brazil seems unlikely rivals can only dream of. 4 ★ FINANCIAL TIMES TUESDAY JULY 7 2009 Brazil

Banker making waves on world stage

André Esteves is overflowing New status with enthusiasm. A billionaire in his early forties, a workaholic who is also a dedicated family man, his energy levels are so high he cannot sit still but is apologetic to the point of being still relies embarrassed when he has to step outside briefly during an interview to take a phone call. He also admits to having been annoyed – though he is Andre Esteves perfectly nice about it – when on global the FT accused him of having and attracting foreign direct reversed his strategic thinking. investment to Brazil. The New In 2006, he hailed the benefits York office is a broker dealer of being part of a large global focussed on US Treasury bills, financial institution as he mortgage­backed securities and explained the decision to sell other bonds –“a very nice rates economy Pactual, the Brazilian investment business I developed based on bank, to UBS for $2.5bn. But in my experience at UBS”. April this year, he argued that The question is how far he WORLD STAGE But over the past year, Brazil the private partnership could can take BTG Pactual in the has found itself being taken expand globally as he revealed post­crisis world. At the risk of Jonathan Wheatley more seriously. that BTG, his new investment offending him again: a year ago, investigates how the The stability of its banking vehicle, was buying back Pactual he talked of building BTG into a system and capital markets in from the Swiss bank. genuinely global investment global view of the the face of the global crisis have “I didn’t change my view,” he banking franchise. Now, he talks Latin American giant made regulators in other coun- says now. “The world changed.” of creating a Brazilian tries keen to hear its views. Pactual, the Rio de investment bank with significant is changing Brazilian officials have newly Janeiro­based investment bank international operations. prominent roles on the Finan- he joined as a 21­year­old “You shouldn’t try to do or Brazilians only just cial Stability Board (the systems analyst in 1989, has its everything for everybody,” he waking up to their coun- enhanced and re-launched roots in the emergence of says. “You should do what you try’s new-found global Financial Stability Forum), the Presidents embrace: Barack Obama and Luiz Inácio Lula da Silva meet at the summit in London AFP Brazil’s small but aggressive do with quality and consistency.” status, it was a revela- Basle Committee on Banking results­based investment In the post­crisis world, he Ftory moment. Supervision, the International economy – have more in com- “It is a fact that the G20, zilian command. Yet even in a banking culture in the 1970s and says, banks will have to go back “He’s my man. I love this Accounting Standards Board mon with developed nations rather than the G7, is at the “defensive” sector such as brew- 1980s. Mr Esteves rose quickly to basics. Hence BTG Pactual’s guy,” Barack Obama, US presi- and the International Organisa- than emerging ones. As the centre of the global response to ing – where sales tend to hold through the bank and, in 1999, culture of meritocracy and dent, was captured saying by a tion of Securities Commissions. shape of the world’s multilateral the crisis,” says one diplomat. up even in times of crisis – AB he and other younger partners long­term alignment through a television crew as he Last month Mr Lula da Silva organisations changes at a rate “But we don’t suffer from the InBev has been trying to sell wrested control from its partnership structure. “There’s approached his colleague Luiz took part in the first heads of accelerated by the global crisis, illusion of seeing this as a defin- some of its smaller brewers to founding partners. been a lot of criticism of Inácio Lula da Silva of Brazil at state meeting of the Bric coun- Brazil’s position can only be itive conquest.” pay its debts. When UBS bought Pactual in bonuses,” he says. “We pay the G20 summit in London in tries. If many commentators strengthened. The advance of Brazilian Brasil Foods, formed in May 2006, Mr Esteves sensed the completely on performance but April. “He’s the most popular wondered what Brazil, Russia, Last month, it agreed to buy diplomacy has been mirrored by by the merger of Perdigão and chance to rise to the top of a we really execute it. If we’re not politician on earth.” India and China had in com- $10bn of bonds to be issued by the private sector. Petrobras, Sadia, two food processors, is much bigger organisation. Yet performing well, nobody gets a Never mind that the comment mon, beyond forming a catchy the International Monetary the government-controlled oil being described as “the AmBev while he avoids criticising his bonus, including me.” was flippant (“It’s because of his acronym dreamt up by the sell Fund – an institution that Mr group, is already one of the big- of chicken”. But the company’s former colleagues at UBS in He sees BTG Pactual taking good looks,” Mr Obama added). side of an investment bank, few gest companies in the global origins suggest a note of cau- London – where he moved to its place in a world with fewer The effect on Brazilians was would deny that the countries industry and is destined for tion: Sadia agreed to merge with become head of the bank’s multiservice banks and more electric. Here was recognition will have a higher profile on the Brazil should resist greater prominence with the dis- its formerly smaller rival after fixed­income operations – he niche players, such as indeed. post-crisis international land- a tendency to covery in 2007 of massive new losing R$2.3bn in bets on Brazil’s gives the impression of Blackstone, the US private Brazil’s global ambitions have scape. reserves off Brazil’s coast. currency that went badly wrong. frustration at not being given equity, asset management and often been thwarted in the past. “The world knows it cannot concentrate diplomacy Vale, the world’s biggest pro- Jorge Gerdau, chairman of the freedom to turn the advisory group, and Citadel, the It granted market economy sta- go forward without these coun- on ‘south­south’ ducer of iron ore, has been Grupo Gerdau, one of Brazil’s business around. US alternative investment and tus to China in the hope of Chi- tries,” says Rubens Barbosa, a expanding for years – although biggest steel makers, which He left UBS a year ago and trading group. nese support for its claim to a former ambassador to London relations the global crisis forced it to fire makes more steel outside than returned to Brazil to create BTG Big investment banks have permanent seat on the United and Washington. more than a tenth of its workers inside Brazil, says the “irrespon- – which nominally stands for collapsed, he says, through Nations Security Council and on Mr Barbosa says Brazil should last year and scale back produc- sible euphoria” of recent years Banking and Trading Group but being cavalier about risk. “There the expectation of $8bn of Chi- resist a tendency to concentrate Lula da Silva and his followers tion. It came close to buying has disappeared. “Consolidation which Mr Esteves let it be were a lot of fake financial nese investment in infrastruc- its diplomacy on “south-south” used to enjoy telling raucously rival Xstrata last year and has used to be driven by the search known early on really stood for results around,” he says. ture in Brazil – neither of which relations at the expense of build- to go home. again been the focus of acquisi- for profit,” he says. “Now it is “back to the game”. “People need to be more have materialised. ing closer ties with developed Just a few years ago it was tion rumours as the mining being driven by the need to cut “Brazil,” he says, “is going conservative in understanding In South America – a conti- countries. The US and Brazil, unthinkable that the G7 group industry shows signs of pulling costs.” through its best period ever. We their own abilities.” nent from which Brazil often for example, while on perfectly of the world’s richest nations out of the downturn. That is a sober warning will never forget that Brazil is His model? “It’s difficult to feels peculiarly distant – it has friendly terms for years, have should take a back seat to the AmBev, formed by the merger not only to Brazil’s newly our core market.” replicate Goldman Sachs and met uppity behaviour from trad- also been happy largely to G20, composed of the biggest of two Brazilian brewers in 1998, emerging multinational compa- BTG already has operations in Morgan Stanley. But you can ing partners, such as Bolivia ignore each other. developed and developing ones. first merged with Interbrew of nies but also to its diplomats. London, New York and Hong work to the same standard and and Ecuador, with a magnanim- Yet many aspects of Brazilian Now the reverse is true. Belgium, then bought Anhaus- The biggest threat to their Kong. The Brazilian operation we’re not far from that.” ity whose driving impulse often monetary and fiscal policy – not Nevertheless, Brazilian offi- er-Busch of the US last year to future success – fresh turmoil in will focus on selling Brazilian appears to be little more than a to mention the strength of its cials are wary of celebrating form AB InBev, the world’s big- the world economy – lies largely securities to foreign customers Jonathan Wheatley need to be liked. institutions and diversity of its their new status too soon. gest brewery, firmly under Bra- beyond their control. Society’s glass ceiling for Afro­Brazilians remains

CULTURE Brazilians are proud of than their white peers, Six kilometres down the their cultural and ethnic according to the Ministry of coast from Olinda lies Oliver Balch visits heritage, especially in the Education. Only one in 20 Recife, the state capital and the former slavery­ Afro-Brazilian dominated Afro-Brazilians between 18 scene of one of Brazil’s best- north-east. Its importance and 24 is enrolled in a uni- known carnivals. I arrived dominated region goes beyond the fun of car- versity or equivalent institu- in time to catch a month- of the north­east nival. It backs up the coun- tion. That number jumps to long Afro-Brazilian cultural try’s carefully manicured 37.3 per cent for whites of festival, organised by the image as a champion of the same age. province’s tourism author- “Black is Culture”. The multiculturalism. In the light of such dis- ity in December to provide phrase appears on t-shirts “Brazil is a racial democ- parities, race activists argue a warm-up to carnival sea- and banners across Brazil. racy. To see that, you only that the strong association son. It is more than lazy stereo- need to compare our experi- of culture with Afro-Brazil- The event offered a dizzy- typing. No float during Rio ence with that of the United ians is potentially restric- ing array of music and de Janeiro carnival is more States…There were never tive and unhelpful. dance genres: forró, frevo, eagerly anticipated than the segregation laws here after “Naturally, black music, coco, maculele, afoxé, Blocos Afros. No footballer emancipation,” argues Pro- ciranda, seresta, caboclin- is more highly vaunted fessor Maria Coelho Prado, hos. than the “next Pelé”. a historian at the Univer- ‘Brazil is a racial I opted to follow my ear, And nowhere is Afro-Bra- sity of São Paulo. democracy . . . which led me to a band- zilian culture more vaunted She cites tough anti-rac- stand where a guitar-led than in Pernambuco. Jut- ism legislation passed in there were quartet was playing char- ting into the Atlantic ocean, the past three decades as never segregation inho. this black and mestizo dom- evidence of Brazil’s official The romantic spell was inated state survived for commitment to colour laws here’ soon broken by a costumed centuries on its slave-driven blindness. “But that not to troupe acting out a tradi- sugar trade. say that Brazil still doesn’t tional samba, which has a Around three million suffer silent discrimina- art and religion…[are] a more hard-edged, backcoun- Africans made the tortur- tion”, she admits. vital tool in self-identity”, try feel to than its contem- ous journey to Brazil during It is an important caveat, concedes Silvio Humberto, porary namesake. the colonial era. In the and one backed up by sta- director of the Steve Biko A fiddler-cum-clown led a country’s north-east, their tistics. Seven in ten of very Institute, a black rights curious musical assortment descendants continue to poor Brazilians are non- advocacy organisation. comprising a tambourine, a vigourously celebrate the white. As well as being one But when a black person pair of elongated maracas music, art and religions of of the most Afro-Brazilian tries to step into the worlds and an ‘agogo’ – a high- their African origins. provinces, Pernambuco is of politics, business or pitched, conical bell con- My introduction to this also one of the poorest. academia, then the “fiction” nected by what looked like region’s rich cultural legacy Education figures are of Brazil’s racial democracy a plumber’s U-bend and came in bohemian Olinda. equally alarming. Children becomes apparent, he struck with a metal baton. Inside a community theatre, of mixed-race or Afro-Brazil- argues: “Culture is a space By midnight, a forró the audience was drinking ian couples typically receive reservoir for blacks here. It party in the main square rum and wolfing down two years less education hems them in.” had reached full swing. heaped platefuls of feijoada Forró is not the easiest of while a flamboyant com- musical genres to nail pany of bare-foot dancers down: heavy percussion, bounded onto the stage. and accordion, overlaid The troupe resembled a with a splice of rock and band of Congolese warriors. jazz, and charged up with I had stumbled on an some serious electronics. authentic marakatú in ses- My party legs worn out, I sion – up there with a can- returned to my hotel to find domblé religious ceremony a procession of musicians or capoieira martial art blocking the door. class as one of the region’s Eventually they moved most authentic cultural on, their romantic serestra experiences. ballads and midnight cheer The performance con- growing fainter and fainter cluded with a glittering cor- as they danced down the onation scene: originally hill and into the night. styled on the Portuguese Black is culture – of that court, a local marakatú there’s no doubt. But it instructor gave a different needs to mean more. take on the ceremony: “It’s When it does, South to remind us we were once America’s self-acclaimed kings, not slaves.” rainbow nation will have a Given that many of the true cause for celebration. slaves shipped to Pernam- buco came from tribal king- Oliver Balch is author of the doms in West Africa, the travel book, Viva South interpretation contains America, published by Faber more than a grain of truth. Brazil’s strong African roots are celebrated in Pernambuco & Faber in March 2009.