Life’s A Beach

For the makers of Porsche, times have never been better in Latin America's biggest nation. Sales to Brazil have risen tenfold since 2003 and are set to hit a record 500 cars this year—not bad at $144,000 to $269,000 a pop. Of course, they seem a lot cheaper to Brazilians these days. With the real up 22 percent against the dollar in the last year, a car that fetched 800,000 reals in 2003 now retails for about 480,000. No wonder Brazil's luxury-goods market will soon top $4.3 billion, an impressive 33 percent rise in the last five years, according to the São Paulo research firm GfK Indicator.

A new taste for expensive toys is only half the story. For four years running, the Brazilian real has outperformed the world's 16 most traded currencies. After nearly two decades of slumber, the world's ninth largest economy is regaining its place as an emerging-market favorite. Growth will hit 5 percent this year, up from 3.7. The boom in raw-materials prices has helped, as has export diversification away from the United States. Inflation, once a national curse, is down to 4.5 percent and the Treasury will post a budget surplus for the ninth straight year. Despite the spiking real, exports are surging in value and volume. Foreign direct investment is at a 60-year high. Much of the bounty is pouring into the São Paulo Stock Exchange, up 39 percent by volume this year alone. Once the world's biggest debtor, Brazil is now a net creditor, with $160 billion in foreign reserves.

Brazilians have seen spurts of development before, but not like this. "Other countries may be growing faster, saving more or seeing higher investment rates," says Ricardo Amorim, emerging-markets strategist for WestLB Bank. "It's the combination of positive factors that sets Brazil apart." That combination is likely to win Brazil an investment-grade rating next year, which will drastically reduce company borrowing costs—and push the mighty real up yet another peg against the greenback.

And just because God is Brazilian, as the natives like to say, the country recently came across its biggest oil find ever, the Tupi fields, with some 5 billion to 8 billion barrels of light crude, which would make Brazil one of Latin America's leading energy titans, right behind Venezuela. Another petro-populist state in the making? Not likely. "Brazil is a place where there has been a real and sustained economic turnaround," says Lewis Alexander, chief economist at Citi. "Since 1994 you've had very strong political support for good, sensible policies. And it's not going to reverse."

The boom is silencing skeptics who've recently suggested deleting the "B" from BRICs, the acronym for emerging market dynamos Brazil, Russia, India and China, coined by Goldman Sachs senior economist Jim O'Neill in 2001. They may be missing the point. "A lot of the growth in China is due to urbanization, and Brazil has already gone through that," says O'Neill. "While the other [BRICs] economies have higher aggregate growth rates, they are peaking and may fall soon." By contrast, he says, "Brazil is on the verge of 5 to 7 percent growth."

The key now is whether president Luiz Inácio Lula da Silva can push through more reforms and cut red tape. Unloading a container in Brazil is still twice as expensive as it is in India, and takes three times longer than it does in China. The average Brazilian company pays 69 percent of their net profits to the government and spends 2,600 hours preparing taxes every year.

With municipal elections looming next year, getting Congress to focus on reform won't be easy. Still, it's remarkable how far the Brazilian economy has come. Can the sunny days last? It will depend on how a bigger U.S. decline plays out globally. For now, the Porsche tops are still down.

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