It has been almost 50 years since Astrud Gilberto and Stan Getz recorded the bossa-nova hit “The Girl from Ipanema”. Much has changed in Brazil since they sang of the tanned Rio de Janeiro beauty: “When she walks, she’s like a samba.”
The song has become elevator music and the young girl from Rio’s most famous beach district is now a grandmother. But not all the loveliness has faded. In some ways, those wistful days have returned. Brazil, once more, is enjoying the kind of economic boom it did when the song was first recorded, the Financial Times reported.
In the mid-1960s, Brazil was in the midst of a state-led and debt-financed investment “miracle”. This fantasy of fast growth crashed during the Latin American debt crisis of the 1980s, which gave way to the grinding reforms and stabilisation packages of the 1990s.
Those, helped by the commodity price boom, laid the ground for steady growth during the 2000s. And now things have come full circle, with the overheated Brazilian “miracle” of the 2010s.
Much as when the girl from Ipanema first sashayed across the beach at Ipanema, Brazil’s current prosperity is being partly sustained by an economic model that promotes state-led investment and high debt. How long can this boom last?
It is a question at the forefront of the minds of those attending this year’s World Economic Forum on Latin America – the regional offshoot of its better known Davos cousin – which opened in Rio on Thursday. Set in a bay along from Ipanema beach, it considers the theme “Laying the Foundation for Latin America’s decade”.
That the coming decade might be Latin America’s is a self-congratulatory slogan that has caught on quickly. Like all marketing slogans, it is part truth and part intoxicating dream.
Brazil, like much of the region, sailed through the global financial crisis. Roaring Asian demand for the commodities it exports in such abundance – iron ore, ethanol, soya and other foods – buoyed Brazil’s terms of trade. This huge windfall allowed for a huge surge in imports, but masked growing vulnerabilities.
Plug in 2005 commodity prices, for example, and Brazil’s $23bn trade surplus would become a $20bn deficit. If Chinese demand for commodities were to fall – and it cannot be sustained for ever – Brazil’s growing deficit would explode.
Meanwhile, the government has pursued the state-led mega-projects – most particularly in the oil sector – in which Dilma Rousseff, the president, believes and that are part of a global ideological shift towards bigger government. The echoes with the 1960s and 1970s are eerie – and not just in Rio’s retro-looking buildings and street decor.
The Brazilian real is the most overvalued major currency in the world. Cheaper imports have made Brazilians feel richer, feeding a consumer boom. But domestic manufacturers have appealed for help – and the same kind of tariff protections that characterised the doomed economic model of bygone years.
Finally, to deal with the global financial crisis, the government opened up the taps – and has only just started to withdraw the stimulus. Ultra-low interest rates in the United States, Europe and Japan has flooded the country with capital, pumping up the economy further. Bank credit is now growing at a 20 per cent annual clip.
That has given Brazil’s economy an appearance of strength, but also risked stretching it thin. Typically, Brazilians now spend a quarter of disposable income on debt payments. At the height of the US credit boom, by contrast, American households spent about 15 per cent. If US interest rates were to rise, Brazil’s boom could turn to a sudden bust. Read more. (Subscription required.)
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