Why the president gets tied down

Some say the Brazilian state of Bahia boasts three religions - catholicism with its European origins, candomblé brought by slaves from west Africa and ACM, a uniquely Brazilian phenomenon. The initials ACM stand for Antônio Carlos Magalhães, the president of the senate in Brasília, and the strongman whose every word carries weight in Bahia. He is described variously as the viceroy, the emperor and even the god of the territory. He may only be a politician but in his home state he attracts a religious following.

In Salvador, the state capital, children put up posters of Magalhães alongside their favourite pop stars. A civil servant shows the photograph she carries in her wallet as her own personal defence against the town's notorious kidnappers: a picture of her together with ACM at a public event. The photo implies she is a friend of the powerful ACM and not someone criminals would care to mess with. When the Brazilian comedian Juca Chaves was asked why he made fun of everyone except ACM, he replied: "I don't make jokes about religion."

In many parts of Brazil populist and authoritarian leaders remain the favourite choice of the electorate. The return of civilian rule came 14 years ago but the legacy of previous military and other hard-line governments is disappearing only gradually. Unequal social conditions, with large numbers of poor and illiterate people, also favour politicians whose appeal is emotional as well as rational. At 72, ACM is in the running to be Brazil's next president.

But even among Brazilian populists ACM is special - in the extent to which the voters' admiration for him has spilled over into adulation and for his achievements in Bahia. Although the language of other populists is distinctly anti-business and xenophobic, ACM has encouraged foreign investment and promoted efficiency in the administration. Bahia's most recent coup was in persuading auto-maker Ford to locate there after the company fell out with the state government in Rio Grande Do Sul, its preferred choice.

In September, Euromoney visited three Brazilian states: Bahia in the poor north-east, Rio Grande Do Sul in the rich south and Minas Gerais in the industrial south-east, one of the country's economic powerhouses with a state GDP roughly equivalent to Ireland, New Zealand or Chile. When we knocked on the doors of three state governments asking for information and access, Bahia proved to be in a class of its own with the professionalism and breadth of its response. Investors are concluding likewise and moving to Bahia.

It's a challenging task to bridge the wide gulf between rhetoric and reality in Brazil but two major conclusions emerged at the end of the journey: first, the populist language of fiery state governors is much less scary than it seems. A closer look behind the hyperbole of Itamar Franco, the controversial governor of Minas Gerais, whose moratorium on his state's debts helped spark the currency crisis at the start of the year, reveals an underlying conservative philosophy. Even Olívio Dutra, the left-wing governor of Rio Grande do Sul, whose arguments with Ford have made investors uneasy, looks as if he will become more moderate now. And ACM, though his personal style can be combative, uses his political clout to bring business in.

Investors who turn and run because of polemics on the local political platform will miss good opportunities.

Second, reform in Brazil is slow because of the diverse interest groups, social and regional, competing for the attention and resources of the central government. In this patron-client relationship, the federal government is not in a position to tell the sub-national parties to get lost. It is caught in a bind between the forces of globalization that are pushing for open markets and balanced budgets and the heavy demands of individual states and municipalities.

Ignorance about Brazil is widespread. Everyone has heard of São Paulo and Rio de Janeiro, the two largest cities, and Brasília, the capital, which is the sixth largest. About Salvador, Belo Horizonte (the capital of Minas Gerais) and Fortaleza - the third, fourth and fifth cities, each with around 2 million people - little is known. In addition, there are four other cities with roughly 1.5 million people apiece - Curitiba, Recife, Porto Alegre (which was on the itinerary) and Belem - any of which could have justified Euromoney's interest.

Curitiba, for example, the state capital of Paraná, is often held up by government officials as Brazil's most modern city. Curitiba is Brazil's answer to Singapore but also attracts the same kind of descriptions as the Asian city state. "Curitiba is boring," says a Brazilian investment banker. Curitiba is without doubt a success story as is Fortaleza, the state capital of Ceará, in the north-east. Several analysts picked out Ceará as a suitable candidate for study since it is noted for having resolved the administrative and debt problems that are hindering other Brazilian states.

Brazil has 26 states, which last year had a combined deficit of R1.277 billion ($670 million) with the federal government. Ceará enjoys good relations with the federal government helped by the fact that its governor is Tasso Jereissati of the PSDB (Partido da Social Democracia Brasileira) the same party as reformist Brazilian president, Fernando Henrique Cardoso. Yet Paraná and Ceará are not as pivotal to the Brazilian economy or to an understanding of what drives Brazil as Rio Grande do Sul, Bahia and Minas Gerais.