In talks with Brazilian bankers and top business and media people during a weeklong visit, this reporter found a rare mood of economic confidence that was, however, tinged with political caution. Next year's presidential elections will see the retirement of the still-popular President Lula after his second four-year term.

Luiz Inacio Lula da Silva was a fiery labor union leader who alarmed Brazilian business when he first came to power as the leader of the Workers' Party. But he governed, as he had quietly promised the various chambers of commerce in discreet meetings before his election, in a highly orthodox way.

He strictly kept all the agreements with the International Monetary Fund made by the previous government. Inflation was curtailed if not tamed, the public debt was reduced, and Brazil's foreign exchange reserves built up to almost $250 billion. It seemed that Brazil's old nightmare, of sudden inflation being triggered whenever GDP growth exceeded 4 percent a year, had finally been overcome.

Lula did not govern solely in the interests of business. He reduced inequality by promoting a welfare system called the Bolsa Familia, an income support scheme for the poor that is contingent on the parents getting their children vaccinated and sending them to school. Some other programs, including infrastructure projects and a "zero hunger" plan, have been less successful, and Lula's warm personal relations with Venezuela's Hugo Chavez and the Castro brothers in Cuba made for sometimes tricky relations with Washington.

But all that fades into insignificance when set against the striking change in Brazil's international profile. As one of the BRIC economies -- Brazil, Russia, India and China -- that are now firmly ensconced in the world's big economic leagues by measure of GDP, Brazil has become a major player in world trade talks and at economic forums like the G20. Brazilian troops have also performed well on a U.N. peacekeeping mission in Haiti.

Lula has carefully built a unique international role for Brazil as both a leader of the emerging economies and as an equal at the top table. Next week Brazil will be at the June 16 BRIC summit in Yekaterinburg, Russia, when we may expect to hear a great deal more rhetoric about replacing the role of the U.S. dollar as a reserve currency with something more broadly based, perhaps IMF Special Drawing Rights. But while keeping good relations with Moscow and Beijing, Lula has also promoted a separate alliance with India and South Africa as fellow democracies with leading roles in the developing world, a grouping that is likely to prove pivotal as the new G20 faces the challenge of dealing with autocratic regimes among its members in Moscow, Beijing and Saudi Arabia.

Currently the world's eighth-largest economy with a GDP of more than $1.5 trillion, Latin America's largest economy is recovering fast. Industrial output climbed 1.1 percent in April, a fourth straight monthly increase. Vehicle production rose 6.7 percent in May after consumers took advantage of lower prices and increasing availability of bank credit. Banks have extended the loan period for car payment to 80 from 60 months, and credit card business is booming.

"What we're seeing right now is an environment characterized by rising liquidity and stabilization of employment levels in Brazil," says Ademir Cossiello, executive director of Bradesco bank. "This is giving our bank more room to assume risk."

Beyond the uncertainty of Brazil's political future, the country faces real challenges of low productivity, rigid labor markets and a poor education system. South Korea alone spends more on scientific research and development than the whole of Latin America, and bureaucracy is so bad that the typical Brazilian company has to expend 2,600 man-hours preparing its tax returns. Despite all this, more than 50 million of the country's 190 million people are now middle class, with incomes above $5,000 a year. And tough regulatory systems kept Brazil's banks healthy and banned from risky assets, while low mortgage penetration restrained the kind of housing boom-and-bust that has battered the middle class of other BRIC countries.

The politics of the Lula succession are wide open. Some say he will take a four-year break to run the state-controlled Petrobras energy giant before returning to the presidency. In Washington, there is talk of him being the first non-U.S. citizen to run the World Bank. His chosen successor for the presidency, his government's chief of staff, Dilma Rousseff, is rising in the polls, despite -- or maybe because of -- the news of her ongoing treatment for lymphatic cancer. The front-runner is the Social Democrat Jose Serra, governor of the state of Sao Paulo, who one business described as "more like Jimmy Carter than Obama, and more like Gordon Brown than Tony Blair."

Brazil will miss the colorful Lula when he steps down from the presidency next year, but few expect him to stay out of the limelight for long.

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