Brazil Infrastructure in ‘Terrible Shape,’ Fraga Says

Brazil’s infrastructure is in “terrible shape” and the country isn’t saving and investing enough, holding back growth in Latin America’s biggest economy, said former central bank President Arminio Fraga.

Fraga, who is now chairman of the BM&FBovespa SA exchange, said he’s concerned that foreign investors “think Brazil is perfect,” which may create overconfidence in the country.

That perception is “not good for us,” Fraga, 52, said at a conference organized by the Brazilian-American Chamber of Commerce in New York. “We’re definitely not anywhere near that. It’s not very healthy to breed this sort of hubris.”

Nobel Prize-winning economist Paul Krugman said in December investors were “loving” Brazil too much and that he planned to sell some of his investments in the country on concern that asset prices were overvalued. Brazil’s stocks and currency have tumbled this year after surging in 2009 as Latin America’s biggest economy rebounded from its first recession since 2003.

The benchmark Bovespa stock index is down 6.8 percent in 2010 after gaining 83 percent last year. The real, whose 33 percent rally against the dollar in 2009 made it the best performer among the 16 most-traded currencies, has slumped 7.1 percent this year.

‘Barriers To Growth’

The economy has the potential to grow as much as 7 percent a year “if some things were to be done,” said Fraga, who managed money for billionaire investor George Soros before becoming central bank president. Brazil’s highest annual growth rate this decade was 6.1 percent in 2007. Economists forecast an expansion of 4.75 percent this year after growth of 0.15 percent in 2009, according to the median estimates in Bloomberg surveys.

“We still have serious barriers to growth,” said Fraga. “I have a particular concern with infrastructure, which is in terrible shape. We’ve not been keeping up with new needs, not even with maintenance.”

Brazilian infrastructure projects may require as much as 160 billion reais ($85 billion) in financing in the next decade as the country expands transportation and boosts energy production, Ricardo Flores, vice president for credit at state- run Banco do Brasil SA said in a Feb. 1 interview in Sao Paulo.

Infrastructure projects are luring investors as the country prepares for the World Cup in 2014 and the Olympics in 2016, Flores said. Offshore oilfield discoveries and a government program to expand housing will also help drive infrastructure spending, he said.

Brasilia-based Banco do Brasil, Latin America’s biggest bank, estimates World Cup-related projects will require 99 billion reais in financing. That includes 4.6 billion reais for stadiums, 86 billion reais for subways, 8 billion reais for railroads and 400 million reais for the hospitality sector.

Brazilian Cabinet Chief Dilma Rousseff said Jan. 13 the country will spend 19.5 billion reais to improve infrastructure and prepare for the World Cup.