“The most important event in the last hundred years for emerging markets is arguably the end of the Cold War,” writes Jerome Booth, Head of Research at Ashmore Investment Management. “Brazil, like a hundred other countries, has made the transition from authoritarianism and populism to democracy and a free market economy. After those two decades and more Brazil has now stabilized and is set for more sustainable growth.
“Since coming out of military rule the decentralized and unwieldy 1988 constitution has been amended time and time again to make it fit for purpose. It now largely is, though a few changes still remain to be made, including the recently initiated pension reforms.
“After twenty years, including a few mistakes along the way, Brazil’s course is set for further dynamism and growth any Western European country would envy.
“Brazil’s oil boom is also about to start.
“Since the first Lula Presidency Brazilian inequality has reduced significantly and the poor in Brazil are now the dominant political force. And the poor in emerging markets consistently vote for low inflation and macro-economic prudence.
“Relative prices are driving institutional change, and in the twenty years since prices were allowed to vary freely in Brazil they have been helping incentivise positive institutional changes.
“People’s prejudices about risk in Brazil are being eroded year by year.
“In important regards Brazil can now teach the West how to cope with crisis.
“Brazil is a stable country, a largely closed economy, one whose terms of trade are very positive, a net creditor, and a safer sovereign risk than most West European countries.
“Recent unorthodox monetary policy in Brazil was a gamble, but is paying off at present.
“Brazil’s manufacturing exporters need a trillion dollar infrastructure programme, funded by the domestic and international private sector (not government), much more than it needs a lower exchange rate.
“With only about 10% of trade with the US, the concentration of around 80% of central bank reserves in Dollars is highly imprudent. Most of the ‘currency wars’ are in fact South-South. If the Central Bank wants to allow the exchange rate to adjust for competition reasons it should forget about the Dollar and buy Asian currencies for its reserves instead.”