Brazil is hot now what?

Global Finance, Jun 2001 by McCrary, Ernest S

These are the kinds of issues-along with long-running disputes over the sale of Brazilian steel products and some manufactured goods in the United States-that ought to foster Brazilian interest in the proposed Free Trade Area of the Americas. (see Mexico story, page 48) But Brazil exports much more to Europe ($17 billion to eight key countries in the region last year) than to the United States ($13.2 billion in 2000). At best, the Brazilians are lukewarm toward a hemispheric free-trade bloc. At worst, they simply don't trust the "protectionist" Americans. Regardless of how the free-trade debate works out, Brazil

is a major trading country-but still has plenty of room to grow relative to competitors such as Mexico, Taiwan, and South Korea.Those countries boosted their exports by an average of 1011% from 1984 to 1999, while Brazil's exports grew less than 4% annually. (See table, page 33)

This reflects another cultural quirk in the Brazilian business mentality. Comfortable with a domestic market that is roughly as big as the rest of Latin America combined, few exporters feel compelled to export for survival.

Yet, the effect of a sharp devaluation of the real a year ago finally is kicking in as an export booster. Brazil's central bank estimates the trade balance for 2001 will show a $1 billion surplus-compared with deficits averaging $4 billion a year since 1995.

Significantly, exports are no longer overly dependent on agricultural commodities such as coffee, soybeans, and orange juice. Brazil's biggest export item in 2000 was aircraft, with Embraer selling $3.1 billion worth of regional jets overseas.The Silo Jose dos Campos-based company has an order backlog of $11 billion.

With so many of the right pieces in place for sustained growth, the game is now Brazil's to lose. "But this is still not a done deal, even though we have the people who know how to do the job," says BNDES president Gros. "The real issue is Brazil's ability to keep pushing through with the changes to make this a more open and competitive economy.The obstacles are not external.We have all we need to determine our future. It's our fault if we don't do it right."