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Brazil bucks global economic downturn

The high food and commodity prices hurting most countries are buoying Brazil, a top exporter of minerals, soy, beef, chicken, and grains.

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Perhaps most important, rising wages, falling unemployment, and a government-assistance program that has put money in the pockets of the poorest families, have helped lift as many as 20 million people into the middle class, economists and researchers say.

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Car, home sales on the rise

Those people have money to spend and they are flaunting their newfound liquidity. Sales of domestic appliances rose 17 percent last year, the number of cellphones in use went up 21 percent, and sales of notebook computers and plasma and LCD televisions almost tripled.

For major purchases such as cars and houses, the figures are even more revealing. The number of home mortgages rose 72 percent last year to its highest number ever, and the amount of money being borrowed to buy vehicles jumped 45 percent. Car production last year hit a record high of almost 3 million and rose 21 percent in the first five months of 2008.

"We always knew that there was a very significant portion of the population who were excluded," says Humberto Barbato, president of the Brazilian Electrical and Electronics Industry Association. "There is a whole new group of people coming into the consumer market."

Much of the spending has been made possible by falling interest rates and easier credit. Until recently, interest rates were so high and Brazil's economy so unpredictable that banks would not lend for any extended period.

But President Luiz Inácio Lula da Silva has proved a careful steward of Brazil's economy. Although many believed the former leftist would abandon Brazil's conservative fiscal policies, he has kept monetary policy tight, especially during his first few years in office. Since then, he has gradually overseen a fall in interest rates from 25 percent when he took over to 11.25 percent last year. The Central Bank has since increased the rate to 12.25 percent in a bid to combat inflation.

Even though the rate is still among the highest in the world, it is low by Brazilian standards and interest payments are more manageable than at any time in years.

Lenders are thus more inclined to give credit, and consumers can reduce their payments over longer periods. Mortgages once available for only a five-year term are now available for over 30, automobiles can be paid up over seven years, and even domestic appliances are on offer for 24 monthly payments.

Millions more could join the spree

Experts agree that while consumers are taking advantage of the favorable credit conditions, interest rates are still, in the words of Mr. Barbato, "at money-grabbing levels." Millions are holding off until the rates fall further.

"We're tempted [to buy a car on credit], but we'd rather save our money and buy something outright," said Fernanda São Paulo, a merchant out shopping on a recent Sunday with her husband. "It's easier today, but we haven't taken advantage because of the interest rates. You could buy two cars for what you end up paying."

That sentiment is still widespread, especially among the better educated. It sends a clear signal to bankers and economists that if rates drop further, millions more people could start spending.

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