Guido Mantega, Brazil’s finance minister, on a recent visit to the OECD headquarters.

GDP growth picked up in the first half of 2007. Private consumption continues to support activity on the heels of strong credit increases and rising incomes. The expansion of investment has been particularly sharp. Export performance remains robust. But a vigorous pickup in imports, especially of capital goods and intermediate inputs, is beginning to weigh on the trade surplus. Inflation remains well below the central target, despite an uptick in mid-year on the back of food price hikes.

The Brazilian economy is bouncing back, but is the recovery here to stay? Brazil’s economic recovery is now well under way. Following a few years of unimpressive growth, the economy has bounced back more strongly than anticipated, with GDP growth of more than 5% in 2004, the fastest expansion in 10 years.

Although I tend to agree with several points in the article by Joaquim Oliveira and Tristan Price (“Brazil: More Than Just Potential”, OECD Observer No. 228, September 2001), I fear the authors are too optimistic. The long-term view for Brazil has indeed improved over the past 10 years or so. But, unfortunately, we must cross endless short-term bridges to get there. There are various traps along the way, as well as several challenges.

The OECD’s Brazil economic survey comes with a long echo. As a young reporter, I attended a 1980s news conference in Rio de Janeiro at which Brazil was presented as having “excellent long-term prospects”. It made me think of Harry Hopkins’ famous comment during the Great Depression: “People don’t eat in the long run.” Brazil has been the country of the future at least since I got here in 1977. The problem with this long tomorrow is that it never quite comes. There’s always a temporary obstacle in its way. In the late 1970s, Brazil was stymied by the energy crisis but “long-term prospects” were good.

At the end of 2000, Brazil – one of the world’s largest countries – was finally benefiting from a virtuous economic cycle of falling inflation and buoyant growth. Following a large exchange rate fall in early 1999 after the peg to the US dollar was broken, growth – initially export-led – gradually became broader-based, reaching a healthy 4.5% for 2000 (see chart). This in turn led to higher tax revenues, helping fiscal adjustment. Inflation and the currency, the real, remained stable, while interest rates progressively fell, supporting both investment and a reduction in public debt.