Adventures of a Gringa

The Brazilian Saga

You can read hundreds of news stories and dozens of books about Brazil's global rise as an economic powerhouse, but I've read few books that come close to putting in such sharp perspective how far the country has come as with Saga brasileira, by one of Brazil's most famous economy reporters, Miriam Leitão. There's a possibility you have opinions on Leitão, but either way, it's worth putting them aside for the sake of the book. While I think it could potentially be interesting for Brazilians, especially for econ nerds and those who were born after the worst of the economic crises, it may not be that much of a revelation. But for foreigners who work with Brazil, live in Brazil, or have any sort of interest or stake in Brazil, you really should read this book.

First, just be warned that it is heavy on lots of economic nitty gritty details, though fortunately there are interesting narratives in between. The other thing to know is that there were occasionally times where on one shoulder, there was a little Alex Castro, rolling his eyes and muttering "Classe média sofre," and on the other, a little Reinaldo Azevedo, yelling in all caps "QUE PAÍS É ESSE?!" Because there are some parts where, for example, the author tells anecdotes about families who suffered from the country's economic woes that you don't feel terribly sympathetic to, such as a couple who couldn't take their honeymoon in Bariloche and instead had to take it in Brazil--a story she mentions not once, but twice. This is a book written by someone of privilege for people of privilege, and that's very clear, so you just have to take it in stride. But there are also some shocking tales, such as grocery stores running out of stock during they hyperinflation years, or of just how disorganized the country's federal financial institutions used to be, that are quite eye-opening. And the last thing to keep in mind is that as far as non-fiction goes it's not the greatest; the narrative doesn't always seem to be coherent and sometimes skips around a bit, but this is the type of book you can read gradually in little chunks. (Also, it's in Portuguese, and I don't think there's an English translation available.)

The moral of the story is that Brazil's economic rise stems from finally succeeding in creating a stable currency, a long-fought battle after years of hyperinflation and 8 different currencies since the 1940s, as well as the battle for economic coherence and reforms in the federal government. Leitão touches on other important factors as well, including a drop in fertility and the creation of key social programs. She also puts Brazil's rise in historic perspective, demonstrating that it was a much longer process than commonly belived and that the country experienced other consumer booms in the recent past. But it really is worth dedicating a book to the fight for a country's currency, a fascinating and sobering tale that really is foreign to those of us who haven't experienced hyperinflation.

For Americans in particular, the concept of money is something practically sacred; despite the 2008 crisis and other economic busts, it's pretty much unthinkable to imagine using anything else other than the dollar. But in my lifetime, Brazil has gone through six currencies, from the cruzeiro (1970-1986), to the cruzado (1986-1989), to the cruzado novo (1989-1990), back to the cruzeiro (1990-1993), to the cruzeiro real (1993-1994), and finally, to the real. The story of how Brazil "won" its currency and beat hyperinflation, as well as the brilliant plan to make the switch to the real, really is an incredible saga.

It's hard to imagine what it was like during the time of triple-digit inflation, but Leitão gives you a pretty good perspective. Housewives would have to use price tables to figure out the values of food at the supermarket, which during some periods changed daily. In 1993, the minimum wage was initially set at 4,693,800 in cruzeiro real, but was the equivalent of US$64. Because inflation rose so quickly, "people lost the notion of the connection between the value and the price," Leitão explains. She recalls buying a VCR for 470,000 cruzados in 1988 and buying another VCR for 18,000 cruzeiro real in 1993, and of having credit card bills of over 1 million in 1985. "We lived in the Middle Ages," one businessman remembers. Meanwhile, a bank manager who was arrested when her branch ran out of cash in 1990 commented to Leitão, "Brazil hasn't had a war? It has, yes--a psychological war. We all participated in the war of the economy."

Leitão closes the book quite beautifully, explaining that it's not only important to remember and reflect on Brazil's economic past, but to learn from how Brazil treats its history. "Brazil has a strange tendency to erase the brightest colors of its history, as if it needed sepia tones to recognize itself as [having] a cordial people. But our merit is another: to overcome our traumas, even when they are difficult and painful." She warns that one of the real enemies is complacency, and that it was a mistake to accept rising levels of inflation, just as it is a mistake to accept corruption today. "We lost the notion of value and price in the economy during hyperinflation, like today we are losing the notion of values and preserving the quality of our democracy. We are not condemned to clientelism...nor to corruption."

Because there's so much to discuss from the book beyond hyperinflation, I'll come back to it later in separate posts about specific topics about Brazil's transformation.

Yamandu Costa

I caught one of Brazilian guitar genius Yamandu Costa's shows in New York this weekend after a tip from a friend, and it was not disappointing, even though I rarely spring for purely instrumental shows. Though Costa's been a big deal in Brazil and abroad for years, I was glad I was able to see him live. For those unfamiliar with his work, Costa is a 32 year-old classic guitarist who hails from Rio Grande do Sul and plays a number of Brazilian and Latin American styles.

I was worried I might be bored, but at just over an hour run time with occasional bits of entertaining commentary and quick breaks for him to sip his cup of chimarrão, it was great. Plus, there were times when I tried to follow his hands because I couldn't figure out how he was producing two very different sounds at once. I've really never seen anything quite like it.

Costa is currently on tour in the United States before he heads to Africa, Europe, and Brazil. If he is heading to your neck of the woods, I highly recommend checking him out. (See his tour schedule here)

 

 

Also, if you are familiar with Costa's work, you'll likely really enjoy Rodrigo y Gabriela, an amazing Mexican acoustic guitar duo who are getting a lot of attention here in the States.

Q&A With Brazilian Bubble

Over the past few weeks, there have been foreboding blips in the media about Brazil's economy. There's one story about the problems with Brazil's dependence on China, and another about the commodity slowdown and "the end of Brazil's magic moment." There was a bleak Foreign Policy piece called Carnaval is Over, predicting that Brazil's boom is coming to an end. There was also an oddly named op-ed in The Telegraph called Swimming naked in Brazil's bubbly waters, warning about possible credit and housing bubbles. And there was also a brief note in today's Estado de São Paulo that says Brazil is getting close to its consumer debt limit. It's not the first time analysts have predicted bubbles in the Brazilian economy, which some economists have assured won't happen. But there are signs the economy is slowing, despite strides that ensure Brazil will remain one of the world's largest markets.

When trying to figure out what's going on with Brazil's economy and understanding the dynamics of how things work, I've found that one of the best places on the web is a blog called Brazilian Bubble. There, you can read realistic, concise, and entertaining coverage of Brazilian economic, financial, and business news. Plus, it's way beyond bubbles, with everything from how Brazil's development bank works to the latest mergers to analyzing inflation numbers. It's not all gloom and doom; they focus on all aspects of the economy, both good and bad. Run by a small group of Brazilian and American business professionals, they'll change the way you think about Brazil's economy. (Because they like to keep their day jobs separate from the blog, they prefer to keep their names anonymous.) Even if you don't agree with everything, their perspective is invaluable to figuring out a market which, like the country, is not for beginners. I spoke to the Bubble guys about the blog and their thoughts on a number of critical issues affecting Brazil's economy.

What's the idea behind the blog, and why did you decide to start it? What kind of feedback have you received?

The blog started as a joke between friends: some of us thought Brazil was experiencing a real estate bubble and some didn't. So we bought the domain for fun and started re-posting cool articles about Brazil from other websites. All in English, as we didn't want to limit ourselves to the Brazilian border. It started with real estate, but then it went to stocks, economy, culture...pretty much a mix. It's important to not take life too seriously. Serious subjects like business and finance should also entertain the readers, so we like to treat everything with a flair of humor. The truth is that we love our Brazil, and we criticize things that most Brazilians do: high costs, bureaucracy, politics, corruption. But at the end of the day, our focus is business and finance, and we feel our site plays in a niche market not explored by others. The feedback we get from our audience is the best possible... we receive emails from avid readers (including high-profile economists) who tell us that they love the site and all. That is good fuel to keep us going, despite a couple of naysayers.

What's your outlook in terms of high costs of living and real estate in Brazil?

Our thought is that there is in fact a real estate bubble in Brazil, but it doesn't mean it will pop tomorrow. As long as there is credit flowing into the system, it can keep going for a while. But the truth is that real estate prices in Brazil have been increasing at a faster pace than inflation for about 50 months in a row. And as the economist Robert Shiller says, although there are moments of euphoria and depression in any housing market, in the long run prices adjust to inflation. Hence, in our opinion, a price correction will take place; it can take 6 months, or it can take 5 years, who knows. Regarding high costs in Brazil, we always discuss this at the blog. It gets more expensive by the day, but Brazilians seem to be willing to pay the price, as long as they can pay for the monthly installments. A friend told me recently that her housemaid makes about R$650 a month and, surprisingly, she was approved for a motorcycle loan that has monthly payments of R$270! Isn't that crazy?

You've written quite a bit about the BNDES. What's your take on it, and is this kind of lending sustainable in the long term?

BNDES is a tool used by the government to lend to businesses and get the economy going...fine. In theory, that role would have been better played by the private sector, which is more efficient, as you don't get the public machine to play politics. But the major private banks in Brazil won't lend...they are too lazy to take risks as long as they keep making money out of high interest rates. They simply have no incentive to lend more. So that's why the government in Brazil plays a crucial role in lending; just ask Guido Mantega how mad he is at the private banks because they resist lowering their lending rates. So, for now, BNDES, Caixa and Banco do Brasil should keep playing that role. Our criticism comes when politics are at play. Why keep lending to Odebrecht, OGX, and Petrobras at less than 5 percent, and not to millions of small businesses? Why keep making the same guys rich over and over again, when there are so many savvy entrepreneurs in Brazil that need that extra push? Brazilians are incredibly creative, but there is no money for them to explore these possibilities. I think it is easy for Eike Batista to write a book saying how Brazilian entrepreneurs could be like him, but no entrepreneur has the leverage in the government that he has. An average entrepreneur doesn't play politics - he is just worried about growing his business, and for that he needs to borrow at low rates. Is there a "Bolsa Familia" for that?

There's a lot of promise in the oil and gas sector but it seems there's going to be a lot of delays in terms of exploiting the pre-salt reserves. How long will it take for Brazil to become a global oil power?

Brazil is already an oil power: it is self-sufficient. How many countries can afford to have that? It is just that (again) the government is in the middle of it, which makes the whole system inefficient. And the government is also dictating how it wants Petrobras to explore its reserves. It gets very hard to get the right execution, efficiency and costs if you have the public machine dictating how to do your job. The market forces cease to exist, costs go up, and delays become a common trend. The government needs to get out of the way and let Petrobras run the show. It is great company but its biggest shareholder is the government. I think Brazil will have its challenges, but if it manages the process well, it can get it right. Only time will tell. It needs to be a private initiative, with some help from the government, not the opposite. It is that famous question: does Brazil wants be more like Norway or Nigeria? One of them is totally market-driven, super efficient, invests wisely, and puts its oil revenue in a well-managed sovereign fund. The second, Nigeria, needless to say anything. Same for Venezuela.

Productivity seems to be one of the biggest economic hurdles in Brazil that isn't discussed as often (though you guys do, of course). What do you think keeps productivity low in comparison to other developing markets?

We've talked a lot about this; it is a sensitive issue to us. Believe it or not, over the past 30 years, worker productivity in the Brazilian manufacturing industry fell 15 percent. When we read these kinds of headlines it makes us wonder what the hell happened to our Brazil... it almost seems like a group of people that should be worried about this were sleeping at their jobs for 30 freakin' years. While these guys were sleeping, China's productivity rates went up 808 percent in that same period. The main issue, besides the urgent need for investments in education and infrastructure, is that Brazil is a closed country. If you don't open the country, the local companies will have no incentives to invest, educate the workforce, trim costs, and make better products. Competition is everything: it is good for consumers, it is good for companies, it is good for the market. Just see the Americans - they have access to good quality products at low prices, while in Brazil is the complete opposite. Brazil needs to be more open, but it seems to be doing the exact opposite by taxing every import. Sincerely, that's a huge turn off.

Taxes and bureaucracy are among the most talked about economic hurdles in Brazil. Which realistic steps could be taken to alleviate Brazil's tax burden?

Shrink the government and fight corruption...but of course it won't happen in our lifetimes. Brazil needs reforms, but there is not a lot of people in the government with the energy and the will to do that. They will prefer to focus their efforts on making the most for their own self-interests, period.

Dilma's DC Visit

Leading up to President Dilma Rousseff's Washington visit, there was an odd mixture of hype and a collective shrugging of shoulders. On the one hand, there was much ado about how it wouldn't be an official state visit with the honors and symbolism it entails. Reuters explained how the snub in protocol would have reverberations. "There's a feeling that most people in Washington don't appreciate what's happening in Brazil...Obama could have taken her to dinner, or to the Kennedy Center," an anonymous Brazilian source said.

Some observers anticipated there wouldn't be many concrete results to come out of the trip, and that long-term changes in foreign policy would be key. Others pointed out to ongoing foreign policy problems in not seeing eye to eye. A Financial Times article cited a U.S. government official who called Brazil "the France of Latin America," saying that the country's “obstructionism in global talks is often driven by their need to assert their newfound power...undermining our initiatives in Iran or over trade talks, for example, is their way of forcing us to pay attention to them.”

On the other hand, there was lots of noise from analysts who said there was even more opportunity for Brazil and the United States to forge a closer relationship, and that given Brazil's global rise, there was even more incentive and need to for the U.S. to adapt its stance on Brazil. "Brazil has probably never mattered more to America than it does now. America has probably never mattered less to Brazil," The Economist declared. Several op-eds recommended that both countries work on a free trade deal (though this still seems highly unlikely on either side.) One analyst said there was room to bring the two governments closer, since they maintain a cordial relationship but a safe distance from one another. A Politico op-ed vaguely called for a "bolder partnership."

So what actually happened? Not a lot, really. But the saddest thing was how little interest the whole trip generated.

In the English language press, there was some coverage, but some of the biggest publications--including The Washington Post and The New York Times--initially ignored the visit. (As I was writing this, the New York Times published a very good analysis of the visit which was more helpful post-visit than pre-visit.) Obama and Rousseff gave a very brief press conference after their meeting, which was broadcast live on a Brazilian government website and publicized by Itamaraty, but was not broadcast on the White House website and was nowhere to be found on there later. The White House livestreams today were dedicated to a daily press briefing--which did not include remarks on Dilma's visit--and an Easter concert. In comparison to the North American leaders visit last week, which had a full, livestreamed press conference with Obama and his Canadian and Mexican counterparts, it seemed the administration really didn't give Rousseff's visit much importance at all. On the Brazilian side, there was plenty of press coverage, but as journalist Gabriel Elizondo pointed out, news of Facebook's takeover of Instagram dominated the afternoon news, rather than the visit.

Both leaders released a joint statement, which was full of pretty words like "cooperation" and "partnership" and "welcomed" and "praised" but was pretty low on substance. (Notably, Obama failed to endorse Brazil's bid for a seat on the UN Security Council--again.) Dilma said she hoped to build a relationship "among equals" while Obama said he was "lucky" to have a "partner" like Dilma. Despite the attempts to be cordial, there wasn't much love--it was all very friendly, but it was definitely a cool exchange.

Meanwhile, there was an all-day event surrounding the visit at the Chamber of Commerce, where gung-ho Brazil advocates spoke of "crucial strategic issues" and said promoting Brazil policy was not an option for the U.S. One speaker joked that Brazil had made a terrible mistake for not having Pakistan or Syria on its borders, therefore making the country more relevant to U.S. foreign policy. President Rousseff later spoke at the event, where she talked at length about economic policies and the real focus was discussing monetary policy in developed countries. The night before, she met with representatives from the private sector, half-joking that she had to leave Brazil to meet with Brazilian businessmen.

Still, there were a few small concrete morsels. The biggest thing was that Secretary of State Hillary Clinton announced that the United States would open two new consulates in Brazil in order to allow for more access to visas. One will be in Belo Horizonte, in Minas Gerais, and the other in Porto Alegre, in Rio Grande do Sul. It's a necessary step, considering Brazil is the size of the continental U.S. and only has four consulates. It's also quite symbolic that a consulate will open in Minas, the state with one of the largest numbers of migrants to the United States during the 1980s and 90s. Now, the U.S. is courting its rabid consumers--talk about coming full circle. Still, it means that most of the country's consulates are in the south and southeast; the only consulate in the Northeast is in Recife, and the country's third-largest city, Salvador, does not have a consulate. Also, according to one report, the new consulates won't open until 2014. [UPDATE: a 4/10 Globo article interviews a U.S. diplomat who says she doesn't expect Brazil to meet the visa exemption requirements in the short or medium term. It's more than percent of approved visas; the country needs 100% digital passports and government information sharing.]

On the visa front, the leaders discussed the Global Entry program, which the United States recently announced would be open to be Brazilians, allowing screened "safe" travelers to enter 20 U.S. airports without waiting in line at immigration. The Brazilian government needs to approve the program in order for it to go into effect, and the U.S. hopes Brazil will reciprocate by creating a similar program. It would be one of the easier first steps in terms of visas, since the U.S. has already taken the first step. Still, it's not clear when and if the Brazilian government will approve the program.

In the Brazilian press, there was much ado about this line from the joint statement from the two leaders: "They committed to work closely together to satisfy the requirements of the of the US Visa Waiver Program and Brazil’s applicable legislation to enable US and Brazilian citizens visa free travel." As far as I'm concerned, that means the U.S. is still just talking about considering allowing Brazil into the visa waiver program, which is different from saying it is close to eligible or realistically has a chance of this happening by the end of Dilma's administration. Still a lot of talk and very little action. The fact that the big news was more consulates is great, but it also means that there's an expectation for more visa processing, not less.

Finally, both countries agreed to new terms on alcohol imports. The U.S. will officially treat cachaça as separate from Latin American rums and as "exclusively and distinctly Brazilian," while Brazil will label bourbon and Tennessee whiskey as "officially American," in a bid to increase trade of both types of liquor. The agreement should theoretically lower import taxes on cachaça in the U.S. Still...one of the only concrete trade deals was getting both sides to acknowledge semantics? And on liquor, at that? Also, as a gift of goodwill and to celebrate the alcohol deal, Dilma will allegedly give Obama a diamond-encrusted, $116,500 bottle of cachaça. No word on if or what gift Obama will give Dilma. Touché.

All in all, it was a pretty disappointing affair. There's hope yet, though--Rousseff's visit to Boston to promote Science without Borders has the potential to be more promising than her trip to DC.

Brazil's Soft Power

With President Dilma Rousseff's Washington visit coming on Monday, everyone's talking about Brazil as a rising power with growing political and economic clout. Brazil has traditionally been a soft power country, given its history of diplomacy, a focus on non-intervention, and its role as a mediator. Now that it's a rising global power, some think it is neglecting cultural promotion, one of its greatest assets. But since Brazil is a champion of soft power, there's an important question: should Brazil work to expand its soft power, or focus on hard power?

BBC published a series of articles on the subject today, arguing that while Brazil already has a great deal of soft power, it could adopt a more coherent, streamlined approach to promoting culture abroad. It also posits that promoting Brazilian culture can help Brazil's economy. Tovar Nunes da Silva, the spokesperson for Itamaraty, said, "We consciously opted against militarization. We're one of few countries in the world where our national hero is a diplomat and not a general. We don't have a choice--our history is soft power." But singer Gilberto Gil, the former minister of culture, believes Brazil is neglecting culture as its international profile has grown. "Since Brazil is becoming more powerful and vocal, its soft power has to grow at the same proportion as hard power," he said.

With an eye on expanding the economy, trying to get a seat on the UN Security Council, and pushing for a greater say at international institutions, is it worth investing in music, literature, movies, fashion, and tourism? From my perspective, it is. First of all, Brazil's boom may not last; it wouldn't be the first time. Brazil's political power may hinge on its economic power, and though there's a lot of confidence that the country has finally reached a level of stability, it's also risky to depend on the commodity portion of its economic success. One of Brazil's greatest assets is its culture and people, and they'll be there no matter what happens to the economy or in international politics.

Controlling the promotion of culture is easier than the complex and gradual consolidation of hard power, and can be less dependent on government. Hard power is also dependent on external factors, whereas Brazil has much more control over promoting its culture abroad. Soft power can have an immediate impact, whereas hard power is built over time. The appetite for Brazilian culture, particularly music, is large and growing in the United States and Europe, but there's plenty of room for more promotion, tours, and exposure. Another plus to promoting Brazilian culture abroad is that it can have reverberations back in Brazil, since when something or someone from Brazil becomes popular outside of the country, they'll then get more love at home. (see: cachaça, Havaianas, etc.) Brazil still imports a lot of popular culture, particularly movies and music, and putting more value on homegrown artists would be a good thing.

Tourism is another factor in soft power, something that the government has put a lot of investment into in terms of PR, especially leading up to the World Cup and the Olympics. While it's important to bring foreigners to Brazil, it's just as important to bring Brazil to the world. One of the best ways to get people interested in traveling to Brazil is by having them fall in love with it before they even get there.

Finally, it's not just culture that can figure into soft power. Science without Borders, the Brazilian government's scholarship program to send 75,000 students abroad to study science, math, and engineering, is a fascinating mix of hard and soft power. On the one hand, it's an investment in Brazil's economic future, but on the other, a diplomatic program that sees people-to-people interactions as vital to Brazil's international role.