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President Luiz Inácio Lula da Silva used the slogan last week while giving public support to the idea of creating another national oil company, this one 100 per cent state-controlled - unlike Petrobras, which has more than 60 per cent of its mostly non-voting capital in the hands of minority investors. The new company would manage the apparently vast new discoveries of oil in pre-sal (pre-salt) fields off Brazil's coast.

Few would question that the pre-sal fields require new rules. Since Petrobras's monopoly was broken in 1997, Brazil has operated a concessions system under which oil companies, often but not only in partnership with Petrobras, buy the right to explore blocks of Brazilian territory, mostly off shore. In return for the associated risk, they have rights over any oil they discover, paying royalties to the government. In especially productive oil fields, royalties are especially high.

The pre-sal fields, as their name suggests, are trapped beneath a layer of salt far beneath the sea-bed, under very deep water. They are among the most inaccessible oil deposits on earth. Once past the salt, however, the chances of finding oil have so far turned out to be 100 per cent. The exploratory risk appears to be close to zero.

It seems reasonable, then, that oil companies should get less reward for taking risks in blocks over the salt layer. Among the alternatives, the simplest and most obvious course is to continue selling concessions, but to charge much larger royalties, allowing oil companies a decent return on their operational investment while ensuring that the benefits of Brazil's new oil wealth go mostly to the Brazilian people.

But Lula and his advisers like the idea of a new oil company, already dubbed Petrosal. It would not be operational: it would merely own the reserves and control production. One of its attractions is that, unlike Petrobras, it would not share its revenues with (mostly foreign) minority investors. Bizarrely, another justification for creating Petrosal is that it would not become powerful enough to present a threat to the government (as Venezuela's PDVSA became a threat to the government of Hugo Chávez in 2002).

The proposal has already stirred up a storm of opposition, even among government supporters. Francisco Dornelles, a pro-government senator, described the idea as "an assault on Petrobras's minority shareholders". Foreign oil companies are equally dismayed.

But the biggest danger lies in that old slogan, "The oil is ours." Devoid of any practical application, it is rich with meaning. It means not just that nationalism, never far beneath the surface of Brazilian politics, is rising again. It also means "The money is ours." The government has caught a whiff of oil wealth, and it is a heady scent. There has been some reluctant recognition recently of the need for restraint in government spending to balance public accounts. It would be wrong to change course on the anticipation of windfall revenues.

Jonathan Wheatley Edited by Richard Lapper, Latin America editor

Mr Amorim has every reason to look back on the collapse of the Doha round of talks at the World Trade Organisation in Geneva last week as a grim episode. Brazil's leadership of the G20 group of developing nations, which briefly showed so much promise, has come to nothing. Deep splits in the group emerged during the final days of the talks, with India, China and even Argentina putting protection of their own manufacturers and producers ahead of the interests of global free trade.

Mr Amorim, his team, Brazil and the world all deserved better, and even in failure and frustration Mr Amorim deserves recognition for the statesmanlike role he played throughout the talks. Brazil's farmers are among the most efficient in the world and they have achieved that status with none of the coddling handed out to their competitors in developed nations. Brazil has the expertise and land - most of it far away from the Amazon and other sensitive areas - to supply the world with the food it so badly needs. Instead, as Mr Amorim warns, what the world will get is more starvation and destabilisation.

Jonathan Wheatley

As is well known, Lula surprised investors by committing his government to maintaining the pillars of macroeconomic stability introduced by his predecessor: a floating exchange rate, primary budget surpluses (before debt payments) big enough to keep the ratio of public debt to gross domestic product on a downward course, and inflation targeting, under which the central bank has been free to set interest rates to keep inflation in check.

But while monetary policy has been consistently tight under Lula, fiscal policy has been fast and loose. The structural reforms left undone by the previous government (often due to PT opposition) have made almost no progress. And while quicker economic growth (the fruit of stability and benign global conditions) and more efficient collection have boosted the government's tax receipts, spending has kept pace.

The central bank continues to fight inflation, last week surprising many economists with a 0.75 percentage point increase in its Selic overnight rate to 13 per cent a year - the third and biggest hike this year. But the bank is battling against increasingly loose fiscal policy. According to a weekend editorial in O Estado de S. Paulo, the government's tax take has risen by R$31.4bn this year and spending on payroll by R$32.1bn. Meanwhile, also this year, the government has created 56,000 civil service jobs, of which 10,000 will be filled this year and the rest up to 2012 - two years into the next government. A cursed inheritance indeed.

Jonathan Wheatley

Inflation topped 6 per cent in the year to June; it is widespread and shows little sign of slowing. True, the "diffusion index" - the percentage of all items measured that are rising in price - has fallen to 67 per cent from a high of 71 per cent in May. But inflation has spread well beyond food and imported goods and is starting to have an impact on wage bargaining, as demonstrated by last week's strike by workers at Petrobras, the government-controlled oil company. Oil workers say they will continue their industrial action and other workers can be expected to follow their lead.

Henrique Meirelles, president of the central bank, told the FT recently that other central banks should join Brazil's in concentrating on inflation, which he described as the greatest danger facing the world's economies today. He is to be praised for acting early and firmly. But Brazil, unlike other countries, has not so far had to balance the risk of inflation against that of recession. If a slowing global economy results in a collapse in commodity prices as many economists predict, Brazil's choices will no longer be so clear cut.

Jonathan Wheatley

What's more the Brazilian government has been setting a bad example, offering some big increases in recent months. Employers in sectors such as cars, which are struggling to meet growing demand, could be particularly susceptible to pressure from the unions.

John Rumsey

That would be a huge advance. A giant hydro-electric dam being built on the Tocantins river at Estreito, which is the biggest construction project under way in Brazil, was held up for five years because of delays in issuing permits. But licensing is not the only problem. Last week local prosecutors managed to halt work at Estreito, saying the scope of Ibama's study didn't go far enough. If the injunction isn't lifted in time to allow the current stage of construction to be completed during the dry season that runs to October, the plant will be held up for at least another year.

Jonathan Wheatley

Brazil is expected to announce plans for a potentially massive sovereign wealth fund this week, based on the country's coming oil wealth. One of the fund's aims, according to Guido Mantega, finance minister, will be to counter the appreciation of Brazil's currency, the real, by using the fund to put foreign currency that would otherwise have entered Brazil (pushing up the real) in an offshore account.

While there seems little doubt that Brazil is indeed sitting on enormous oil reserves, the government is engaging in wishful thinking if, as Mr Mantega says, it expects revenues to start flowing within three to five years.

In any event, by the time the fund is big enough to influence exchange rates, worries over the strength of the real may long have faded. Over the past 12 months foreign companies operating in Brazil have sent home a massive $30bn in profits and dividends, about double the amount they repatriated over the previous 12 months. The outflows are one of the main causes of Brazil's fast-growing current account deficit.

Why are they sending so much money home? One reason is that profits in Brazil are covering less lucrative operations elsewhere. But one consultant in São Paulo says his multinational clients are more concerned about the future path of the real. Many feel that it has peaked and, as Brazil enters a period of slower growth, it is set to fall. Expecting it to slip from its present level of R$1.63 to the US dollar to between R$1.70 and R$1.75 over the coming year, they are getting their money out before it loses value.

Jonathan Wheatley

Now the government is preparing a new weapon, in addition to interest rates, in the battle against Brazil's old enemy. Plans for a sovereign wealth fund - which had apparently been put on the back burner by president Luiz Inácio Lula da Silva for being "too complicated" - have been revived and Guido Mantega, finance minister and the fund's architect, has promised to send a bill to Congress in the next few days.

Mr Mantega initially said the fund's main objective would be to "soak up excess dollars", meaning, to intervene in foreign exchange markets - the central bank's exclusive domain - to stop the steady valuation of the real, which is causing trouble for exporters and helping to expand a ballooning current account deficit. This was widely seen as a recipe for confusion (and unlikely to have much effect).

Now, apparently, the fund will buy reals, not foreign currencies, and will be used to store up savings in readiness for a global downturn, effectively increasing the government's targeted primary budget surplus from 3.8 to 4.3 per cent of gross domestic product. The fiscal restraint needed to achieve this will, the thinking goes, help keep inflation in check.

This should be all to the good. But the government is already exceeding its primary surplus target by a wide margin. This has more to do with rising tax revenues than cuts in spending. In fact fiscal policy remains expansionary, with bills expected to be voted on this week to commit more spending on health and resuscitating the much derided CMPF financial transactions tax to pay for it - a tax to which Congress bade a resounding good riddance in December in a ringing defeat for the government.

But never mind. With four ratings agencies now hailing Brazil as investment grade (only Moody's among the majors is holding out), the government must feel it need not worry too much about fiscal restraint.

Jonathan Wheatley

This should be music to economists' ears. Public spending cuts are widely seen as the necessary first step to reducing the government's borrowing requirements and freeing up money for investment and growth.

But the proposal comes in a worryingly unorthodox form. The additional surplus would be diverted to a sovereign wealth fund to be managed by the finance ministry. It makes no sense for Brazil to create such a fund. It has a dearth rather than a surplus of domestic savings and, worse, the SWF is widely regarded as a disguised tool of back-door monetary policy, "soaking up excess dollars" in the words of Guido Mantega, finance minister, and undermining the floating exchange rate regime managed by the central bank.

At the same time, the government is considering hiking its financial operations tax, the IOF, recently imposed on foreign investments in domestic government debt, in response to the flow of funds coming to Brazil following its promotion to investment grade by Standard & Poor's on April 30. And last week, Mr Mantega suggested the central bank should be more tolerant towards inflation, allowing it to drift towards the top end of its permitted range of two points above or below 4.5 per cent a year. The rate is already running at 5 per cent over the past 12 months, as food prices push up the consumer price index. The pressure is clearly on for the bank to keep interest rates where they stand at its next monetary policy meeting on June 3 and 4.

The government deserves high praise for, so far, keeping monetary policy on the straight and narrow. It should not waver - and it should bring fiscal policy into line, too.

Jonathan Wheatley

This should be music to economists' ears. Public spending cuts are widely seen as the necessary first step to reducing the government's borrowing requirements and freeing up money for investment and growth.

But the proposal comes in a worryingly unorthodox form. The additional surplus would be diverted to a sovereign wealth fund to be managed by the finance ministry. It makes no sense for Brazil to create such a fund. It has a dearth rather than a surplus of domestic savings and, worse, the SWF is widely regarded as a disguised tool of back-door monetary policy, "soaking up excess dollars" in the words of Guido Mantega, finance minister, and undermining the floating exchange rate regime managed by the central bank.

At the same time, the government is considering hiking its financial operations tax, the IOF, recently imposed on foreign investments in domestic government debt, in response to the flow of funds coming to Brazil following its promotion to investment grade by Standard & Poor's on April 30. And last week, Mr Mantega suggested the central bank should be more tolerant towards inflation, allowing it to drift towards the top end of its permitted range of two points above or below 4.5 per cent a year. The rate is already running at 5 per cent over the past 12 months, as food prices push up the consumer price index. The pressure is clearly on for the bank to keep interest rates where they stand at its next monetary policy meeting on June 3 and 4.

The government deserves high praise for, so far, keeping monetary policy on the straight and narrow. It should not waver - and it should bring fiscal policy into line, too.

Jonathan Wheatley

"The correct response is to give priority to dealing with hunger, with access to foodstuffs and to food production in poorer countries" Celso Amorim, Brazil's foreign minister, told the FT last week. "And to give priority to tackling the root of the problem: the enormous subsidies in rich countries that undermine production in developing nations. World hunger is not a result of a lack of supply, but principally of the low income levels in poor countries."

Brazil has its share of the blame. The country has been remarkably backward in lobbying developed-world governments and spreading the word about its huge productive capacity. It has done little to combat hysteria over the supposed threat of ethanol to the Amazon forest, for example: a threat that, if it exists, owes more to lawlessness in the Amazon region than to economic imperatives of ethanol production.

But the developed world appears purposely myopic in relation to the opportunities Brazil presents. Just raising intensity of cattle production from the current 0.8 animals per hectare to 1.2 animals (a target already far exceeded in many parts of the country) would release about 80m hectares of land for crops. But that would upset wealthy US and European farmers - a price apparently not worth paying.

Jonathan Wheatley

Even President Luiz Inácio Lula da Silva, normally unwavering in his support for the operational independence of the central bank, said the hike - along with a drubbing for his football team, Corinthians - had put a crick in his neck.

The other predictable effect was on the currency, which on the eve of the hike closed at its strongest level against the US dollar for nine years and has continued to strengthen since. This will further damage the competitiveness of Brazil's exporters.

Nevertheless, many economists agree that the bank had little choice given the recent rise in inflation expectations beyond the government's 4.5 per cent target (click here for the bank's latest market survey - the target rate is the IPCA). The bank said it had surprised on the upside to stop inflation in its tracks and to shorten the tightening cycle that has now begun.

The bank's hands may indeed be tied. But the government's are not. While complaining about interest and exchange rates, it continues to ignore the need for fiscal reform, allowing current expenditure to go on rising, restricting the amount of domestic savings available for investment and inflation-free growth. Even in benign circumstances, Brazil would have little chance of sustaining last year's 5.4 per cent growth rate. Yet the outlook for global growth is far from benign. Instead of celebrating its future status as an oil superpower, Brazil should be putting its fiscal house in order.

Jonathan Wheatley

Brazil was taken by surprise when top officials at the United Nations and International Monetary Fund lambasted green fuels as contributing to rising food prices (see Biofuels under attack and Biofuels 'crime against humanity') but it is already moving to defend an expanding industry.

President Luiz Inácio Lula da Silva will remind this week's conference of the UNCTAD in Accra, the Ghanaian capital, that Brazil's sugar-based ethanol is economically more efficient and environmentally less damaging than its US corn-based equivalent.

In the next few days, Conab, a federal agriculture agency, will publish a report showing that sugar is expanding at the expense of grasslands rather than food crops.

During the 2007-08 harvest, an additional 653,700 hectares were sown to sugar, an increase of 12 per cent over the previous year. But food crops were being cultivated only on about 140,000 of those same hectares.

Later this year Brazil will unveil a certification programme under the auspices of the national standards board designed to demonstrate the green and socially responsible credentials of its product. And the government will soon appoint a public relations firm to defend its case. They are likely to be especially busy in Europe where ethanol has been most under fire (see Estado - in Portuguese)

Richard Lapper

Shares in Petrobras, its partners and its suppliers all surged on the "news" - already well known to anyone with a passing interest in the sector - that there are very large deposits of oil sitting off the Brazilian coast.

As is also well known, these deposits are very deep and hard to get at, under up to 2,000 meters of water and 4,000 meters of rock, trapped behind a shelf of shifting, highly pressurised sand between 500 and 2,000 meters thick.

It will be many years before any of it is brought to the surface and a lot can happen between now and then. Still, that's no reason for sell-side analysts not to shift a lot of shares. One blogger offers the response: short Petrobras.

Jonathan Wheatley

Cheaper credit has been a powerful stimulus for domestic consumption, which has taken over from the export sector as the main driver of the economy. But with steady rises in food prices over recent months and in the belief that consumption will continue to put pressure on prices across the economy, the bank has warned that a hike may be necessary. This could be the week it delivers.

Yet there is a growing consensus among economists that the central bank is worrying too much about potential overheating and resultant inflationary pressure. Brazil is near the top of the economic cycle. Whatever the government says about sustainability, conditions are not in place for solid, lasting growth and will not be unless the government enacts difficult reforms in areas such as public spending, taxation and labour laws.

Meanwhile, rising imports, slower exports and an increase in remittances abroad by cash-strapped foreign companies have delivered a ballooning current account deficit after years of surpluses. So far, this is being covered by foreign direct investment and portfolio flows. But these are vulnerable to volatility on international markets - hardly something to be ruled out. Brazil's authorities should be preparing for a downturn. Jonathan Wheatley

Brazil reported more modest growth of 5.4 per cent in 2007, yet the figure is still well above the less than 2.5 per cent growth Brazilians had been used to for most of the past two decades. The government could also celebrate the fourth consecutive year of annual growth of more than 3 per cent. Sustainable growth, so elusive for so long, may finally be at hand.

The size of Brazil's trade surplus may be falling, but the value of its exports is still rising. Again, commodities are the cause - not only of export earnings but also of much of the enormous $34bn in foreign direct investment recorded last year.

But Brazil's domestic market is now just as significant for growth more as its export sector, as rising employment, wages and credit drive a consumption boom, fed partly by rising imports, partly by domestic investment. Guido Mantega, finance minister, announced that the "myth" of potential growth - the rate at which an economy may grow without provoking inflation - had been buried. Paulo Nogueira Batista, Brazil's representative at the International Monetary Fund, joined in, saying last week's figures revealed how wrong people were to say that difficult structural reforms (of pensions, tax, labour) were a pre-condition for growth.

There are indeed strong reasons for arguing that commodities prices and international liquidity can take more credit for Brazil's recent growth than public policy. But the central bank quickly poured cold water on the idea that Brazil can sustain current rates of domestic demand in the absence of structural reforms. In the minutes of its latest meeting on interest rates the bank's monetary policy committee admitted to having considered an increase in rates in response to rising inflationary pressure. That was enough to send market rates immediately higher.

Jonathan Wheatley

Richard Lapper

This government insists that rationing is not a threat. The industry thinks otherwise. Rowe Michels and colleagues at Bear Stearns in New York recently issued a report showing that "a perfect storm of four worst-case scenarios" could force the government to ration supplies as early as May this year. Conspiring together are shortages of natural gas, especially from Bolivia; a faster-than-expected rate of growth in demand; unusually low rainfall since the rainy season failed to get underway in November; and delays in delivering new generating capacity.

In fact, the report concludes, rationing is already here, in the form of high prices for those large industrial users who buy electricity on short-term contracts and who account for a quarter of electricity use in Brazil. Prices hit the permitted ceiling last month, forcing some users such as aluminium smelters to shut down part of their capacity.

The obvious short-term solution for Brazil is to buy more natural gas. Unfortunately its main supplier, Bolivia, has been unable to fulfil its contracts since it nationalised its gas industry in May 2006, bringing investment to a grinding halt. President Luiz Inácio Lula da Silva is due to meet his colleagues Evo Morales of Bolivia and Cristina Fernández of Argentina in Buenos Aires at the weekend to discuss the issue. The last thing he will do is insist that Bolivia delivers what it promised. Brazilian industry will go on picking up the bill.

Jonathan Wheatley

Since then Brazil's media have delighted in revealing more and more details of scandalous expenditure, much of it gleaned from the "Transparency Portal" set up on the internet in 2005 to allow the public to monitor government spending.

Spending with the credit cards has grown exponentially since they were set up in 2001, rising from R$14.1m in 2004 to R$75.6m in 2007, of which R$58m took the form of withdrawals from cash machines.

Predictably, the opposition has called for a parliamentary inquiry into the affair. Equally predictably, the government has responded by insisting the inquiry should cover the previous administration, too.

Brazilians can be confident that nothing will come of the inquiry. They can also be sure that politicians will go on confusing public money with their own.

Jonathan Wheatley

But loan capital is still available. The most visible example is Vale, the mining giant formerly known as CVRD, which is understood to have secured, with room to spare, about $50bn as part of a daring $90bn cash and shares bid for Xstrata, its Anglo-Swiss rival.

Like Vale, smaller companies are issuing debt. It is costing more than it used to, but it is still possible. Most of it is funded in Brazil. Brazilian companies are under-leveraged and the country's total stock of debt, while it has risen strongly in recent years, is still only about 35 per cent of gross domestic product, much less than in developed economies. A high level of investment in fixed income instruments by local investors provides a (comparatively) ready source of funds.

This is not decoupling, as the stasis on the Bovespa makes clear. But Brazilian entrepreneurs, beset by all the difficulties of doing business in Brazil - crumbling infrastructure, crippling rates of taxation, rigid labour laws, a profligate and ineffectual government, just to name a few - are at least cushioned from the climate of fear that now grips many of their foreign competitors.

Jonathan Wheatley

Perhaps this government's greatest achievement has been not to fiddle with the previous one's orthodox system of inflation targetting, in which the central bank is free to set interest rates according to the inflation outlook. Thanks to a combination of other orthodox policies (a credible floating currency and a steady reduction in the ratio of government debt to gross domestic product) and benign global conditions, the central bank has been able to bring its target overnight rate steadily lower, from 19.75 per cent in August 2005 to 11.25 per cent today.

But now prices are moving upwards again. The economy, previously stuck in a rut at annual growth rates of about 2.5 per cent, is now growing by about 5 per cent. Economists who thought higher rates of investment would produce higher growth and lower inflation are now thinking again. Many who expected the central bank to go on cutting rates this year now expect it to stay put. Some are even thinking the unthinkable: that rates may have to go up.

That would be deeply unpopular and anathema to the government. But - like its neighbours - it seems to prefer the prospect of rising inflation to that of the effort needed to tackle the high government spending (not to mention the hugely expensive and inefficient tax system) that lies behind it.

Jonathan Wheatley

Yet the Chinese themselves may derail it. Following the dawn raid by Chinalco and Alcoa on Rio Tinto that may scotch a takeover bid from BHP Billiton, rumours were circulating at the weekend that Chinalco's backers at the China Development Bank may be preparing to take a stake in Glencore, Xstrata's biggest shareholder. This could easily scupper the Vale deal.

If that happens, it may be a result of dithering by the Brazilian government. People close to the deal say Vale and Xstrata are ready to shake hands (although others say that agreement on price may be some days off). The final hurdle, they say, is to convince the Brazilian government, represented on Vale's board through Previ, the pension fund of Banco do Brasil, and the national development bank, the BNDES. Senior ministers are withholding their approval for a number of reasons. They fear the deal, which would leave Xstrata as Vale's second biggest shareholder, could be the first step to a foreign takeover. And they worry that it would lead Vale to invest overseas instead of putting its money into projects at home, such as partnerships in new steel mills, that would add value to its iron ore in Brazil instead of elsewhere.

Those concerns are misplaced. Vale's current management has produced phenomenal growth at the company since it took over in 2001, four years after privatisation in 1997. The government has golden shares that it can use to stop Vale being sold or transferring its headquarters overseas. Beyond that, it should stifle its old-style left-leaning instincts and let Vale's managers get on with their jobs.

Jonathan Wheatley

Now, as state governor of São Paulo, he is waging war on bureaucracy - one of the most deeply entrenched and obstructive aspects of Brazilian life. Measures announced last week, for example, will remove the requirement for signatures on most official documents to be recognised and stamped by public notaries. It is the first of a series of measures to be introduced by next year which, it is hoped, will reduce the average time taken to open a new business in the state from 152 to 15 days.

Mr Serra began tackling bureaucracy during his previous job as mayor of São Paulo city. As a result of that work, a new anti-bureaucracy agency opens in the city on Tuesday. One of its first tasks will be to reduce the number of stages companies must go through to qualify for public works from 400 to a target of 70, many of them to be undertaken simultaneously.

It is all further evidence that, even if Brasília is incapable of delivering the structural reforms needed to speed growth, better management at the local level can help get the country's famously enterprising citizens to work, creating jobs and paying taxes. The federal government should take a closer look.

Jonathan Wheatley

It is reminiscent of the days before the real's crash in 1999. Then, shopping trips to Miami were the in thing. Now it is London, Paris and Vienna. But such high-rolling tourism and a taste at home for imported goods, along with other factors such as greater remittances by multinational companies, are turning Brazil's current account surplus into a deficit.

Cause for concern? Many investors think not. Brazil, like other emerging markets, is far better placed to ride out global turmoil now than it was in the aftermath of the Russian and Asian crises of the late 1990s.

But there are other warning signs. Inflation is creeping up. The central bank has stopped cutting interest rates, and market lending rates are rising. In the first three weeks of this year, foreign investors withdrew R$4.5bn from the São Paulo Stock Exchange.

As one market economist commented to the FT recently, public policy in Brazil is largely irrelevant. What has delivered low inflation, cheap credit, more jobs and rising prosperity is a combination of two external factors: commodity prices and liquidity.

As both those factors become a real and present cause for concern around the world, Brazilians - both individuals and the government - might wonder whether profligacy is the best response. A change in global conditions might even prompt Brasília to deliver the tax, pension and other reforms it has chosen not to implement during recent years of prosperity. But don't bet on it.

Jonathan Wheatley

Brazil has so far escaped most of the financial turbulence triggered by growing fears of recession in the US. The stock market has fallen from its highs of 2007, but the currency remains steady and international companies still seem to believe that long term growth prospects are healthy. 2007 saw foreign direct investment double to $37.4bn and so far this year there has been a string of new announcements, including one last week by Anglo American, the mining group.

In one corner of the market, though foreigners are running scared. Of the 45 companies that had planned to come to market in the next few months, 15 have asked for a delay. That means Brazilian corporates will raise R$10bn rather than the R$17bn that had been expected. Analysts say that many smaller and medium-sized companies that floated in the second half of 2007 have underperformed the market as a whole. More than half of these companies are now trading below the issue price.

Foreigners who provided R$45.9bn of the R$69.6bn raised in initial offerings in 2007 have been preferring big liquid Brazilian stocks like Petrobras and CVRD. Richard Lapper

Mr Lula da Silva is expected to confirm his offer on Wednesday - when he returns to Brasilia after a brief trip to Guatemala and Cuba, although he faces opposition both from his own party and opposition critics.

Meanwhile, lower than expected rainfall has reduced water levels at the hydroelectric dams on which Brazil relies for about 70 per cent of its power generation. At the same time demand is growing relatively quickly, as the economy grows. Although the country now has more thermal generators and a better transmission network than it did in 2001, when electricity was last rationed, Mr Kelman, the regulator, still thinks there is a danger of cuts and has suggested that the government press consumers to conserve electricity.

Richard Lapper

At first glance, Brazil´s new package of spending cuts and revenue raising measures is welcome. The package - designed to cover the R$38bn shortfall left by the lapsing of the CPMF, a blanket tax on financial transactions - includes some R$20bn in spending cuts. If these are introduced it would be the first time since 2003 that the government has moved to cut spending by a significant amount. But the extra tax charges could carry a significant political cost. Some R$10bn is to be raised through increasing the tax rate on net profits of financial institutions and on certain financial transactions, including bank lending. That has angered opposition politicians who see it as violating an agreement not to impose new taxes to compensate for the loss of the CPMF. Renewal of the CPMF tax was voted down in the Senate after a bitter fight that culminated in a vote against the government on December 13. Opposition leaders from the Democrats, Social Democrats and left-wing PSOL (presumably upset by the spending cuts) are now threatening to make life tougher for ministers. And the government could well find negotiations over the 2008 budget more difficult than they expected.

John Rumsey

The Brazilian government's shock failure to make permanent the CPMF, a financial transactions tax expected to bring in R$40bn ($22.3bn, £11bn, €15.4bn) next year, has rattled some analysts, concerned that it will make it harder for the government to meet its fiscal targets. They should not worry. The government will have to do some unaccustomed belt-tightening, but the primary budget surplus will remain intact. Yet this was not, as it might at first appear, a victory of orthodox economics over government profligacy. The centrist opposition PSDB did not pull off the surprise trick of achieving watertight party unity in order to defeat the CPMF, though its senators made some fine debating points in that cause during the nine-hour session that preceded the vote.

They did it, instead, to defeat president Luiz Inácio Lula da Silva. They are fed up with the government's having everything its own way, with its taking the credit for policies introduced by the previous PSDB administration, and with seeing their own electoral hopes fade as Lula's popularity remains consistently high in spite of the government's almost complete stasis.

Will the PSDB consolidate its success? To do so, it must convince voters that tax cutting and better management are in their interest. Against that argument, the government will portray the PSDB as the enemy of the poor. It is a long way to the 2010 election and the PSDB has fired its first shot early. It will have to pull off several more big surprises to make this victory count.

Jonathan Wheatley

Taken together, the FT's interviews in Brasília last week with Guido Mantega, finance minister, and Roberto Mangabeira Unger, extraordinary minister for strategic planning (click here for Brazil SWF to counter rising currency and here for Brazil banks on state for growth), give the impression of a government longing to change direction but knowing that to do so would be a mistake. President Luiz Inácio Lula da Silva recently announced the end of belt-tightening and the beginning of faster growth through more spending on public services - the opposite of what orthodox economists say is needed. With his unwavering public support for colleagues such as Hugo Chávez of Venezuela and Evo Morales of Bolivia despite the mounting instability their policies are causing, he has provided more evidence for those who think his government is preparing to ditch orthodoxy altogether.

Yet the government knows from experience that big government is not the answer to growth. Despite having coined "privateering" as a dirty word for privatisation during last year's election campaign, it has had to turn to the private sector to provide the money and - something in even shorter supply in government - the expertise to get investments in infrastructure off the drawing board. Any suggestion that the government is preparing to put at risk the benefits it has reaped by maintaining the tight monetary policies inherited from the previous government is, surely, just wrong.

Nevertheless, the impression that this is what it would really like to do is becoming hard to ignore. The proposed sovereign wealth fund appears to have the dual objectives of taking a significant policy tool away from the orthodox monetarists at the central bank and of providing a roundabout way to pump taxpayers' money into public-sector companies like Petrobras. While it remains probable that the government will keep such impulses under control, it is also hard to imagine that orthodox overhauls of such obstacles to growth as the pensions, tax and labour regimes will find their way to the top of the policy agenda any time soon. Jonathan Wheatley