Brazil's middle class endangered

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The first thing a salesperson does when a customer walks into a store is ask whether she would like to pay in installments.Anything at all can be financed in Brazil: shoes, purses, groceries, medicine, and especially larger items like electrical appliances, televisions, cell phones and vacations.Brazil's emerging middle class is hooked. The clothes and the gadgets are irresistible signs of their new status, and the 100 percent interest rates built in to some of the installment schemes are the price they're willing to pay to improve their day-to-day lives. The fledgling middle class here, as in emerging markets around the world, has sprouted and thrived in the past decade. In Brazil, the group even has an official name as part of an income-bracket classification by the government: Class C.A group of more than 86 million people with earnings averaging about $500 (U.S.) a month, it's the fastest growing income group in Brazil, by a long shot. Class C has grown by about 20 million people in the last two years. And the newly comfortable in this country have quickly adopted some of the bad habits of the advanced world, including their penchant for consuming on credit.Now, as the rest of the world looks to the huge pool of consumers in emerging markets as a route to global economic recovery, the credit habits of Brazilians have suddenly become a concern.While Brazil's economy overall can likely continue growing next year, albeit at a reduced pace, the emerging middle class that the rest of the world hoped would buy their products is succumbing to the global crisis -- precisely because it is a crisis of credit, the lifeblood of Brazil's new consumers. "It's very vulnerable because they were living on credit, and credit has disappeared," said leading Brazilian economist Eliana Cardoso, from the Getulio Vargas Foundation, in an interview.The personal debt of Class C households has increased tenfold in 10 years, and these households are now the leading source of borrowing in Brazil, replacing industry. Each Brazilian has an average of three credit cards, with the number of credit cards growing from 199 million in 2000 to 484 million in 2008."This increased consumption in Brazil is sailing on a sea of easy credit, part of the worldwide proliferation of financial assets," says economist Norman Gall, executive director of the Fernand Braudel Institute of World Economics, in a recent essay on the roots of the global financial crisis and its effect on Brazil.For Rita Couto, the credit boom of the past decade has meant good times. She migrated from the dirt-poor north of Brazil about 20 years ago with her children, and moved into the shack her husband had built from scraps in a slum on the edge of Sao Paulo.Now, thanks to a raise that her factory-worker husband got a few years ago, and careful money management, her house has been reinforced by concrete blocks, covered in stucco, and decorated inside from top to bottom in ceramic tile. Even the ceilings.She's got a fridge with a freezer, a stove, a television, a CD player, and a new pine cupboard for her dishes. Smaller appliances are all covered lovingly in orange doilies crocheted by Couto herself. Her last purchase, that she just finished paying off, was a wardrobe for her bedroom. Next on the list is a washing machine. "Thanks be to God," she says, serving a homemade coconut loaf and freshly squeezed orange juice. "We are much better off now."It's a fragile prosperity. Class C households buy 40 per cent of the computers sold in Brazil, and about half of these households have Internet access. In addition to buying millions of fridges, TVs and other appliances, they have driven growth in the all-important auto industry. Brazil has doubled its motor vehicle production since 2000, and has sold more cars in the first half of 2008 than in all of 2003.But these households have done it on debt. And the credit-crunch wave has only just begun to wash up on Brazil's shores.The stock market has plummeted more than 60 percent since last spring, with huge losses in the past few weeks. The currency has plunged, and the central bank has had to intervene with more than $50 billion (U.S.) in the past few weeks to prop it up -- but has also stopped raising its key interest rate to fend off inflation. (Distributed by Scripps Howard News Service, www.scrippsnews.com.)