Markets signal Brazilian recovery

The Brazilian stock market has risen to a record high as investors display growing confidence in the durability of the country's economic recovery.

The main Bovespa index on the Sao Paolo Stock Exchange closed at 24,997 points on Friday, topping the previous record market close reached the previous day. The market's buoyancy reflects optimism about the Brazilian economy, which could grow by as much as 4.5% in 2004. Brazil is recovering from last year's recession - its worst in a decade.

Economic output declined 0.2% in 2003 and President Luiz Inacio Lula da Silva - elected as Brazil's first working-class president in 2002 - was strongly criticised for pursuing a hardline economic policy.

Investors have praised his handling of the economy as foreign investment has risen, unemployment has fallen and inflation has been brought under control. Analysts believe the stock market will rise above the 25,000 mark for the first time before too long. "There should be more space for gains until the end of the year, somewhere up to 27,000 points," said Paschoal Tadeu Buonomo, head of equities trading at brokers TOV. Brazil's currency, the real, also rose to its highest level against the dollar in more than two years on Friday. Although interest rates still stand at a punitive 17.25%, inflation has fallen from 9% to 7% while exports are booming, particularly of agricultural products. "For the first time in decades, we have all three economic policy pillars in line during a recovery," Finance Minister Antonio Palocci told the Associated Press news agency. "Government accounts are in surplus, we have a current account surplus and inflation is under control."

Investors were deeply suspicious of President da Silva, a former trade union leader who campaigned on a programme of extensive land redistribution and a large rise in the minimum wage. However, Mr da Silva has stuck to an orthodox monetary policy inherited from his predecessor even in the face of last year's economic crisis. This has earned him the disapproval of rural farm workers, thousands of whom who took to the streets of Brasilia on Thursday to protest against government policies. President da Silva has defended his policies, arguing that Brazil cannot afford to continue the cycle of boom and bust which afflicted it in recent decades.
