The program is considered by experts  a model for developing countries to alleviate the slum problems worldwide. According to the Associated Press article, published this Thursday:

“There is much evidence to indicate the program will succeed: Brazil’s strong economic performance over the past few years — despite a global economic crisis — has provided officials with the means to bankroll the project; land for new housing is widely available in the enormous country, and both of the two main presidential contenders have pledged to continue the program if elected”.

The report also points out that officials from Angola, Cape Verde, Mozambique and other countries facing housing shortages have requested information about the Brazilian plan.

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This is the greatest investment of General Motors in Brazil in its 84 years of history and it takes place at a moment of global crisis of the headquarters in the USA. Ardila recalled that the Brazilian branch has administrative and financial autonomy in relation to the parent company. The executive said it has been three years since the subsidiary has received any aid from the headquarters. Ardila added that, for now, the remittance of profits to the USA will be suspended.

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No country in Latin America looks better to invest than Brazil, now enjoying its best period of economic growth of all times. The most recent weekly analyst survey of the country´s Central Bank forecasts that the Brazilian economy is on track to grow more than 5% in 2010. Brazil was one of the first countries to recover of the 2008 internacional economic crisis. “After several decades of low growth and macroeconomic vulnerability, Brazil’s economy is now in its strongest macroeconomic position ever”, said recently the governor of the bank, Henrique Meirelles. All procedures for foreign investors establishing themselves in Brazil, and for the granting of work visas to foreigners are facilitaded by the Brazilian Ministry of Labour and Employment.

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Lots of investors are clamoring over China right now because stocks there have experienced phenomenal growth since January 1, 2009. There’s no mystery behind China’s appeal: The country has experienced robust economic growth even in the worst of the recession, including a nearly 9% annualized gain in GDP for the third-quarter that makes it one of the world’s fastest growing economies. There are certainly big opportunities in China, and I continue to recommend a number of Chinese stocks to individual investors. But a huge portion of those blowout gains have already been realized. Like it or not, the boat has sailed on many China stocks now that they’ve run up 200%, 300% or even 500% in a matter of months.

That’s why I want to let you in on a little secret: Brazil is the next China.

Brazil has all the signs of an emerging powerhouse. The nation’s currency, the real, has already gained 36% against the U.S. dollar so far this year on the strength of Brazil’s economy. And as of October, the three-month moving average for the inflow of foreign capital to Brazilian stocks was $5.19 billion, or an increase of 159%.

But it’s not just big-picture stats like that prompting me to think Brazil is the next big thing. It’s also little things.

Take the auto industry in Brazil, which is one of the strongest in the world. The industry employs 130,000 workers and produces more cars than all but five other countries. Experts forecast Brazilian auto sales will hit 3 million this year, which will represent an all-time record. And as a result, carmakers in Brazil are hiring more workers and expanding facilities even as the industry is on the decline elsewhere in the world. And all because of a growing middle class that is spending more on modern amenities like cars, computers and cell phones.

I am very bullish on Brazil right now—with a few stocks in particular at the top of my list.

First is the Latin American utility Enersis (ENI). As a growing middle class buys more gadgets and consumes more electricity, ENI will see booming growth. Consider that in the first quarter, Enersis’ earnings rose 50.5% to $257 million compared with the same quarter a year ago—even as the rest of the world was reeling from recession.

An even more powerful Brazilian utility is Ultrapar Participacoes (UGP). Utrapar and its subsidiaries distribute liquefied petroleum gas, refine and sell petroleum products and produce chemicals. In the second quarter, the company’s earnings rose 28% compared with the same quarter a year ago. What’s more, the analyst community is forecasting 61.9% earnings growth for 2010 compared with 2009.

These are just some of the breakout Brazilian stocks I am recommending to investors right now. Brazil is the next China, and you need to get in on the ground floor before these stocks skyrocket to record highs. If you were late on the China surge, you can’t afford to miss the Brazil blowout

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Brazil’s rate of investment is failing to keep pace with demand sparked by President Luiz Inacio Lula da Silva’s stimulus programs, threatening to quicken inflation and force policy makers to increase interest rates. 

As demand recovers after Brazil’s first recession since 2003 — helped by public spending, tax cuts and lower borrowing costs — investment in new capacity rebounded too slowly to guarantee near-term supply, according to Morgan Stanley and Credit Agricole SA. Quickening inflation and rising interest rates may slow gains in the benchmark Bovespa index from 80 percent this year to less than 30 percent in 2010, Morgan Stanley.

“We have a lot of catching up to do,” Vladimir Caramaschi, Brazil strategist at Credit Agricole, France’s biggest bank by branches, said in an interview from Sao Paulo. “Investment is just not going to be enough to meet demand.” 

Brazil, historically a laggard in investment in factories, machinery and other fixed capital, hasn’t changed course even as it recovers faster than most from the global recession. The so- called Brazil cost of taxes, bureaucracy, labor laws and interest rates that remain the highest among Group of 20 economies discourages investment, Caramaschi said. 

‘Not the Same’  

The Brazilian economy is “doing well,” Nobel Prize- winning economist Paul Krugman, 56, told journalists in Sao Paulo Dec. 2. “It’s not the same as to say it will become the economic superpower next year. The markets are reacting as if it will.” 

Brazil’s real is up 34 percent against the dollar this year, the biggest advance among the world’s 16 major currencies, and the Bovespa index has outperformed benchmark measures in all of the 10 largest stock markets except China, according to data compiled by Bloomberg. 

Krugman said he plans to sell some of his Brazilian assets because he is concerned the gains aren’t sustainable.

Investment accounted for 19 percent of Brazil’s economy last year, the most since the national statistics agency began tracking the data in 2000. That compares with the 41.8 percent investment rate of developing economies in Asia, led by China, and the world average of 24 percent, according to the International Monetary Fund. 

Investment Rate  

In the second quarter, Brazil, the world’s eighth-biggest economy, invested 15.7 percent of GDP. Caramaschi estimates the rate advanced to “a still very low” 16.5 percent in the third quarter.

The investment data will be released on Dec. 10, as part of the government’s GDP report. The economy grew 2 percent in the third quarter from the previous quarter, when it expanded 1.9 percent, according to a Bloomberg survey of 13 analysts. 

“There isn’t the slightest possibility Brazil can sustain its present pace of growth with this investment rate,” said Luis Fernando Lopes, who helps manage 5.6 billion reais ($3.3 billion) in assets as partner and chief economist at Patria Investimentos in Sao Paulo. To maintain 5 percent growth on average, Brazil would have to invest 22 to 24 percent of GDP, he said. 

Ramiro Alves, a spokesman at the Finance Ministry, didn’t return a message left on his mobile phone outside regular working hours. Brazil ranks 129th among 183 countries in the 2010 “Ease of Doing Business” index in the World Bank’s Doing Business report, trailing Swaziland and Bhutan. It fell two positions from last year, as indicators such as registering property, dealing with construction permits and getting credit, worsened. 

Scrapped Investment  

“I always borrow less money than I could use,” said Andre Barbierato, chief executive officer of Buffalo Investimentos, a Sao Paulo-based private equity firm with stakes in auto parts, clothing and engineering companies. 

Jose Ricardo Roriz Coelho, the executive director of Vitopel do Brasil Ltda., Latin America’s largest maker of plastic films used for packaging, said he backed off buying $85 million worth of equipment to expand capacity. 

The average interest rate on a business loan was 26.5 percent in October, according to central bank data, and government borrowing constricts credit for businesses, Barbierato said. 

“Heavy taxes, expensive money, and the currency really make us think twice about investing,” Coelho said. “It’s increasingly hard to export because of the exchange rate, and the domestic market is flooded by cheaper imports.” 

Policy makers may start increasing interest rates in the first quarter next year as economic growth accelerates, Marcelo Carvalho, Morgan Stanley’s chief economist in Brazil, said in an interview from Sao Paulo. 

Rate Forecast  

The central bank will push up the so-called Selic rate as much as 1.5 percentage points to 10.25 percent by the end of 2010, according to the median estimate in a Bloomberg survey. 

Monetary policy is the biggest threat to gains in the Brazilian stock market, Morgan Stanley equity strategist Guilherme Paiva wrote in a report Dec. 1. In Paiva’s “best case Goldilocks scenario,” the Bovespa index would reach 85,000 by the end of 2010, from 67,603.52 on Dec. 4. 

Morgan Stanley was the second-biggest U.S. securities firm behind Goldman Sachs before both converted to banks last year.

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Brazil used to be all promise. Now it is beginning to deliver, says John Prideaux (interviewed here)

AFP

BRAZIL has long been known as a place of vast potential. It has the world’s largest freshwater supplies, the largest tropical forests, land so fertile that in some places farmers manage three harvests a year, and huge mineral and hydrocarbon wealth. Foreign investors have staked fortunes on the idea that Brazil is indeed the country of the future. And foreign investors have lost fortunes; most spectacularly, Henry Ford, who made a huge investment in a rubber plantation in the Amazon which he intended to tap for car tyres. Fordlândia, a long-forgotten municipality in the state of Pará, with its faded clapboard houses now slowly being swallowed up by jungle, is perhaps Brazil’s most poignant monument to that repeated triumph of experience over hope.

Foreigners have short memories, but Brazilians have learned to temper their optimism with caution—even now, when the country is enjoying probably its best moment since a group of Portuguese sailors (looking for India) washed up on its shores in 1500. Brazil has been democratic before, it has had economic growth before and it has had low inflation before. But it has never before sustained all three at the same time. If current trends hold (which is a big if), Brazil, with a population of 192m and growing fast, could be one of the world’s five biggest economies by the middle of this century, along with China, America, India and Japan.

Despite the financial crisis that has shaken the world, a lot of good things seem to be happening in Brazil right now. It is already self-sufficient in oil, and large new offshore discoveries in 2007 are likely to make it a big oil exporter by the end of the next decade. All three main rating agencies classify Brazil’s government paper as investment grade. The government has announced that it will lend money to the IMF, an institution that only a decade ago attached stringent conditions to the money it was lending to Brazil. As the whole world seemed to be heading into a long winter last year, foreign direct investment (FDI) in Brazil was 30% up on the year before—even as FDI inflows into the rest of the world fell by 14%.

Much of the country’s current success was due to the good sense of its recent governments, in particular those of Fernando Henrique Cardoso from 1995 to 2003, which created a stable, predictable macroeconomic environment in which businesses could flourish (though even now the government continues to get in the way of companies trying to earn profits and create jobs). How did this remarkable transformation come about? And how can Brazilian and foreign firms, from lipstick-makers to investment banks, take advantage of the country’s new stability?

To see why Brazil currently seems so exciting to both Brazilians and foreigners, it helps to understand just how deep it had sunk by the early 1990s. Past disappointments also explain three things about Brazil which outsiders sometimes find hard to fathom: its suspicion of free markets; its faith in the wisdom of government intervention in business and finance; and persistently high interest rates.

When Brazil became independent from Portugal in 1825, British merchants, delighted to discover a big new market, flooded Brazil with manufactures, including, according to one possibly apocryphal story, ice-skates—an early example of emerging-market fever. Even so, real income per person remained stagnant throughout the 19th century, perhaps because an inadequate education system and an economy dependent on slaves producing commodities for export combined to get in the way of development. Ever since the Brazilians have tended to view free trade with suspicion, despite their country’s recent success as an exporter.

In the mid-20th century Brazil seemed to have found a formula for stimulating growth and enjoyed what appeared to be an economic miracle. At one point its economy grew faster than that of any other big country bar Japan and South Korea. That growth relied on a state-led development model, financed with foreign debt within a semi-closed economy. But growth also brought inflation, which crippled Brazil until the mid-1990s and still accounts for some odd characteristics, such as the country’s painfully high interest rates and its disinclination to save. All the same, the “miracle” wrought by the military government persuaded Brazilians that the state knew best, at least in the economic sphere, and even the subsequent mess did not quite persuade them otherwise.

Unhappy memories

When this development model broke down amid the oil shocks of the 1970s, Brazil was left without the growth but with horrendous inflation and lots of foreign debt. There followed two volatile decades, when Brazil started being likened to Nigeria instead of South Korea. Productivity growth went into reverse. Many of the country’s current problems, including crime and poor education and health care, either date from that period or were exacerbated by it. Between 1990 and 1995 inflation averaged 764% a year.

AFPCardoso (left) did Lula a big favour

Then a real miracle happened. In 1994 a team of economists under Mr Cardoso, then the finance minister, introduced a new currency, the real, which succeeded where previous attempts had failed. Within a year the Real Plan had managed to curb price rises. In 1999 the exchange-rate peg was abandoned and the currency allowed to float, and the central bank was told to target inflation. The ten-year anniversary of this event has just passed, and although there is continuing debate about how to make the real less volatile, none of the big political parties advocates going back to a managed rate.

More than that, the reforms brought discipline to the government’s finances. Both federal and state governments now have to live within their means. A requirement to run a primary surplus (before interest payments on the public debt) was introduced in 1999, and the federal government has hit the target for it every year since, though there is a good chance that it will miss it this year. This has allowed Brazil to get rid of most of the dollar-denominated foreign debt that caused such instability every time the economy wobbled. Now international creditors trust the government to honour its commitments. Moody’s, a rating agency, elevated Brazil’s government paper in September to investment grade just as the governments of many richer countries fretted about being able to meet their obligations.

Yet growth still proved elusive. It took a buoyant world economy and a surge in commodity prices to procure it. Although Brazil’s economy is still relatively closed (trade accounted for a modest 24% of GDP in 2008, less than 60 years earlier), its growth is closely correlated with commodity prices, the Chinese economy, the Baltic Dry index and other measures of global trade. But at last in 2006 GDP outpaced inflation for the first time in over 50 years.

Lucky Lula’s legacy

Brazil’s current president, Luiz Inácio Lula da Silva, has been able to take much of the credit for the country’s recent growth that perhaps properly belongs to his predecessor. Yet Lula’s achievement has been to keep the reforms he was bequeathed and add a few of his own—not a meagre accomplishment given that for the past seven years his own party has been trying to drag him to the left.

Lula is often mocked for beginning his sentences with the phrase, “never before in the history of this country”. What his political opponents find even more infuriating is that he is often right. Brazil was able to cut interest rates and inject money into the economy as the world economy faltered at the end of last year, the first time it has been able to do this in a crisis. Whereas others predicted that world events would tip Brazil into recession, Lula reckoned that the crisis would amount to nothing more than a small tide breaking on his country’s beaches. The economy shrank for only two quarters and is now growing again. The contrast with Brazil’s performance in previous crises could not be more stark (see article).

Plenty of problems remain. The central bank’s headline interest rate is 8.75%, one of the highest real rates anywhere in the world. If the government wants a long-term loan in its own currency it still has to link its bonds to inflation, making debt expensive to service.

Productivity growth is sluggish. That may not seem the end of the world, but it reflects realities such as the two-hour bus journey into work endured by people living on the periphery of São Paulo, the country’s largest city, during which they often risk assault before arriving too tired to be very useful. The government invests too little and has longstanding gaps in policing and education to fill. The legal system is dysfunctional. And so on.

Yet other countries face similar problems, and Brazil has made real progress. In a country where businesses became used to headline interest rates of 30% or more, a rate below 9% comes as a relief. “It’s like the difference between running a marathon with 50 kilos on your shoulders and 20 kilos,” says Luis Stuhlberger of Credit Suisse Hedging-Griffo, one of Brazil’s most successful fund managers. Mr Stuhlberger thinks that Brazil’s recent past was so awful, and its expansion of education and credit is so young, that the country can reasonably be expected to continue on its current trajectory, even without further big reforms. Even so, he argues, “we are not going to have a Harvard or a Google here.” The blame for that, he says, lies largely with government policies.

Brazil’s economic story could certainly be made more exciting with some reforms to its business environment. The country’s potential growth without a risk of overheating can only be guessed at, but it is probably below the 6.8% it reached in the third quarter of 2008. Most economists put it at 4-5%. This suggests that interest rates will not be coming down to levels considered normal in other countries soon.

Still, stability has its own rewards. Edmar Bacha, one of the economists who worked on the introduction of the real in 1994, is pleased that the debates about Brazil’s economy have become so narrow. Back in 1993, when he joined the ministry of finance, inflation at one point hit 2,489%. Nowadays, he notes with a wry smile, “the big debates are about whether interest rates could come down from 8.75% to 8.25%; or whether the central bank should have started cutting a month earlier than it did.” That change has been good for Brazil, and particularly good for its banks and its financial system.

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Carnival photo on its front page: according to FT, Brazil is a 'chance to celebrate amid the global gloom'

Financial Times published yesterday a special report about Brazil. In its front page, the correspondent in Sao Paulo Jonathan Wheatley stated that Brazil is ‘dancing through the economic crisis’.

The publication starts from a personal focus on the owners of a Brazilian micro-distributor who are investing more in their business in Recife (north-western Brazil), passes through the business fuss around Festival de São João in Caruaru, and then describes the capacity of the Brazilian market to support ‘not only distinct brands but also entire industries’, as flex-fuel cars.

“This is the Brazil that finally, after years of unfulfilled promise, is catching the world’s attention – and sucking in foreign direct investment, while many rivals go without”, says the British newspaper, and it goes beyond, pointing out Brazilian stability and young democracy as catalysts of success for foreign investors.

You can see the entire special report here. 

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