terça-feira, 25 de setembro de 2007

Brazil enjoys the real benefits of stability

By Jonathan Wheatley in São Paulo for Financial Times

Noélia Santos, a 43-year-old domestic worker, rises at 4.40am each day to catch the 5.15am bus, one of two that take her to her 7 o’clock start in a middle-class house in Perdizes, a smart residential area in central São Paulo.

There she does the cleaning and supervises another maid who does the cooking and laundry. Leaving work at 5.30pm, she gets home through the heavier evening traffic 2½ hours later.

Ms Santos is one of an army of domestic cleaners, nannies, cooks and drivers who battle through traffic to make life easier for better-off Brazilians, often leaving their own families behind.

But she isn’t complaining. “I know things have got better,” she says. She will be happy to stay in her job until she retires with a state pension. Most of her friends are also happier in their jobs and less worried about unemployment than a few years ago. “There are a lot more opportunities than there used to be, especially in shops and factories,” she says. Who is responsible? “It’s coming from Lula.”

Luíz Inácio Lula da Silva, nearly a year into his second consecutive four-year term, is the most popular president in Brazil’s history. Two surveys published during the past week make it easy to see why.

One is the national statistics office’s annual household survey, known as the PNAD. Among a host of positive developments, it found that real average monthly wages had risen by an extraordinary 7.2 per cent from 2005 to 2006. Economists say the increase this year will be even bigger.

The other is an opinion poll carried out for O Estado de São Paulo, a daily newspaper, in which two out of three Brazilians credit Mr Lula da Silva for the economic stability that has done so much to boost the spending power of the poor. Former president Fernando Henrique Cardoso, who launched the inflation-busting Real Plan in 1994, gets the credit from just 7 per cent of those surveyed.

O Estado de São Paulo’s conservative leader writers have fulminated against this injustice, but the numbers in the PNAD explain it. In spite of the boost to spending power from low inflation, real incomes fell year on year from 1996 to 2003, the first year of Mr Lula da Silva’s first term. Since then they have risen steadily.

Alexandre Lintz, economist at BNP Paribas in São Paulo, says this is due to two overriding factors: international liquidity, and commodities prices. When these were working against Brazil – a big commodity exporter – during the 1990s, the currency fell from parity with the US dollar in 1994 to almost R$4 to the dollar in late 2002. Under vastly improved international conditions since then, the real has revalued to about R$1.85 today.

“The strong currency keeps inflation low and workers’ buying power at a higher level,” Mr Lintz says. “So we’re very confident of a continuing strong consumer market in Brazil.”

He credits the government with allowing the central bank to use interest rates to control inflation, and for maintaining primary budget surpluses (before debt payments) large enough to trim the ratio of public debt to gross domestic product.

But it has achieved this through a rising tax take rather than cuts in wasteful public spending. As a result, many economists expect growth to fall from about 4.7 per cent this year to 4 per cent in 2009.

Brazil needs spending cuts and other reforms to realise its true potential, Mr Lintz says, but the government has “absolutely no incentive” to enact such changes as long as voters like Ms Santos are happy.

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