Resurrecting Rio

When Joaquim Levy quit his post as vice president for the Inter-American Development Bank to become the finance secretary of Rio de Janeiro early last year, more than a few people thought he was nuts. Who would forsake a chance to be a Washington-based power player of international development for a desk job in one of the hemisphere's unruliest cities? At the very least, Levy was punching under his weight. At worst, he was marching into a sinkhole. But Levy has always waved off the skeptics. His mantra: "It's important to spread the word that it's possible to change Rio de Janeiro." 

Brazilians would be forgiven for wondering. Rio's storied carnival can turn machos into maidens and street sweepers into emperors, but the artful Cariocas, as the natives call themselves, have been struggling for years to resuscitate their failing city.  A perverse spiral of neglect, predatory politics, and horrific street crime has driven away investors and kept the continent's fairest address in the yoke of mediocrity for nearly a quarter century. Decay has bred decay, driving away talent and investment, and cast a pall of insecurity and dread over a metropolis that had been synonymous with levity and grace.

Levy himself compares the besieged Cariocas to the terrified peddler in the classic movie "L'Armata Brancaleone" who tries to escape the marauding barbarians by climbing into his trunk of wares. In the end, of course, there's nowhere to hide. 

But Rio's fortunes seem to be turning. After a long drought, federal money is flowing again into public safety and infrastructure projects, including improvements in the tattered favelas, or shantytowns. Shipyards are humming, thanks mostly to Petrobras, the state oil monopoly that has announced massive offshore reserves in the last two years that could put Brazil among the world's leading oil producers. A number of giant steel plants are in the works that stand to turn Rio state into Latin America's largest producer. Most remarkably, perhaps, the chronically hemorrhaging state coffers are flush with cash.

Much of the credit goes to Sérgio Cabral, the publicity-seeking state governor who wooed Levy from Washington and then gave him a free hand to overhaul the state's chaotic finances. A former head of the national treasury, where he earned a reputation as a fiscal hawk, Levy wasted little time. He shed scores of dead-end jobs, has boosted tax revenues at a clip of close to 20 percent a year, and is paying down a mountain of debt.

The region is drenched in oil, with an economy as big as Colombia's ($130 billion). But former governments had blessed cronies and favored contractors with piles of cash and sweetheart deals. Suppliers needed a "godfather" and the patience of Job to get paid. "Before, no one had any idea who was paying whom and how much," Levy says. He found he couldn't even meet the payroll when he took office in January 2007. Buried in promissory notes and hooked on deficit spending, Rio was even barred by the federal treasury from taking more loans.