2 November 2011
Brazil has a elected a new president and she will take office Jan 1. From my perspective she deserves some time to prove herself one way or the other. I know many are afraid that this is a trend towards the “New Cuba”. I think this is a bit far fetched but it bears watching. She is has pledged to help the poor and the impoverished. These are noble goals. The government has been on a spending spree of late. The question is can they balance growth and inflation. From a farmer and exporter perspective, they would like the REAL to weaken to be more competitive in global market. Foreign investment is pouring into the country to capture the carry trade. Savings accounts in Brazil pay 11.75%. Inflation is running about 6%. The minimum wage, presently R$510 p/mth, will increase perhaps as high as R$600 p/mth starting in 2011. This is US$ 350 per month. Seven years ago the minimum wage was R$290 and the dollar was 3:1, thus about US$ 100 dollars per month. This gives you some idea as to how much things have changed percentage wise in the country. With high sugar prices, this is pushing up ethanol prices. Meat products in grocery stores are very expensive. One can feel the inflation in Brazil the last 6 months.
So I must wonder where all this is leading. Brazil has so many positives going for it. But poverty and education will be major hurdles to overcome. With food prices on the rise, one can have the best intention and yet fail. Will the government keep spending more and more money on food programs?
Another issue that will be reviewed in 2011 is the restriction on foreign land holdings. I can appreciate Brazil’s passion for keeping resources in control of its countrymen.
But one must also not inhibit the global capital, technology, and know how to keep this Brazilian food factory growing. This foreign investment goes a long way to putting people to work and increasing their standard of living. I have seen it time and time again in the interior boom towns.
Let’s see how the coming months play out. As long as I do not hear about an infrastructure program being canceled or the like, I will remain positive about the new administration.
With rising food prices, solving poverty will be an uphill battle. The irony about the LULA/Dilma administration is that the poor masses elected them. The poor gave them the power. By lifting them into the middle class, one actually decreases your political power over time. In the last 20 years, the middle class has grown from 30% to 50% of the population. Just in the last 8 years, 30 million people have risen to the middle class. It seems to me that the best way to keep this trend going is to enhance foreign investment in manufacturing, production, and new projects. With the dollar at 1:1.70, this will be difficult. 2:1 would be better.