During his presidency Lula has driven Latin America’s biggest economy from the edge of default and transformed the nation of 193 million into an emerging financial power.
In 2009 the Brazilian real reached 33%, which was the biggest net gain among the world’s 16 most actively traded currencies. In March annual inflation dropped from 14.5% when Lula took office in January 2003 to 5.17%, a far cry from 6,800% in April 1990. Brazil’s gross domestic product growth is expected to increase to 5.8% this year from 2.7% at the beginning of Lula’s term.
“Brazil is definitely among the hottest markets this year for us,” says William Landers, who helps manage $8.7 billion of Latin American assets at BlackRock Inc. in Plainsboro, New Jersey.
Money is pouring into Brazil from international investors. Just last year they added $20.5 billion reais of Brazilian shares to their holdings. This is the most since 1994, when records began. Also this year foreign direct investment is on its way to going back to the levels of 2008, which reached a record $45 billion.
According to Luciano Coutinho, president of Brazil’s development bank, Brazil’s biggest company, state owned oil giant Petroleo Brasileiro SA, plans to sell as much as $25 billion in stock, which would be the largest share sale in history.
Under Lula’s guidance Brazil, which has defaulted on its foreign debt twice since 1983 and devalued its currency in 1999, has flourished. It seems that nobody else has Lula’s unique ability to make both the people and the international investing community happy.
In 2008 Brazil got its first investment grade rating when Standard & Poor’s boosted the country’s sovereign debt to BBB- from BB+. In the same year Brazil, which is the world’s largest exporter of coffee, beef, sugar and orange juice, held so many dollars that it created a sovereign wealth fund to invest outside of its borders. In April foreign exchange reserves surged to $244.8 billion as record commodity exports continued to flood the market with the US currency.
“The economic stability we see now is not going away,” Landers says.
Lula wants to keep it that way. And he blames the TCU for delays that cost Brazil thousands of jobs. “We won’t let workers be unemployed because someone suspects something is wrong,” he said on March 12 at a ceremony to unveil the expansion of Petrobras’s Presidente Getulio Vargas refinery in southern Parana state.
The refinery went online in 1977 and produces 12% of Brazil’s petrochemicals. The TCU found billing fraud and an incomplete budget for the refinery’s expansion in last year’s audit. The TCU suggested that work be stopped until these issues were addressed. Lula ignored this suggestion and included the 1.7 billion reais for the project in the 2010 budget anyway.
“We are talking about 25,000 jobs that would be lost if this project were suspended,” he said.
According to Lula the projects are essential, particularly with the proposed stock sale. Brazil’s government controls 55.6 per cent of Petrobras’s voting shares. Nongovernmental shareholders own 77 per cent of Petrobras preferred stock and 42 per cent of the common shares.