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Walter Molano | Brazil: The future is now

Published:Friday | March 18, 2016 | 3:00 AM
A demonstrator with inflatable dolls in the likeness of former President Luiz Inacio Lula da Silva in prison garb, demand the impeachment of Brazil's President Dilma Rousseff in front of the Planalto Presidential palace, in Brasilia, Brazil, Wednesday, March 16, 2016.

Brazil: The future is now

There is a running joke that says, 'Brazil is the country of the future, and it always will be'.

Indeed, Brazil is a country that has always been obsessed with what lies ahead. The flowing designs of architect Oscar Niemeyer not only imbue Brasilia with a futuristic bent, they adorn scores of buildings and homes throughout the vast country.

Brazil is a country of endless potential. With the second-largest population of the Western Hemisphere, it bristles with natural resources and human capital. Much is made of its income inequality and poor social indicators. However, very little credit is given to cutting-edge universities and technological development centres.

Brazil has some of the best institutions of higher education in Latin America; for example, the econometrics department of the Pontific Catholic University (PUC) of Rio de Janeiro rivals MIT and the University of Chicago.

And, for all of its malign, the truth is that some of the world's best marine geologists and engineers are found in Petrobras.

The same goes for Brazil's infrastructure. While we were looking the other way, we failed to notice that S„o Paulo developed the second-largest metro system in South America. It is one-third the size of the New York subway system and transports almost five million people per day. This is impressive, when one considers that New York subways carry 5.6 million people a day and the London Underground moves 3.2 million per day.

Gleaming airport terminals grace Guarulhos International Airport, and the new rail links in Rio will transform the verdant metropolis by the start of the Summer Olympics.

A stronger nation

Forged in a crucible of criticism, Brazil has emerged a stronger nation. The debacle of Petrobras and the ongoing Lava Jato investigations left an indelible mark on the national psyche. Much of the credit goes to the tireless band of prosecutors and judges who led the charge, but the shift in national sentiment was already under way.

The tremendous commercial success of the Tropa Elite movies confirmed that the nation was fed up with corruption. The two movies chronicle the unwavering heroism of an elite SWAT team confronting the perils of the drug trade and the deep-seated corruption within the police department of Rio de Janeiro.

Surreal preview

This sparked a wave of movies lampooning and criticising the corruption that was a permanent part of the national landscape. The slapstick comedy, O Candidato Honesto, which was loosely based on Jim Carey's Liar Liar, was a surreal preview of what would unfold with the investigation into former President Luiz In·cio Lula da Silva. The downfall of Eike Batista and the shenanigans of the presiding judge highlighted the need for change.

Therefore, it is little wonder that a cultural sea change is afoot. A good example was BTG's corporate actions, following the arrest of AndrÈ Esteves. Who would have expected its founder to resign, the board to immediately shed workers and divest itself of its most valuable assets?

Brazil was never known for good corporate governance, but the intolerance of mismanagement and corruption has become pervasive.

The reality is that Brazil is an economic powerhouse. While much of the emerging markets are withering under the collapse of commodity prices, Brazil is in the midst of an economic revival. The decline in oil prices decimated the economies of Russia, Venezuela and Saudi Arabia. Their current account balances wilted.

Some of these countries countered with a massive devaluation of their currencies, but to no avail. However, Brazil's current account deficit is disappearing. The reason is because Brazil has a thriving industrial base. It has one of the world's leading agro-industrial complexes. It has a strong manufacturing sector, ranging from textiles to plastics to energy to automobiles to aeroplanes.

These sectors have come to life as the cost of imports soared. As much as Vladimir Putin may want Russia to embark on an import-substitution industrialisation programme, the process occurs naturally in Brazil.

The truth is that Brazil is at its best when it is at its worst, and at its worst when it is at its best. The country has an endogenous tendency to come together at its darkest moment. Unfortunately, its arrogant swagger, when things are going well, often turns into deadly hubris. This produces a manic type of behaviour that exaggerates the swings of the economic pendulum.

Of course, these are also signs of immaturity. Its recent success in dealing with economic adversity and rooting out deep-seated corruption could lead to more equanimity. Therefore, we may no longer need to pine for a moment when Brazil will be one of the guiding lights of the planet, because the future has finally arrived.

Dr Walter T. Molano is a managing partner and the head of research at BCP Securities LLC.

wmolano@bcpsecurities.com