Brazil is headed for bad 2010
By Ian Bremmer and David Gordon
http://eurasia.foreignpolicy.com/
After years of being wildly bullish on Brazil, we're in for a bump. The country stands to gain from a strong rebound in growth over the course of 2010, but Brazil's newfound economic abundance will lead to a drop in the quality of economic policymaking -- both on macroeconomic policy and, to a much greater extent, through leaning more heavily on state-owned enterprises. As a result, 2010 will be marked by growing investor concern on both macro and sectoral policy as the October presidential election draws near.
Brazil's challenge of abundance looms greatest in the oil sector. The government wants more control over resources, and has very little desire to allow the international community to profit unduly (or, in some cases, even duly) from the exploitation of the country's vast new oil frontier. With Lula's political capital running high, he should be able to approve legislation creating a new exploration and production framework which relies heavily on state-owned Petrobras. What's happening in the oil sector, while more extreme, should be seen as part of broader trend whereby state enterprises grow in relevance and industrial policy becomes more inward focused. That's a negative for Brazilian markets. A rosy economic outlook is also likely to impact the discipline of macroeconomic policymaking. The Lula administration isn't about to abandon a macroeconomic framework which has proved wildly successful, but lowered fiscal vulnerabilities will tempt the administration to keep fiscal policy expansive for longer than markets would like. That will put additional pressure on the central bank precisely when the membership of its board may be in flux...as Central Bank President Henrique Meirelles considers a run for elected office.
Markets will thus become jittery as the elections draw near, particularly given that some of the concerns will be overblown when investors awaken to these risks more explicitly. Lula's hand-picked candidate Dilma Rousseff enters 2010 favored to win the election, and she will undoubtedly deepen the government's turn toward a bigger state. Sectoral policy won't be evenly problematic -- in the telecom sector, these drivers exist, but are weaker; while in transport infrastructure, the political push actually goes the other way (more foreign investment needed given the scope of projects needing completion before the World Cup in 2014 and the Olympics in 2016). If opposition candidate Jose Serra wins, the sectoral up-side will be larger given the lack of a bias toward state-owned enterprises, and fiscal policy will be tighter. But markets will surely be concerned over his long standing criticisms of both exchange and monetary policy.
The situation is a little like post-Mandela South Africa (though from a more attractive economic trajectory), where people and markets expected continuity until Thabo Mbeki disappointed. Leaders like Mandela and Lula are impossible acts to follow. Post-Lula, Brazil will not have the capable policymaking of the past several years and Brazil will be in for a bumpier transition as a new administration seeks to put its stamp on managing the country's newfound economic wealth. Still, the long-term outlook for the country remains strong. By 2011, Brazil should be set for a bounce.
Ian Bremmer is president of Eurasia Group, and David Gordon is the firm's head of research.
I believe Brazil is quite possibly the best positioned nation going forward for the next couple of decades due to their large population achieving certain per capita income threshholds, natural resources, demographics, opportunities, etc.
If I was a younger and single dude with a couple bucks jingling in my pocket I can think of few places I'd rather invest it for the long term.
^ Yep, I'm still bullish on Brazil too. I think we have yet to see that country peak in more ways than one. Not to mention they have hot chicks.
I think its too soon to say if Brazil 2011 is going to be a good or bad year, those people need to be careful to not make the same mistake they did in 2002. (When some thinked Lula would be like Chavez).
Interesting you mention this because this was a topic of conversation I overheard recently. Could you recommend any resources? I've really just gotten the taste (and finances) for investment, but I'm a little skeptical about South America.Originally Posted by Flagg
Take a read here: http://www.fool.com/investing/intern...uy-brazil.aspx
Brazil needs to behave as if they have no oil.
Otherwise they will become complacent, lack the drive and innovation needed for a stable economy, good governance and democratic society.
http://eurasia.foreignpolicy.com/pos...sk_no_7_brazil
The original title was not "Brazil is headed for bad 2010", you invented it.
2010 is going to be a very good year for the economic growth, the private sector foresees more than 6% of growth
http://www.fiesp.com.br/agencianotic..._econ_2010.ntc
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