Fletcher Features

Roberto Setubal Lecture: Two Remarkable Success Stories Told at Fletcher

“Future leaders, meet the current global leader,” was how Charles Dallara, F75, the vice-chair of The Fletcher School’s Board of Overseers and managing director of the Institute of International Finance, introduced Roberto Setubal to the audience of Fletcher students, faculty, and notable attendees. Setubal, the president and chief executive officer of Itaú Unibanco S.A., told of his company’s and Brazil’s remarkable economic successes at the Charles Francis Adams Luncheon Lecture on Wednesday, September 28, at The Fletcher School of Law & Diplomacy at Tufts University.

Dallara informed the audience that Itaú Unibanco is an effective, disciplined, and profitable firm under Setubal’s leadership, and it is now the seventh largest market capital firm in the world. With these words, he welcomed Setubal to the lectern, where Setubal embraced Dallara — a symbol of their old friendship and mutual respect.

And respect is what one felt for Setubal as he spoke of Brazil, what the country had been through and how it had emerged as a successful, strong, and united country, with an even stronger economy. This was not an easy feat. From 1980 to 1994, Brazil suffered from political and economic turmoil under an authoritarian regime. The average inflation rate was a staggering 730 percent, and fifteen different finance ministers were appointed in just fourteen years. “For those who don’t know, Brazil is in South America and Rio is not the capital,” Setubal quipped.

The country’s upward climb to economic prosperity began with the difficult process of “re-democratization.” Military dictators left as they realized the country was in shambles, and democratic elections took place. But the process of re-democratization in Brazil was a bumpy ride: Tancredo Neves, the popular politician elected for president, died before he took office. His vice president took over after him. “But he was completely unprepared. Vice presidents are not supposed to become presidents. They’re just supposed to be vice presidents,” observed Setubal. The president after him was impeached after two years due to corruption charges.

In 1994, The Real Plan was initiated under Finance Minister Fernando Cardoso. The plan introduced a new form of currency called the “real” and enacted a series of fiscal policies designed to stabilize inflation. Buoyed by its success, Cardoso was elected president, reaffirming his claim as the architect of the modern Brazilian economy credited with making the country’s turnaround possible. Through extremely tough reforms, he laid the foundation for economic prosperity and social well-being. “Cardoso implemented the stabilization plan,” Setubal informed in his presentation. He lowered inflation and increased taxes, bringing it to 24 percent of the GDP.

Luiz Inácio Lula da Silva, popularly known as Lula, succeeded Cardoso as president in 2003 and stayed in office for eight years. A firebrand leftist politician, Lula mellowed his views as president, concentrated on the economic uplift of the country, and furthered the policies initiated under Cardoso. “Lula was smart. He prioritized social programs instead of infrastructure ones, and that is why he is so popular.” Today, taxes amount to 38 percent of the GDP.

Not everything is great in Brazil though, Setubal was sure to add. “Our biggest challenge is education,” he said solemnly, quoting the Programme for International Student Assessment (PISA) rankings. The average person attains just 7.5 years of education.

Meanwhile, Itaú Unibanco, like Brazil, is a success story. Rated the best bank in Brazil and Latin America, and designated Sustainable Bank of the Year 2011 by the Financial Times and the International Finance Corporation (IFC) of the World Bank, Itaú Unibanco finances one third of the Brazilian market. But Setubal reminded the audience that ethics are dearly important to the institution and its leadership. “The process has to serve the people. There has to be openness in thinking.”

Brazil has a long way to go and there are many things that need to be fixed. “But the track we are on is the correct one,” concluded Setubal.

Fletcher’s finance and economics professor Lawrence Krohn commented, “It was an objective and complete presentation. Brazil learned very painful lessons, but all their areas of strength were applied judicially.” The Real Plan was brilliant and the best economists of Brazil were hired to lower the inflation rate, he added. Was it a remarkable success story? “It was a landmark in economic history.”

- Neha Ansari, MALD candidate F13

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