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EDITIONS
 Monday, 13 January, 2003, 16:27 GMT
Brazil braces for testing times
Brazilian President Luiz Inacio Lula da Silva
Lula is a former shoe-shine boy

It is just days since a new president took over in Brazil.

Former shoe-shine boy Luiz Inacio Lula da Silva, affectionately known in the country as "Lula", has a huge job on his hands.

He needs to make the currency, the real strong again, and attempt to pay back at least part of the country's $250bn (156bn) debt.

At the same time he's promised to create 10 million jobs, an unprecedented target for this largest of all Latin American nations.

Shoe-shine boy

At a vast factory in San Bernardo, Brazil, Volkswagen clatters out cars from the biggest structure of its kind in Latin America.

"He [Lula] needs to convince people that he will allow the central bank to be operationally autonomous"

Mohamed El-Erian, Pimco

A fifth of these vehicles will be exported but Brazil needs to sell more than Volkswagen cars to overcome its chronic debt and some of the worst grinding poverty in the region.

The country's newly elected president has shown that people from the poorest backgrounds can make it to the top in modern Brazil.

Lula began a tough working life as a shoe-shine boy within sight of the Volkswagen plant.

Four decades on he plans to rid Brazil of its reputation for the biggest gap between rich and poor in the world.

Positive outlook

The signs are looking good.

The currency, the real, has strengthened against the dollar, Brazilian bonds are back in fashion, never mind the $250bn debt.

International investors who shunned Brazil months ago believe that Lula is certainly the man for the job.

"Six months ago a prestigious consultancy firm based in Chicago did a poll of 1,000 chief executives of global companies worldwide and... the third place in terms of where you should invest was Brazil," said former Brazilian central banker Gustavo Henrique de Barroso Franco.

That is a positive outlook confirmed by one of the powerful US investment funds Pimco.

Managing director Mohamed El-Erian said that Lula must first pass an important test.

"The key test for him is going to come on the inflation side and that is where he needs to convince people that he will allow the central bank to be operationally autonomous," he said.

"That is what the market is going to be looking for in the next few months."

Natural resources

Brazil's magnificent tourist attractions are legendary.

Woman dancer at Rio, Brazil carnival
Brazils Rio carnival is world famous

The sheer beauty of Rio de Janeiro takes your breath away and the Amazon river is so wide that it can be seen from outer space.

And where Brazil meets Argentina and Paraguay there is another wonder of the natural world, the massive Iguazu falls.

This is Brazil's answer to the Victoria Falls in Africa and North America's Niagara Falls.

It is a remarkable sight - a waterfall much bigger in scale than either of the other two, and yet the rest of the world barely knows about it.

The tourists who visit it are largely from Brazil or Argentina and Paraguay.

Brazil needs to extend this tourist resource and do more with it, and use funds raised to tackle the country's biggest problem - poverty.

Tourism is helped by a cheap exchange rate which is also aiding manufacturing to boost exports.

The way forward

South America is still a continent of old ways and new.

Argentina and Venezuela represent the rigid indebtedness of the past.

Reformist Chile and Mexico have shown the way forward.

Enthusiasts of the new Brazil, such as Mohamed El-Erian, believe that Brazil belongs at the vanguard.

"My own feeling is you are going to see Brazil going towards the path of the new Latin America where institutions are important... and do not become vulnerable to political change, and where investors have clarity," he said.

Mr El-Erian said there are certain instruments that can be used to accelerate this process.

"One of the instruments that can be used, as Mexico has found out in the context of its agreement with the US and Canada, is to borrow and anchor from outside," he said.

"To that extent if Brazil chooses to advance on the free trade initiative which it co-chairs with the US in the period ahead, that can turbo-charge a move towards the new Latin America."

But a week is a short time in Latin American politics.

Now that the inauguration celebrations are over Lula da Silva will have to get down to the hard work, starting with his hugely ambitious promise to create 10 million jobs.


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