Latin America October 2, 2009, 4:46PM EST

Olympics Won, Brazil's Work Begins

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The President also has guided the country to international diplomatic prominence, taking bold stands before the World Trade Organization, for example, against farm subsidies in the European Union, Japan, and the U.S. that he says harm developing nations. And recently, he has pushed hard for Brazil to occupy a seat on the U.N. Security Council.

Even U.S. President Barack Obama, who unsuccessfully lobbied the IOC on behalf of Chicago, acknowledges Lula's charisma, recently calling him "the most popular politician on earth."

Oil Discoveries Fuel Growth

Politics aside, Brazil has been helped by Mother Nature as well: Over the past two years, state-run oil company Petrobras (PBR) has discovered huge new deepwater oil reserves off the coast of Rio de Janeiro and São Paulo that could turn the South American nation into one of the world's leading oil producers and exporters in a decade. Petrobras has embarked on a five-year, $174 billion investment program to double Brazil's production to 3.5 million barrels a day by 2012. Already, Petrobras has placed several years' worth of orders for offshore oil platforms, supply ships, and other industrial equipment—so much that the world's oil majors are having trouble placing their own orders.

Those oil discoveries, plus strong domestic consumer demand thanks to increasing incomes, helped Brazil emerge quickly from recession. Although the economy will shrink slightly this year, it's expected to grow by as much as 5.3% in 2010, according to a new estimate by Bank of America/Merrill Lynch (BAC).

The government in 2007 announced a major Growth Acceleration Program that is fueling some $359 billion in infrastructure investment to build new airports, highways, ports, and other facilities throughout the country by 2010, in a bid to boost economic growth from an average of just 2.5% per year to 5%. Although Lula has embraced many free-market concepts, he is still a big believer in a strong role for the government in promoting economic growth.

But the government will likely need major help from the private sector to be ready in time for the 2016 Olympics. "I hope that Lula understands that the government's role should be to oversee investment and that the private sector should have a preponderant role in getting things ready for the Olympics," says Pires, the infrastructure consultant.

Cleaning Up the "Favelas"

One big task the government will have to take the lead on is making sure the hordes of tourists and athletes who go to Rio in 2016 will be safe. Southern Brazil, where Rio is located, has one of the highest homicide rates in Latin America. When Rio hosted the 1992 Earth Summit, which drew presidents and environmental leaders from around the world, worried organizers placed army tanks on strategic street corners around the city, providing residents with a weeklong respite from muggers, pickpockets, and other petty and not-so-petty crime.

No one is expecting to see army tanks on the streets this time; although crime is still a problem, Brazil's economic advancement over the past decade has reduced poverty and helped chip away at the huge gap between rich and poor that contributes to a high crime rate.

But Rio is pockmarked by several hundred "favelas," or shantytowns, where hundreds of thousands of poor people live in cramped, precarious quarters just a stone's throw—or a stray bullet's path—from upscale condominium complexes where the city's wealthy minority live.

Ruthless drug-trafficking gangs control many of the favelas, although the city government has moved in recent years to start cleaning them up and provide security, proper electricity, water, and sewage facilities. "It's a shame that it takes something as big as the Olympics to get this needed investment, but hopefully this will be what it takes to finally transform Rio de Janeiro into a better city," says Pires.

Smith, BusinessWeek's Latin America correspondent, lived in Rio de Janeiro from 1985 to 1992.