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April 12, 2012 7:15 pm
I once asked Carlos Slim why Mexicans were so down about their country and Brazilians so euphoric about theirs. The world’s richest man, whose biggest investments span both countries, replied: “It’s simple. They are Brazilians. We are Mexicans.”
It was a perceptive comment. Many Mexicans feel depressed about their country, and the world has shared their gloom. Meanwhile, the confidence of Brazil’s boom – on show during President Dilma Rousseff’s visit to Washington this week – has gripped the popular imagination. The latest manifestation is the imminent $20bn stock market listing of BTG Pactual, the Brazilian investment bank that wants to be, of all things, a “tropical Goldman Sachs”. That alone should make one look again – especially as national moods were so different 10 years ago.
Back then, there was a lively debate over who was Latin America’s true economic leader. To many Mexicans, the answer was obvious. The country had just completed a transition to democracy. Its economy was bigger than Brazil’s. It even had a robust banking system. Brazil, meanwhile, was just emerging from a currency crisis, and investors were terrified that it was about to elect a dangerous leftwinger, Luiz Inácio Lula da Silva.
How quickly the tables turned. Brazil became one of the much-vaunted “Bric” nations, ranking only behind China among them. Mexico was left behind, its economy now half the size of Brazil’s $2.6tn monster. What happened?
The answer, mostly, is China. Its entry to the World Trade Organisation undercut Mexican manufacturers, which lost business to rivals with far lower costs. Political leadership was also weak. Mexico’s domestic economy remains stifled by monopolies – especially state-owned oil company Pemex. The national mood has been further soured by a war on organised crime that has killed 50,000 over six years.
By contrast, Brazil has gone from strength to strength. Its economy has benefited from voracious demand for commodities from China, its largest trade partner. Mr Lula da Silva was far from being the bogeyman many feared. Brazil also tackled oligopolies in its domestic market better than Mexico and set free its state-owned oil champion, Petrobras, allowing it to list and partner with foreign companies to explore huge oil reserves. While Mexico’s biggest trade partner, the US, lurched from dotcom crisis to subprime bust, Brazil enjoyed a lucrative run. It really did seem to be “o melhor país do mundo”, the best in the world. It was certainly one of the luckiest.
Now that luck may be changing. For the first time in a decade there are good reasons to be less bullish about China – and thus Brazil. There are also good reasons to be more bullish about the US – and thus Mexico. China has lost competitiveness because of rising wage and transport costs. North American corporate supply chains are already shortening. If the US economy recovers, Mexican manufacturers should do well.
Mexico has also become a global car producer. The industry generated $23bn of exports last year – more than oil or tourism. Nor are these cheapo maquiladora operations: Volkswagen and Nissan use Mexico’s web of trade agreements to export their cars to the whole world. As for Mexico’s “drugs war”, the once dizzying increase of violence has slowed and in some areas fallen. Why is not clear, but a 74 per cent increase in federal security spending will eventually make a difference, anywhere.
Brazil, however, has hit a speed bump. It can no longer count on commodity prices rising forever. More crucially, the country has developed a serious costs problem. Even in local currency terms – which strip out the effects of money printing in the west, the so-called “currency wars” – Brazilian labour costs have risen a quarter in real terms over the past decade. This has threatened domestic manufacturers and caused an unseemly protectionist trade spat with Mexico, so setting back regional integration. Brazilians may have an innate optimism, as Mr Slim said. But all this left Brazil looking fearful and Mexico rather confident.
This partial reversal of relative fortunes has somewhat dulled Brazil’s gloss. Envious Mexican officials no longer wince at the mention of the B-word as they once did. Still, Brazil offers at least one significant lesson. Over the past 17 years, it has enjoyed a charmed run of remarkable presidents, beginning with Fernando Henrique Cardoso. By contrast, the last Mexican president to show genuine leadership was Carlos Salinas – and his term ended controversially in 1994. It may be too much to hope that Enrique Peña Nieto, the telegenic 45-year-old candidate of the Institutional Revolutionary party (PRI), will provide Brazilian-style strategic vision should he win the July 1 election, as polls suggest he will. True, Mr Peña has said he will open Pemex to foreign capital and the economy to more competition. But the PRI has also spent 12 years in opposition squashing similar initiatives, so there are legitimate doubts.
Nonetheless, momentum for reform is building. Last year Mexico’s economy grew faster than Brazil’s. And only 12 years have passed since the end of Mexican one-party rule, while Brazil is in its third decade of democracy. Mexican politics could yet turn good. It is early days still.
Brazil’s size means it is unlikely ever to cede Latin America’s top slot again. Still, if you take the long view, Mexico’s prospects may be far rosier than many believe – including those morose Mexicans that Mr Slim described.
The writer is the FT’s Latin America editor
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