Brazil Is in a Class by Itself; While Lula has at times played to the galleries, opposing U.S. foreign policy, his actions have been pro-market and devoid of short-term populism.

Byline: Ruchir Sharma (Sharma is co-head of global emerging markets at Morgan Stanley Investment Management.)

Following dismal economic growth in the '90s, it seemed that Latin America's leaders had convinced themselves that good economics was bad politics. Hugo Chavez in Venezuela, Nestor Kirchner in Argentina and Lucio Gutierrez in Ecuador were repudiating international debts, infringing on private-property rights and interfering with the pricing mechanism for key utilities. In late 2002, the international financial community was convinced that with the election of Luiz Inacio Lula da Silva, Brazil, too, was going to join the renegade camp. The continent was a lost cause.

Well, the powerful global economic expansion of the past 18 months has made for many comeback tales, but Latin America's has to be the most impressive. In 2004, the region is estimated to have grown at 5.8 percent, the highest annual gain in its recorded history. Blockbuster growth was accompanied by an average inflation rate of 7 percent, a surplus in the current account (which includes both trade in goods and financial flows) of 1.8 percent of gross domestic product and nearly balanced government budgets.

Has Latin America then stumbled upon a new growth model that advocates debt defaults, Robin Hood economics, and political demagoguery? Over the past year, Venezuela's economy grew by 17 percent--taking Chavez's popularity to new highs--and Argentina's by 8.4 percent, all in the face of policies judged to be plain bad by international financial institutions.

The radical left may want to spin the success to validate Argentina's and Venezuela's way. But the real story is Brazil's rediscovery of the only proven model for a political economy: capitalist democracy. The region's largest economy has matched the illusory growth of smaller neighbors by following economic orthodoxy--and attracting foreign investors--within a proper democratic framework. High growth in Argentina and Venezuela over the past year largely represents an overdue bounce following severe recessions. Inflation-adjusted GDP in both countries remains well below late-'90s peaks, while Brazil's GDP is now at a new high.

To bounce is easy, but to stay airborne is hard. And Brazil has by far the best shot at doing so, because ...