Rock steady: trade has tripled in recent years, but that's only half the story: Brazil's companies have matured to meet the challenge.

According to legend, Brazilian supermodel Gisele Bundchen almost single-footedly transformed the lowly Brazilian flip-flops from emblems of poverty into international fashion items simply by wearing them backstage at fashion shows.

Only partly by coincidence, exports of Brazilian footwear jumped to 200 million pairs last year from 137 million pairs in 1999, placing the country seventh in the world. And these weren't simply rubber soles the Brazilians sent forth. The shipments included carefully crafted heels designed by Rio Grande do Sul's Jorge Bischoff that sell in upscale boutiques in Spain. "Our time has come," says Bischoff, whose design firm Critivar Studio maintains its headquarters in the little town of Igrejinha, 50 miles outside of the southern state capital Porto Alegre. "Design is our weapon against any problems with exchange rates or taxes."

With their elite appeal, Bundchen and Bischoff may seem unlikely examples of Brazil's blossoming as a economic powerhouse, considering it is led by a bearded, scruffy former machinist and union firebrand often seen sweating and shirtless on dusty soccer fields. But they indeed symbolize the increase in international trade that is driving Brazil's growth. Last year the country rang in with record figures in all three fundamentals: exports at US$96.48 billion, imports to $62.78 billion and a trade surplus of $33.69 billion.

Brazil's trade volume is now equal to 30% of economic output--a far cry, perhaps, from Chile's consistent figures of over 50%--but significantly outpacing the South American giant's historical trade figures of 20% or less. "When we announced our policy, everyone thought we were going to do battle with the European Union and the United States," President Luiz Inacio Lula da Silva told conferees at the World Economic Forum in Switzerland. "But there is no reason for us to fight with the EU, an important trading partner, or with the U.S., our single most-important trading partner."

Lula said his way of thinking dates back to his past as a labor leader. "We didn't adopt this policy out of arrogance but because of something I learned in the union" Lula said. "If you are in tough negotiations, it doesn't help to whine to your opponent. You have to negotiate from a position of strength." He predicted exports would top $108 billion by year's end.

Five years ago, total trade volume, imports and exports combined, stood at just $53 billion, a third of today's figures. "With some major exceptions, like China and India, big markets have always been more provincial," says Roberto Banfi, director of international sales at Sadia, a firm that helped pioneer Brazilian food exports, and the one from which Furlan took leave to assume his ministerial post. But that's changing--fast. "Brazil is no longer afraid of being an international trading partner," Banfi says.

The Lula administration's effort to open non-traditional markets, notably in developing countries, is providing an important boost to sectors like the meatpacking industry. "Brazil is opening new markets in places where there is a growing consumption of meat," says Banfi. "When people have slightly more discretionary income, they will go for the cheapest option, which is chicken. And Brazil is very competitive in poultry."

In addition to agribusiness, many of the biggest strides have been made in industries that sell identifiably Brazilian manufactured goods. "We have been diversifying with new products and new markets." says Luiz Fernando Furlan, minister of Development, Industry and Foreign Trade.

Hot and cool. Brazil's success in the world of fashion highlights the country's newfound vocation as an international trader with a distinctive and increasingly positive global identity. "Brazilian fashion is the hottest thing around," says Jens Olesen, president for Latin America and the Caribbean at the multinational advertising firm McCann-Erickson. "Brazilian models are attractive and feminine. Brazilian clothes and bikinis are hot. Five years ago you couldn't tell anybody that Havaianas [a leading brand of flip-flops] were Brazilian. That was a negative. Now they're sold with Brazilian flags."

What's hot now could cool, but getting into export markets is absolutely the key to keeping growth strong, Olesen says. "Brazil always goes through these two year cycles--two good years, two bad years. To ensure stability, you need to export," he says. It's beginning to pay back: "Our clients are beginning to feel confident with the market, consumers and the government," says Olesen.

Brazil's success in the fashion world represents the country's nascent evolution from an exporter of commodities like coffee beans and iron ore and mass-produced, non-branded manufactures such as orange juice and steel to one of higher-value added products like bikinis and furniture; exports of the latter topped $1 billion for the first time in 2004. "These sectors are less dependent on the large price fluctuations that affect commodities," says Furlan.

Brazil's gains in industries like fashion and furniture have come gradually, too, which underscores the continuity in the economic policies of former President Fernando Henrique Cardoso and his successor, something that few predicted when Partido dos Trabalhadores candidate Lula won the race for the Planalto more than two years ago.

Brazil boasts a considerable domestic market, even after discounting for its widespread poverty. And, until the trade liberalization of the 1990s, many industries hid behind protectionist barriers. As part of the legacy of their country's economic history, Brazilians tended to concentrate on the domestic market first; exports were an afterthought. "Brazilian business people always tried to export when they didn't have a strong domestic market," says Deiwes Rubira, Brazil country manager for Dutch bank ING. "Everyone believes that the mindset has changed. Not only are there more exporters, but some Brazilian conglomerates have decided to become multinationals."

The domestic downturn of 2002 and 2003, one that for some companies lasted into early 2004, sparked a change in thinking for many Brazilian executives. "Exports came into the equation because of the lack of stimulus in the internal market," says Gilman Viana, a cattle rancher from Minas Gerais and international vice president of the National Agricultural Confederation. Brazilian companies were suddenly forced to provide a quality and price to compete in foreign markets, and that has led them to being better companies.

Both the Cardoso and Lula administrations encouraged the export drive. One example was a program called Brand Brazil, launched by Sergio Amaral, Furlan's predecessor under Cardoso. With the help of McCann-Erickson, the ministry conducted studies of Brazil's image in 15 international markets and used the results to develop a strategy to project the positive elements of products made in Brazil.

The ministry also worked with 22 leading sectors to help prepare them for doing business abroad. As a businessman, Furlan praised the Brand Brazil program, and he continues to back the image-building concept.

"Lula's decision to establish a network of emerging nations improves the chances that Brazil will be able to successfully negotiate beneficial international trade agreements," says Ricardo Young Silva, chairman of the Ethos Institute, a business association that encourages social responsibility among companies.

Responsible. The government should take more responsibility for protecting the biodiversity that is expected to serve as the base for investment in emerging industries like biotechnology, say some business leaders. "Brazil is a country rich in natural resources," says Silva. "But it will only be rich if it views those resources as a source of capital and preserves them."

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Exports are great, of course, but Alain Keruzore, South American president of Valeo Sistemas Automotivos, makes an indisputable point: "There isn't a country in the world that has a solid industrial base without a solid domestic market," he says.

Nevertheless, short of a global economic meltdown, Brazil should be in good shape for another five or six years, says Keruzore. "During Fernando Henrique's two terms, he put things on the road to stability, and Lula has demonstrated that he knows how to make the right decisions," he says.

If the catwalk symbolizes Brazil's foreign advances, the first place to look for progress at home might be the local "padaria" or bakery. Sooner or later you'll find everyone there. Many Brazilians still adhere to the time-honored custom of buying fresh bread daily at the corner shop. The establishments sometimes do double- or triple-duty as the neighborhood convenience store and watering hole. "Our sector is very sensitive to the situation of the economy as a whole," says Marcos Salomao, president of the Brazilian Association of Bakeries and Candy Shops and the proprietor of three bakeries in Belo Horizonte. "If people have more money in their pockets, they buy more. If they don't, they buy less" Salomao says.

So what's the verdict of fresh bread-and-coffee indicator? Salomao and his colleagues registered a 5% increase in sales in 2004, just about the same as the country's growth. "We're looking for better results this year," he says. "Purchasing power is growing, and we're feeling the impact." The most recent government figures for purchasing power, for October 2004, show an increase of 2.6% compared to the same month in 2003, though that would leave workers with 13% less in their wallets than the year before.

Setting aside for the moment some of the fundamental problems of their economy, including the undeniably widespread poverty, few Brazilians see major domestic roadblocks to growth on the short-term horizon--at least, not until the 2006 presidential campaign heats up. A report by the National Industrial Confederation in Brasilia found few potential risks other than the political, save for the threat of further devaluation of the dollar.

Words like "all right" have rarely been used in describing the Brazilian economy In the past people would have preferred either "fantastic" or "awful," depending on the context. Now the consensus view seems flattering but refreshingly realistic. "In overall terms, Brazil produced about 2.2 million vehicles in 2004, it should produce about 2.3 million this year," says Persio Lisboa, director of sales and marketing for International Engines South America, whose Brazilian operation exported 12,000 of the 60,000 engines it produced last year. "Before, we used to get ready to make three million and would actually sell 1.6 million."

Encouraged by the example of Brazilian aircraft maker Embraer, which delivered 148 airplanes at home and abroad last year to clients like American Eagle and Continental, the consensus is decidedly positive. "Brazil has the potential to develop into an export platform," says Lisboa.

Burdened. While most business leaders are reasonably satisfied with Lula's pragmatism, fiscal conservatism and efforts to promote exports, many complain precisely about some elements of the continuity from the Cardoso era. Like his predecessor Arminio Fraga, Central Bank President Henrique Meirelles stubbornly keeps interest rates among the highest in the world. And, like his predecessor Pedro Malan, Finance Minister Antonio Palocci steadfastly defends a tax burden of nearly 40% of GDP.

Few, however, expect significant changes on either front in the short term. On tax cuts, Senator Eduardo Suplicy of Lula's Workers Party recently said: "Brazil is a country with so much injustice, with income distribution so skewed, I think it will be hard to have a reduction in the tax rate."

Christina Carvalho Pinto, president of the advertising agency Full Jazz, argues that economic policymakers should pay closer attention to social development figures to ensure long-term prosperity. "A purely 'economistic' reading does not lead to growth" she says. Brazil grew less in 2004 than many of its neighboring countries, she points out. Education needs more attention, investments in which could engender more pleasant surprises like the one in the fashion industry. "Nobody fails to be impressed by our creativity and entrepreneurial drive," says Pinto. "We should encourage those qualities with public policies."

If there were consensus for the future, it would be on the need for the government to do its homework on education. "It is extremely important for tourism," says Roberto Gheler, president of the Sao Paulo Convention and Visitors Bureau. "Tour guides need an in-depth understanding of their own culture and history and then they must be able to communicate that knowledge in another language. You can't replace a guide with a machine."

BILL HINCHBERGER DAVOS, SWITZERLAND