São Paulo: South America’s New York City

Sao Paulo is the pulsating heart of Brazil’s economy

Unique Hotel and Sao Paulo skyline

Just a 45-minute flight from Rio, Sao Paulo is a fast-paced, cosmopolitan megalopolis and Brazil’s most sophisticated city, cultural center with a lively music and arts scene, mecca of consumption. In Sao Paulo you can find the world’s largest FERRARI reseller – the second one is located in Los Angeles, California; the world’s 4th largest MASERATTI reseller; the world’s 2nd largest PORSCHE reseller, as well as the 2nd LAMBORGHINI reseller. Sao Paulo is the only city in Latin America with ROLLS ROYCE and BENTLEY resellers. Also, in Sao Paulo you can find the world’s largest agricultural planes fleet, the world’s largest private jets fleet – it was NYC until two years ago -, the world’s largest private helicopters fleet, the only city in the world with 4 TIFFANY’s stores, the only city in the world with 4 BULGARI’s stores, the world’s most profitable LOUIS VITTON store, and the most profitable MONT BLANC store outside Switzerland.

Don’t let Sao Paulo’s tarnished image fool you. Rumors of billowing smog, traffic gridlock and rampant crime are patently untrue. This chaotic metropolis has a crime rate that is barely a third of Rio’s, and at 457 years old, it has a history unrivaled in Brazil. During the last decade Sao Paulo has transformed into the pulsating heart of Brazil’s booming economy. Exciting, daunting, and crackling with life 24/7, São Paulo is South America’s New York City. It’s got it all: awesome food, fashion, culture, art and nightlife. Global designer brands compete with hip Brazilian labels, and the posh clubs and restaurants are crammed with people so beautiful, they’d be confined to a magazine cover in any other country. Here you can eat dazzling dishes prepared by celebrity chefs that draw on the city’s international influences at nearly any hour of the day or night. Sao Paulo is constantly evolving, remaking itself as the city of the architectural-landmark hotel. Defined by uber wealth and unparalleled design, hotels hidden within the sprawling, concrete high-rise metropolis like the Unique and the Emilliano offer distinct accommodations with world-class hospitality.

Hotel Unique

It’s safe to say that the Hotel Unique lives up to its name. 50 Cent, Lady Ga Ga and President Lula da Silva himself are among guests to have slumbered in this bizarre building, which looks like a cross between a giant melon wedge and Noah’s Ark. The acclaimed Brazilian designer Ruy Ohtake claimed that he intended it to look like neither upon its completion five years ago, creating a luxury dwelling both unique in shape and style. The 100m-long by 25m-high inverted arch, with its 95 rooms, has become one of the most distinctive landmarks in Sao Paulo. A model in modern architecture and creativity, Unique’s green copper façade alone makes this hotel live up to its name. Located in the heart of Jardins, the most upscale residential neighborhood in Sao Paulo, and just minutes from Ibirapuera Park, São Paulo’s largest verdant space, the building rises like a behemoth.

Shielding shadowy glass and a desert garden of moon rock, palms and succulents are the first impressions that the hotel offers. Theatrical lofty internal spaces such as the lobby are accentuated and highlighted with walls of marble, and strident, geometric themes make the display even more impressive. A carefully choreographed continuum of circles and squares flow in and out of each other, softened by wooden floors, sleek white furnishings and transparent glass fittings. The design encompasses six floors with over 90 rooms and an additional 10 suites designed by interior designer Joao Armentano. The formation of the large circular windows offers stunning views of Sao Paulo.

The imposing vast reception area is rendered warmer by the complimentary glass of champagne offered at check in. A-list beauties clad in Prada compromise the affable staff. Rooms are compact, yet airy, and almost completely white, with a large porthole window over which a wooden screen would glide at night via remote control from the bedside. Attention has been paid to detail, with both the pine desk and large movable mirror. The bathroom contains a shower with a huge head, and the bath, complete with inflatable pink pillow filled with glowing green feathers (not as tacky as it sounds), also turns into a powerful Jacuzzi.

The bathrooms open into the main room and turndown service includes freshly baked chocolate-chip cookies, and there is a discreet box filled with condoms and chewing gum next to the bed—how convenient.

The best views are from the oblong red-tiled, heated swimming rooftop pool. It buzzes at night with catwalk queens and handsome power brokers, and during the day, a dip here gives you an astonishing 360-degree panorama of the city’s skyscrapers all jutting up through the clouds. Even on a cloudy night, there is a sunset glow, with the terrace artfully illuminated by pink floodlights.

The Skye restaurant located up here is overseen by chef Emmanuel Bassoleil, who has won awards for its innovative menu, which includes a huge sushi and sashimi collection plus interesting Latin fusion twists, such as manioc gnocchi and shrimp in winter squash. It does, however, all come at prices about what you would expect to pay for such quality in London or New York.

The hotel is also home to the awesome D-Edge nightclub, recently voted one of the worlds best by DJ magazine for its low-attitude, high-party atmosphere and bass blasting sound system.

Standard rooms start at US$333 per night and go upwards to around $932 a night; all excluding breakfast.

Hotel Unique, Avenida Brigadero Luís Antônio, São Paulo, Brazil (+55 11 3055 4700)

Standing lanky and unadulterated on the poshest street in Sao Paulo, Oscar Freire Street, the 57-room Emiliano hotel, also in the Jardins, is a quiet alternative to the Unique’s brassy vibe. Designed by Brazilian architect Arthur de Mattos Casas, this slick tower’s exterior is all glass and beige tones, topped with a discreet helipad for those who can’t deal with traffic. Diplomats, prime ministers, and Hollywood queens love to duck in and out of this pied-a-tierre. Inside, the modern sophistication is first evident in the airy lobby. Campana brothers’ chairs draped in golden rope surround a ‘living wall’ of plant species from the Brazilian rainforest. A balanced blend of business and vacation travelers will savor the cool, calm ambiance, and the staff is stunning and eager to please. Detail orientation and modern Brazilian sophistication is what best defines the Emiliano Hotel. From the clean lines and muted lighting of the champagne and caviar bar to the Emiliano bar’s hanging orchids and loungy tables, the lower level makes you feel comfy and secure. And quite private.

There are only three rooms on each of the floors. Guest rooms awash in eastern-inspired textures feature huge flat-screen televisions, digital surround sound CD/DVD players, and free high-speed Internet. The setting is relaxing and indulgent: crisp white Egyptian cotton sheets; Brazilian fruit-infused toiletries; an Eames lounge chair upholstered in an earth tones; a wall of amber-colored wood that hide closets and two Sub-Zero drawer refrigerators stocked to the hilt; not to mention a huge bathroom with a startling views. The guest services manager will instruct guests on using the numerous lighting controls (which took a Ph.D. to master), and a personal butler—yes, you get one—offers to unpack bags and help navigate the sci-fi Japanese toilets (that do everything you can imagine and more!). The staff also spoils you with a free bottle of fine wine; succulent indigenous fruit, a heavenly massage (in your room or at the rooftop spa) and the ironing of two items of clothing. All on the house. A favorite indulgence: a pillow selection menu, where you can choose from six pillows of varying firmness.

The Emiliano Restaurant is quite hidden away from city views. Favored by Brazilian celebs for its sequestered setting, there are only eleven elegant tables, stylishly set with white tablecloths. Tropical music plays delicately in the background. Chef José Barattino favors contemporary Italian cuisine at Emiliano. Born and raised in the Greater São Paulo, the young chef spotlights organic ingredients and actively supports small producers through a partnership with Família , a consortium of sustainable food producing farms in São Paulo State. The veluttata, served with goat cheese semifreddo and black olive breadcrumbs, melts in your mouth and is part of the chef’s four-course tasting menu (R$150, R$300 with wine pairing), which also comes with tagliattelle with prawns, guandu beans and red pepper; duck leg confit with small crusty onions, orange flower honey sauce, yellow manioc baked in a salt crust and fresh spinach; and canolo with Macaé and Ginaduja chocolate, mango and Bali flake salt.

There may not be a pool in the penthouse, but the spa Casal does have two Japanese hot tubs, a Jacuzzi and sauna with a panoramic view. A stay here is surely going to result in a heavenly and cherished memory – just don’t forget to take your Platinum card. Rue Oscar Freire 384 (+55 11 3068 4399)

EAT
CARLOTA
This Brazilian bistro is the place to be seen for lunch. A revamped 1940s house splashed with audacious, local art and bold Brazilian gastrononym, the menu here lashes together Italian and Brazilian traditions with a generous helping of Argentinian and a dash of Asian. Chef Carla Pernambuco’s multicultural kitchen floats the finest ingredients in her comfort food with atypical results, like her medley of Brazilian snacks such as salt-cod rissois (a turnover), pão de queijo (a hot cheese roll). The succulent sole filet with golden goat’s cheese sauce, fresh palm hearts and mushroom fettuccine is to die for. Another notable dish is grilled lobster tail, manioc purée and Thai vegetable julienne. Save room for the classic Brazilian dessert, Romeo and Juliet, a luscious guava souflé in a queijo catupiry (Brazilian cream cheese) sauce. Rua Sergipe, 753 . Sao Paulo, 01243-001

DALVA A DITO
Impeccable design. Great location. It’s by the same team who opened DOM, one of the snobbiest places to eat in Sao Paulo. Here, Chef Alain Poletto takes city street food and makes it a little more highbrow. It’s a beguiling blend of the simple and subtle. Street snacks that have been reworked, the pasteis (fried snacks) like bolinhos de mandioca and carne seca (fried balls of mandioca and dry meat) are heavenly and probably healthier (and much more pricey) than the ones you find on every corner. Moqueca is a behemoth of a fish stew in a thick stone pot, brought to your table and then filled with heavy fishy broth. And the rotisserie chicken literally melts in your mouth—and it should, for R$65! For dessert, try chocolate fused with a rare Amazonian herb priprioca, a woody, spicy tone usually used in perfumes. Rua Padre João Manuel, 1115 – Cerqueira César . Sao Paulo, 01411-001

MARIA BRIGADEIRO
Brigadeiro is a dessert that only exists in Brazil. It’s a national institution, like soccer, samba and caipirinhas. Small, round and sweet, these decadent balls of chocolate explode in your mouth. Sweet, creamy and sticky, this ball of chocolate looks like a truffle. Since she was six years old, chocolatier Maria Brigadeiro has sold her collection of delectable handmade chocolates in this sumptuously elegant shop. Watch the portly ladies roll them through the pink accented display cases like those found in jewelry shops. Marvel at the trays of chocolate gems beautifully molded into balls of perfection. You can choose everything from orange blossom to rose water and dried plums. Favorite choice: pistachio and cacao! Delicious beyond belief. Rua Capote Valente 68
Pinheiros
São Paulo | Orders: +55-11-3085-3687

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On top of the world: Why Brazil is booming

It is a 100th birthday party in a well-to-do postcode of Sao Paulo, where the house of our journalist host – he and another writer pal are actually each turning 50 – slips graciously down a slope to a terrace and the chatter is nearly all politics. Then the DJ cuts the music in the middle of a samba everyone knows. They reflexively fill in: “Ò coisinha tão bonitinha do papai” – “Oh daddy’s beautiful little thing”.

Not everything in Brazil is beautiful. Not the slums, or favelas, which ring cities like this one or Rio de Janeiro, or last Saturday’s national glee when Argentina – neighbour and perennial rival – crashed out of the World Cup one day after the Brazilian squad’s humiliating Dutch demise. (“Que desgraca!” squealed an old man when the stricken face of Diego Maradona filled the TVs in a bar on Sao Paulo’s Teodoro Street.)

Yet you cannot spend a day in Brazil without sensing the economic miracles happening here – first quarter growth touched 9 per cent and the helicopter pads atop the skyscrapers of Sao Paulo are buzzing with air traffic again – or hearing of the achievements of its President, Luiz Inácio Lula da Silva, recently named the world’s most influential leader by Time Magazine, in raising the country’s profile on the world stage and lifting much of the population out of poverty. The somewhat lefty party-goers were not actually thinking of Lula and Brazil as they sang about daddy and his baby, but they could have been.

The legacy of President Lula, a former lathe operator, is a conversation point if only because the race to succeed him kicks off this week. The constitution bars him running for a third term. While his hand-picked successor in the ruling Workers’ Party, Dilma Rousseff, is an electoral virgin (she was his chief-of-staff), polls suggest she will prevail on election day in early October, thwarting the hopes of conservative opposition leader José Serra, a respected former governor of Sao Paulo state.

Ms Rousseff will inherit a country bursting with fruit. As if it wasn’t enough that Brazil was already to host the next soccer World Cup, Rio de Janeiro last year barged aside Chicago to win selection as host city to the 2016 Summer Olympics. This as Brazil rushes to exploit vast reserves of oil off its shoreline close to Rio. Rather than giving them pause, the crisis afflicting the deep-sea drilling industry in the Gulf of Mexico is if anything spurring Brazil to move more quickly to increase production. Oil revenues now stand at 12 per cent of the national GDP and may rise to as much as 20 per cent.

It is a country that has moved far beyond the clichés of its international brand – the contours of its tanned beach-goers and catwalk models. Brasilia is agonising about keeping control of its economic boom while the rest of us are squabbling about the respective benefits of deficit-slashing austerity versus stimulus spending. (President Lula apparently thought that debate sufficiently boring that he did not show up to the recent G20 summit in Canada citing flooding in north-eastern Brazil.) The chatter, at this party and elsewhere, risks running away with itself. “They get a little bit carried away,” a correspondent for a foreign news agency whispers, citing Brazilian diplomats telling him that China is investing in Brazil so feverishly because it sees it overtaking the United States soon as its most important export market. Come now.

Look hard enough and you will find sensible people in Brazil willing to identify those things that are not going so well, like the failure to invest in infrastructure (Sao Paulo’s international airport is grittier than a Greyhound bus stop), Brazil’s inability to upgrade school-age education and the still utterly byzantine ways of its bureaucracy and taxation system. Steve Jobs recently rejected a plea from the city government in Rio de Janeiro to open an Apple shop there. He shot back that the “super-crazy” tax system in Brazil “makes it very unattractive to invest in the country” and that “many high-tech companies feel that way”. In all the pro-Brazil hoopla, this rude rebuff by Jobs registered with no one except a few attentive bloggers.

That Brazil is on the move, threatening to leave its similarly aspiring neighbours like Argentina and Mexico in the dust, is no longer in dispute, however. China has been in the know for years, but that is because it long ago turned to Brazil for so many of its desperately needed raw materials – everything from soy to iron ore to lumber. Now others are starting to pay attention. If Brazil, the B in the so-called BRIC group of fast-emerging nations (the others are Russia, India and China), is indeed on a path towards eventually joining the ranks of the developed nations, no one wants to be caught by surprise.

Thus the awful international airport in Sao Paulo is fit to burst only in part because Brazilians are discovering that having a relentless rising currency – the real – is a marvellous thing when travelling abroad. Adding to the traffic are the foreign businessmen and investors galloping into town, cheque books at the ready, to find out what is going on and how they can share in the suddenly exploding pie.

“I never imagined Brazil really becoming such a strong country, especially how it has in the last 10 years,” muses Carlos Jereissati, chief executive at Iguatemi, Brazil’s largest chain of shopping centres. “Everyone is looking at us and saying: ‘Wow, these people are really growing – they have the economy, they have the oil, they have the Olympics and the World Cup, we need to pay attention!'”

No one knows this better than Mr Jereissati who travels to London, New York, Paris and Milan to lure new luxury brands to his malls. Diane von Furstenberg, the fashion designer, recently opened her first Brazil outlet in Iguatemi’s flagship mall in Sao Paulo. She says it has been the best opening in her company’s history, selling “over a million dollars in its first six weeks of business”. The boom means Mr Jereissati is ready to expand and quickly. “While it took us 20 years to do eight malls, we are probably going to do twice that in the next five years – we have a lot of money to do things.” That is thanks largely to the expansion of the middle classes and their growing spending power.

And the ball just keeps rolling. The day we meet, Mr Jereissati, whose uncle is a senator in the party of José Serra and whose brother runs Oi, Brazil’s biggest landline telephone company, is getting ready to entertain the bosses from the leather goods purveyor, Goyard, from Paris. And this Monday he was to play host to François-Henri Pinault, whose group includes Gucci, Christie’s and Yves Saint Laurent (and whose wife is Salma Hayek). “In the past, maybe the second or third level of the company would come to see what opportunities are here. Now it’s the main man who comes,” Mr Jereissati notes.

Telling also are the beginnings of a reverse of the trend where young, privileged Brazilians assumed they would go abroad for university and quite likely their careers. It’s the route that Julio Vasconcellos, now 29, followed. But having been in the US for 10 years, most recently in Silicon Valley in California, he talked to a friend over the New Year about a possible internet start-up in Brazil. They dreamed up peixeurbano.com – urban fish – where consumers learn about retail bargains. On a Wednesday in March, he tells me, he arrived in Rio de Janeiro – more specifically in the hip Botafogo district – and by the Thursday the site was up. He employs 40 people and is interviewing for 30 more positions.

“I just felt it was the right time to come back,” he said. “You are starting to see people who are more open-minded and with a more international focus looking at Brazil as an opportunity and making bets on it in the same way people in the 1990s made bets on China.” The horizon in internet development may be particularly wide and rich. “Every day I have a meeting with a different partner and five different ideas come to my head that would be huge business in Brazil that nobody is doing anything about. You can’t do that in Silicon Valley.”

While Brazil remains, according to the World Bank, one the worst countries for the gap between the rich and poor, the income divide has begun to close in the nearly eight years of President Lula. True the favelas, running with sewage, guns and drugs, remain a feature of the urban landscape, especially in Rio de Janeiro where more than just cosmetic surgery will be required before the 2016 Games. But the number living in poverty has fallen during his two terms from about 50 million to 30 million. Studies meanwhile point to slightly more than half of all Brazilians now belonging to a socio-economic group broadly described as lower middle class. They will not visit Gucci in Mr Jereissati’s malls, but they will go to the less flashy retailers like C&A or Topshop when it makes its debut in Brazil next year.

Brazil has been lucky, both finding its reserves of oil and in its partnership with China, which has helped considerably to drag it into greater prosperity. (Were China to trip, Brazil may fall hard.) President Lula also inherited an economy that, after the catastrophe of hyper-inflation in the early 1990s, had already been transformed by the policies of his predecessor, Fernando Henrique Cardoso. But, even his detractors agree that despite his past as a leftist union organiser, he has shown an unexpectedly steady hand guiding the economy and that his welfare policies have been crucial in ensuring that Brazil’s rising tide has lifted most, if not all, boats.

That is not to say Brazil is set for good. Some economists worry of bubble conditions forming and warn especially about gushing capital flows into the country and the ceaseless upward movement of the currency. It’s not just that dinners in Sao Paulo now cost as much or more than in Manhattan. The supercharging of the real also threatens to stunt any move in Brazil away from a commodities economy to a manufacturing one because as an exporter it is becoming ever less competitive.

Gustavo Ioschpe, an economist and columnist for the weekly magazine Veja, scoffs at the notion that Brazil is within years of entering the club of truly developed countries. President Lula, he says, has done nothing to tackle political corruption or the country’s woeful infrastructural problems. Only 10 per cent of its roads are paved and at harvest time, lorries can be seen lining the roads to the over-stretched ports, their cargos of soy rotting in the sun. To the mortification of its nearly 20 million residents, Sao Paulo has been told by FIFA that plans to upgrade its only significant football stadium are so inadequate that no matches will take place in the city during the next World Cup.

But the biggest worry for Mr Ioschpe, formerly of Goldman Sachs, has been the refusal of the “anti-intellectual” President Lula to do anything serious about education. That all children now have the right to attend schools, to be taken to them on buses and fed lunch, is not good enough if they don’t learn to read and write, he says. “This is our biggest challenge and most likely the one that will take the longest to be fixed and the one that will have the greatest negative impact. Building roads is one thing, but how is it that Brazil still does not know how to do the most simple of all things which is to make 7- and 8-year-old kids literate? It’s incredible. That has been mastered by the developed world for last 200 years and even by our neighbours like Argentina and Chile for the last 100 years.”

Nor is it clear that the other plank of President Lula’s legacy, his South-South foreign policy which has seen Brazil aggressively strengthen diplomatic and trade ties with Third World governments for example in Africa where he is today, will turn out to be all good for his country. What the Wall Street Journal has called “his dance with the despots” has seen President Lula chumming with the likes of Hugo Chávez, Raúl Castro and Mahmoud Ahmadinejad who lead countries that are several prison camps the wrong side of being democracies. Some diplomats in New York believe that President Lula’s recent visit to Tehran – where with Turkish help, he negotiated a faux-solution to its nuclear stand-off with the West – so irritated Washington and other capitals that Brazil’s campaign for a permanent seat on the UN Security Council has been set back years.

Now on a tour of African states, President Lula was asked whether he was campaigning to be the next Secretary General of the United Nations. It was just his style to reply that he had no interest because the job is for a “bureaucrat” and he, essentially, is above it. Both Brazil and President Lula are occasionally accused of hubris and it is easy to see why. Perhaps it is for the best then that when he attends the closing ceremonies of the World Cup in South Africa on Sunday, it won’t be Brazil that goes home with the trophy. That would surely have made both daddy and child beyond smug, even insufferable.

By David Usborne | The Independent on Sunday UK

Born In Brazil – Nascida No Brasil

For a few magical weeks, Wallpaper* shifted operational HQ to Brazil. We had a single aim: to produce as true a portrait as possible of an extraordinary country at an extraordinary moment of transition. We saw, shot, talked, walked, taxied, ate, drank, danced, and now our Born in Brazil issue has finally hit the shelves.

But the pace of change in Brazil is too great to be pinned down in a single issue. Over the coming weeks, Wallpaper.com will be keeping track by adding more news, videos, interviews and insights, to give you as wide a view as possible of the most exciting country on earth. Keep checking back to discover more.

To read more click here | In English and In Portuguese

For Brazil, It is Finally Tomorrow

For the past century, Brazil has been a land of great potential—but few results. With runaway inflation and stratospheric national debt, the country was too much of a mess for anyone to take it seriously on the world stage.

How times have changed.

Consider this: In the face of the worst global economic crisis since the Great Depression, Brazil’s economic output dipped a tiny 0.2% last year, and is expected to grow as much as 6% this year. Everyday Brazilians have been too busy buying washing machines, cars and flat-screen televisions to even notice the downturn.

Brazil is already the biggest economy in Latin America and the 10th-biggest in the world. By 2050, it will likely move into fourth place, leapfrogging countries including Germany, Japan and the U.K., according to a study by Goldman Sachs.

Clearly, Brazil has turned a corner—and is now a nation with the heft, ambition and economic fundamentals to become a world power. But the country has enormous challenges it must overcome before it can fully live up to its potential.

Its public sector is bloated and riddled with corruption. Crime is rampant. Its infrastructure is badly in need of repair and expansion. The business environment is restrictive, with a labor code ripped from the pages of Benito Mussolini’s economic playbook. Brazil also risks patting itself on the back so much that it fails to see the colossal work that remains to be done.

“There’s too much good happening at the moment for the country not to take advantage of it,” says Ricardo Amorim, a well-known financial consultant in São Paulo. “Brazil has never had as much opportunity as it will have in the years ahead.”

Big Promise

Brazil has always had a lot to live up to, simply because of its size. The country is bigger than the contiguous U.S. and has almost as many people as Germany, France and the U.K. combined. Yet except when it came to soccer and music, many Brazilians themselves tended to believe the notion—apocryphally attributed to Charles de Gaulle—that “Brazil is not a serious country.”

Things started changing in the 1990s. The government adopted strict monetary policies and a laser-like focus on balancing the books. That fiscal prudence has given the country remarkable cash reserves—and breathing room during crises.

For instance, when the big downturn hit in 2008, private lending began to dry up. So the government, flush with cash reserves and the keys to an aggressive development bank, ordered state-run lenders to open the credit taps. The banks complied, lending out record amounts last year to Brazilians eager to join the country’s quickly growing consumer class. Internal demand soared, softening the blow of the slowdown.

“This is a different Brazil than 10 years ago,” President Luiz Inácio Lula da Silva boasted recently. Back then, he said, “the crisis in Greece would have already bankrupted Brazil.”

What’s more, there’s now a political consensus to avoid the mistakes of the past. Until recently, elections in Brazil were considered make-or-break contests between irresponsible, populist proposals and the voices of investment, stability and growth. Now neither leading candidate from the right or left in October’s election is expected to stray far from current economic policies, a functional blend of pro-business market rules and social-welfare programs.

Even a pledge for a bigger state role in the economy by Dilma Rousseff, Mr. da Silva’s outgoing chief of staff and his hand-chosen successor as the party’s candidate, isn’t scaring off the business community. “It’s refreshing to have an election and see there’s no fuss about either outcome,” says Andrew Béla Jánszky, a Brazilian investment lawyer in the São Paulo office of Shearman & Sterling LLP. “For once, stability is almost a given.”

The hard work has also enabled Brazil—already a leading exporter of iron ore, steel, coffee, soybeans, sugar and beef—to soar in sectors it once only dreamed about. After decades of research and investment, Brazil in 2007 discovered mammoth new oil beds beneath the Atlantic that are expected to double output in the coming years—generating billions of dollars in new revenue annually.

Cleaning House

The results of all these changes have been dramatic. The economic turnaround has pulled millions out of poverty and is creating a thriving middle class. For instance, Brazil’s northeast, long the source of internal migration to more-prosperous cities down south, now outpaces the rest of the country in growth. Companies there are scrambling to train workers, many experienced only as field hands, to build cars, appliances and computer parts.

The country’s promise is such that events that once rattled the faith of local and foreign investors are now taken largely in stride—be it the global financial meltdown or Mr. da Silva’s bear hugs and backslaps with leaders of regimes in Havana, Tehran and Caracas

But before Brazil can achieve its first-world ambitions, it must tackle big economic, legal and social deficiencies that have hobbled its development.

For one thing, even after sweeping reforms, the government’s role in the economy remains relatively big. Government spending totals more than 20% of the country’s gross domestic product, compared with about 15% in the U.S., 13% in China and 7% in Indonesia, another fast-growing emerging market, according to data compiled by Mosaico Economia Política, a Brazilian consultancy. The government trimmed as many as 150,000 jobs in the 1990s, but since then has taken on twice that number, according to research at Banco Santander, the Spanish bank that is one of Brazil’s biggest foreign investors. Even with greater leeway to spend than ever before, government debt has begun to creep back up.

To help finance the growth in the size of government—and onerous pension and benefit plans—”the trend is likely to be in the direction of higher taxes, lower investments, and, thus, lower long-term growth,” Santander said in the report. The spending growth comes as consumer demand is also surging, spurred on by state lending. That has caused inflation to rear its head once more—forcing the central bank to consider raising interest rates again.

“The government can’t have it all,” warns Eduardo Giannetti da Fonseca, an economist and professor at Insper Instituto de Ensino e Pesquisa, a business school in São Paulo. “You can’t increase spending, private consumption and invest all at the same time, because something will eventually give.”

Another problem is the restrictive business environment, especially strict labor laws that date back to the 1940s and were originally modeled on the statist policies of Mussolini. Because it costs so much to start companies and hire workers, many entrepreneurs and businesses stay in the black market and pay workers informally. That creates a massive underground economy that, according to a 2005 study by McKinsey & Co., accounts for up to 40% of Brazil’s gross domestic product, takes about half of all urban jobs and drags overall economic growth by as much as 1.5% annually.

The problem is palpable across Brazil, where underground commerce is on open display from city sidewalks to public buses to the festive beaches of Rio de Janeiro. “I’d rather have a real job, but it’s a lot easier to get hired to do something like this,” says Milton, a 28-year-old vendor of pirate software and DVDs in central São Paulo, who declined to give his last name. “There’s plenty of this kind of work to go around.”

Bad Connections

Yet another obstacle to growth is a lack of infrastructure—from roads, railways and bridges to docks, airports and pipelines. Like most everything else in the country, infrastructure investment fluctuated with the booms and busts of the past. Projects were launched when times were flush, only to sit neglected for decades.

Not only is much of it old and in disrepair, but Brazil’s existing infrastructure is too small to handle the volume of people and goods currently using it—let alone accommodate new growth. The government this week is expected to announce the second phase of an ambitious “growth acceleration program” that it launched in 2007. The original plan foresaw infrastructure investments of some $342 billion, but many projects remain mired in bureaucracy. Contas Abertas, a not-for-profit research group that studies public spending, in a study this month said that only 11% of the projects outlined in the plan have been completed, while just over half have yet to be launched.

To casual observers, things will look better as Brazil gears up for hosting soccer’s World Cup in 2014 and the Summer Olympics in Rio de Janeiro in 2016. New roads and airport terminals will be christened along with modernized stadiums and scenic, well-policed promenades. But manufacturers, exporters and shippers—who regularly wait days or weeks for backlogs in ports and customs facilities to clear—know Brazil needs more than just cosmetic changes.

Progress in other areas falls short, too. Crime is still a big problem in most cities and in lawless rural areas where ruthless prospectors, loggers and landowners at times ride roughshod over their neighbors. Those charged with enforcing the law are so underpaid that police routinely look the other way in exchange for a little extra money or commit serious human-rights abuses in efforts to solve problems that overburdened courts rarely can. Using the government’s own statistics, a December report by Human Rights Watch disclosed that police in Rio and São Paulo together killed more than 1,000 people annually in recent years, many of them in execution-style “extrajudicial” killings.

Brazil’s politicians and legislators often run afoul of the law, as well. The country’s Federal Police, its most respected law-enforcement body and the agency charged with fighting corruption, currently has nearly 30,000 active investigations related to public corruption and fraud, according to a recent report. The deposed governor of Brasília, Brazil’s capital, at the moment sits in jail awaiting trial over alleged kickbacks from public construction projects.

Then there’s public education. Brazil has a popular welfare program that helps needy children by paying parents to keep them in school rather than send them out to help put food on the table. But schools themselves remain underfunded and the quality of education remains poor. Outdated university statutes mean that the best colleges, which are public and free, get filled by wealthy students from private high schools, while poorer students, the products of public schools, get stuck paying for second-rate degrees at costly classrooms in strip malls and fly-by-night academies.

Mr. da Silva and his ministers, including Ms. Rousseff, admit that much still needs to be done. The work so far, they insist, has been about laying the groundwork for stability and thereby facilitating investment and growth in the future. Now that popular social programs have helped ease suffering for the critically poor—and disastrous fallout from the financial crisis was averted—the government can begin focusing on ways to ensure it builds upon more solid economic foundations.

“If the past year was about measures to stimulate consumption,” Mr. da Silva said in a television address at the end of December, “now our emphasis is on reinforcing investments and thereby making the wheel of the economy roll in a healthy and sustainable way.”

Article by Paulo Prada, a staff reporter for The Wall Street Journal in São Paulo