Milken Institute Review 2Q10 Page 10

The Milken Institute Review

In his 2007 book,

Forgotten Continent, Michael Reid, the Amer-

icas editor of The Economist, reported that Brazil "continued to grapple with relatively

slow economic growth, a bloated state, social injustice, violent crime and political

corruption." Just two years later, the magazine's tune had changed. In a special section

entitled "Getting It Together at Last," The Economist opined that "Brazil used to be all

promise. Now it is beginning to deliver."

t r e n d s

by albert fishlow

Albert Fishlow, a former deputy assistant secretary

of state for inter-American affairs, is professor emeritus at

Columbia University.

The magazine was responding to surpris-

ingly strong economic growth in 2007 and

2008, quick recovery from the current global

recession, progress in reducing the country's
shameful income inequality and brighter
prospects for the oil industry. One must won-
der whether the changes will endure: in the
past, Brazil has always managed to disappoint
the optimists. But this time around, the augu-
ries look good provided, that is, Brazilians
accept the necessity of consuming less today
in order to ensure prosperity down the road.

For starters, there has been evidence that

Brazil's economic and political cultures have
grown into the task of managing an advanced
economy. Indeed, the cumulative impact of
changes in recent years has been nothing less
than dramatic. A left-center government with
impeccable populist credentials has allowed
the central bank to do its job, containing
credit growth in the name of price stability.
Budgeting, at both the federal and state levels,

has become more transparent. And Brasilia
has resisted the siren song of trade protec-
tionism, keeping the economy open to the
competitive pressures of global markets. The
payoff: rising productivity and an inflation
rate below 5 percent.

a leader for his times
Much of the change dates to 1999, when Bra-
zil responded to economic crisis with a so-
phisticated mix of policies: a monetary re-
gime based on inflation targeting, a flexible
exchange rate that allowed exporters to pros-
per, and a commitment to maintaining a "pri-
mary" fiscal surplus that is, a surplus ex-
cluding interest payments on the government
debt accumulated over past decades. Criti-
cally, the policies survived a shift in 2002
from a centrist coalition government to one
led by the legendary populist Luiz Inácio Lula
da Silva. The central bank and the president's
ministers still, on occasion, duke it out in
public. But both seem committed to sustain-
ing a stable macroeconomic environment.

The way government is organized and

power asserted is also changing in subtle but