Political Risk Latin America Blog @PolRiskLatam

Rethinking the Scorecard: Brazil vs Mexico

Posted in News and Articles, Political Risk by politicalrisklatam on June 8, 2011

by Latintelligence, June 8th, 2011.

The conventional U.S. wisdom today is that Mexico is a problem, and Brazil is an opportunity. The reality is that while Mexico faces serious challenges, the United States shouldn’t count it out. And, while Brazil does present real promise, there are serious issues it has yet to take on.

Economically, these two countries are not as drastically different as current analyses suggest. Yes, Brazil has had six years of consistent high growth. In large part, these were the dividends from macroeconomic reforms begun in the mid-1990s under President Cardoso and reinforced and deepened by President Lula (in fact, the pick up in growth coincided with the start of Lula’s second term, when domestic money finally believed  his centrist promises).

By comparison, Mexico embarked on a similar reform process ten years earlier and earned its macroeconomic dividend in the 1990s, when Brazil was still struggling to rein in hyperinflation. Looking at per capita growth rates over the last twenty years (not just the last 7 or 8), Mexico and Brazil actually look fairly similar (with annual average per capita growth of 2.25% and 2.5% respectively).
While both countries have now solidified a range of necessary macro reforms, they face somewhat similar long term  challenges. Both desperately need to invest in  infrastructure, in education, and to find ways to reduce stark inequalities. Both too are now thriving democracies – a plus on so many levels, but not for pushing through big comprehensive reforms.

There are of course big differences – but those don’t necessarily cut just in Brazil’s favor. Brazil is a bigger market, has ever increasing oil finds, and is a complement to China’s rise – all positive. But it is also a more bloated state, stands in a much worse place vis-à-vis inequality and infrastructure, and faces worrisome inflationary and exchange rate pressures that threaten to undermine its recent gains. (continue reading… )

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