Chavez Reference to Brazil's PAC Plan:

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Rough road ahead: Brazil wants faster growth, but it must deal with potholes, real and symbolic, to get there

Latin Trade, May, 2007 by Margarida O. Pfeifer

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Growth has become something of an obsession in Brazil. After controlling inflation--an endemic problem for Brazil's economic past--and after stabilizing the economy, the new goal is sustainable growth and getting gross domestic product (GDP) to increase to 5% a year, double the average performance of the last two decades and on par with other emerging-market economies, which have known better how to take advantage of a highly liquid global economy. President Luiz Inacio Lula da Silva, reelected with more than 58 million votes cast, the most in Brazilian history, has decided to turn this national goal into the centerpiece of his second term, which began in January. Lula knows his political legacy depends on his making a mark, and nothing would better achieve that than clearly doing what Brazil hasn't done in decades: grow with vigor.

"Growing at an accelerated pace means pulling out the stops and putting the country on track to grow more in line with its abilities and strengths," Lula said at the end of January, when he presented his Accelerated Growth Program (PAC), designed to "unlock" the economy and post growth of at least 4.5% in 2007 and 5% in the years through 2010. The program's major goal is to drum up US$240 billion in new investments--$136.70 billion from public sources and $103.30 billion in private money--by 2010. The majority of the resources are destined for projects in infrastructure, such as highways, railroads, ports, airports, hydroelectric power plants, housing and basic sanitation.

In Brazil there is a sense that the solid macroeconomic performance of late--moderate inflation, interest rates relative to the ratio of debt to GDP on the decline, a healthy trade balance at $45 billion in 2006, reserves at $100 billion, among others--don't seem to be leading the country toward any place but solid, sustained growth. "The success of the monetary policy in terms of controlling inflation and the diminishing risk rate in Brazil to record lows shows foreign-investor confidence in the Brazilian economy," says Emilson Alonso, president and CEO of HSBC Bank Brasil, the domestic subsidiary of the U.K. global financial giant.

Alonso says the PAC is a well-timed initiative that links action to projects to foster economic growth. "Brazil needs more jobs and more income in order to grow and the attention paid to infrastructure needs is absolutely correct," he says. In a five-year strategy plan that ends in 2008, HSBC chose Brazil, Mexico, India and China as priority expansion countries. "HSBC believes that these countries will be responsible for half of the growth in global demand over the next 25 years," Alonso says.

Spanish telecommunications giant Telefonica, too, has shown confidence in Brazil's outlook. In January, Grupo Telefonica's executive chairman and CEO, Cesar Alierta, met with Lula in Brasilia to announce $7 billion in investments to be made in the country over the next four years.