Is Brazil The Next Mexico?

CAMBRIDGE: Today, worries about Brazil are as pervasive as they were about Mexico two years ago. But that does not mean that Latin America's biggest economy will collapse as ignominiously as Mexico's did. However, Brazil is driving in the wrong lane, with policies that are dead wrong and expensive.

The difference between Brazil and Mexico begins with the fact that there is still time for Brazil to right itself. On Mexico's time table, Brazil is somewhere between 1989 and 1993. Moreover, even without a timely correction, Brazil will respond to crisis in a far different way to Mexico. Rightly or wrongly, Mexican policymakers were in awe of Wall Street; Brazil has no such hang up. Ultimately, Brazilian policymakers are concerned with their own well being, not with the prosperity of foreign investors. If and when the two part, Brazilian policymakers will shed few tears for international investors.

On the surface and below, Brazil has made a dramatic turn: inflation is down to negligible levels. Finance minister Cardosa and his team, with the 1994 "Plano Real" (the introduction of a new, hard currency) did a great job. Growth is strong, privatization is coming on, owners of capital are enthusiastic.

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