As Brazil turns into 6th largest economy, unfamiliar challenges loom

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As a report earlier this week by the Centre for Economics and Business Research (CEBR) noted, Brazil has just overtaken the UK as the world's sixth largest economy. Merely one year ago, it displaced Italy from the seventh spot, after ranking a distant 10th in 2002. Brazil's finance minister, Guido Mantega, then announced that he expected to Brazil to overtake France by 2015 before closing in on Germany's GDP by the end of the decade, predicting that the South American giant would grow twice as fast as Europe's economies over the years to come.

The reaction in Brazil was more cautious than triumphant. Several analysts pointed out that the country faced an great amount of complex challenges, ranging from education to infrastructure, fearing that the good news could weaken the zeal to implement important reforms. Fernando Rodrigues of Folha de São Paulo, Brazil's leading newspaper, argued in an editorial that the 6th position mattered little since Brazilians still lacked 'civilized manners', something that had hardly changed since the economy took off in the 1990s. Regarding per capita GDP, average schooling and all other social indicators, the commentators stressed, Brazil still trails any European country by a wide margin, and the government's inability to deal with growth killers such as high taxes, little incentives to innovate, and a kafkaesque bureaucracy that "suffocated entrepreneurialism in the cradle" gives little reason to be hopeful.

This reaction may seem somewhat surprising to outsiders, yet it can be explained by the numerous disappointments Brazilians have experienced over the past decades. I usually ask my international students to read President Sarney's Foreign Affairs article "A President's Story" of 1986 to show them that this is by no means the first time optimism was rife in a country with all the potential to become an economic powerhouse - Sarney's policies - two 'Cruzado Plans' (1986), the 'Bresser Plan' (1987), the 'Rice and Beans Plan' (1988) and the 'Summer Plan' (1989) - all meant to stabilize the economy, filled Brazilians with hopes, only to see them quickly dashed.

While Fernando Henrique Cardoso's 'Real Plan', which finally did the trick and laid the groundwork for economic growth and stability, now lies 18 years in the past, the memory of economic hardship continues to shape Brazil's public opinion. A Brazilian friend of mine, who had participated in a recent conference organized by The Economist in São Paulo, fumed when she told me how 'absurdly exuberant' and 'uncritical' the 'gringo presenters' had characterized Brazil's situation.

There is some truth to that claim. The West is, understandably, anxious to see democratic and nonthreatening Brazil succeed and provide a counterexample to rising China. A similar logic applies to India, which in general is seen as a less frightening power than China. This can lead to a somewhat overly optimistic coverage of Brazil. Yet it would be wrong to describe The Economist's (now increasingly frequent) articles on Brazil as biased - for example, an astute analysis of Brazilian politics in late November correctly argued that Rousseff needed to make "radical changes" to the country's rotten "political-patronage system" to make real progress - hardly a flattering thing to say.

More importantly, Brazilian society will have to get used to the fact that being part of the world's top league will bring unknown challenges with it. For example, given recent growth, all donors have terminated development aid projects in Brazil, and the country will increasingly be expected to help others overcome poverty. A potential regional backlash as a reaction to its rise, which I have written about before, comes to mind as well. In addition, a growing number of immigrants will come to Brazil to seek jobs (see my article "How immigration will change Brazil"). While the arrival of qualified immigrants from other rich countries may not require great adaptation, the arrival of economic refugees, most of them unskilled, is likely to force Brazilians to rethink their place in the world. As Tom Phillips of The Guardian recently wrote:

Nearly two years after their homeland was devastated by a 7.0 magnitude earthquake, several thousand Haitians are already thought to have made the pilgrimage through Bolivia, Peru or Colombia into Brazil in search of work. New groups are reportedly arriving each weekend. But while some are able to secure legal documents and find employment, many end up stranded in tiny border towns such as Brasiléia, now home to at least 724 Haitians out of a total population of around 20,000.

Addressing Brazil's senate on Monday, Aníbal Diniz, a senator from President Dilma Rousseff's Workers' party (PT), said: "We are facing an extremely serious problem. The number of Haitians leaving Haiti for Brazil rises every day because they have no chances in their country."

The arrival of growing numbers of refugees and economic migrants will force the government to learn to better receive and integrate foreigners, something it never had to do before. Those who hope that the Haitians are an exception will be disappointed - news of economic growth in Brazil has long spread into all corners of the continent, turning it into a magnet for many in the region who seek a better life.

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Image Credit: Alberto Benett