(FORTUNE Magazine) – THE WORLD is getting a good shot of economic competition from Brazil -- and everyone should welcome the development. Like several of its South American neighbors, it is in the delicate early stages of restored democracy. If its economy tumbles, and democratic government with it, the resulting instability in the hemisphere would make today's worries over trade imbalances seem trivial. In contrast, a prosperous Brazil could be the locomotive that pulls other Latin American democracies out of stagnation. For Brazil, 1986 is shaping up as a wonderful year, and a critical one. The economy is one of the fastest growing in the world, as it was last year, and will again pull in one of the world's biggest trade surpluses. Brazilian manufactured products and mineral and agricultural resources have pushed their way into global markets. Lower interest rates have cut the cost of the country's enormous debt, and lower oil prices have reduced spending on fuel imports. The government's Cruzado Plan, named for the new currency that replaced the old cruzeiro last February, froze prices and put an instant stop to hyperinflation, which had reached 500% a year. Consumers responded with a burst of spending, and the whole thrust of the economy suddenly changed from speculation to production. Factories that ran at half capacity in the severe recession of the early 1980s cannot keep up with demand today. Yet all this cheerful news has so far not answered a question that is crucial in Brazil's future: Will Brazilians and foreigners start investing again? For the sake of stability they had better, for many of the good things happening these days are sheer luck. When interest rates, oil prices, and the U.S. appetite for imports were less favorable, as they were in the early 1980s, Brazil was a sick country. It could easily become one again. The government does not control the economy as much as it would have the world think. The Cruzado Plan shows signs of cracking under the forces of shortages and a growing black market. Brazil's economic health is especially important now because it will in large part determine the country's political future. Like the other five South American republics that have returned to democracy since 1979 (see box), Brazil must try to create enough prosperity to sustain a democratic government. The issue reaches far beyond its borders and particularly to the U.S., which buys more than a quarter of Brazil's expanding exports. These are essential to the country's growth and to its ability to repay its $100 billion in foreign debt. The U.S. also has $7.7 billion directly invested in the country. When President Jose Sarney meets with President Reagan on September 10, he will almost surely ask that U.S. markets be opened wider to Brazilian products while Brazil continues to protect some of its own markets. As Sarney told FORTUNE, the U.S. must understand his country's needs because ''an unstable Brazil means an unstable South America, and an unstable South America is, really, a serious problem for the whole world.'' After 21 years of military rule, Brazil returned to democracy last year with the installation of Sarney, a president-by-chance like Harry Truman. He took the place of President-elect Tancredo Neves, who died before he could be sworn in. Considered a mediocrity at first, Sarney achieved enormous popularity with his inflation controls. Now the government is trying to move its economic policy into a second phase. It will use taxes or ''compulsory loans'' -- in essence taxes that the government promises to repay -- to cool overheated consumer spending and collect new funds for investment. Without massive investments, Brazil cannot sustain its 7% growth. And without that growth, says Planning Minister Joao Sayad, the country cannot attend to ''the other Brazil, the marginal part, the landless rural worker, the jobless urban worker, the children without families.'' The other Brazil, whose wretchedness is barely touched by the successes of modern Brazil, contains the majority of the nation's 135 million people. Two-thirds of Brazilians eat less than the 2,400 daily calories considered a minimum diet by Brazilian experts, and health authorities report rising rates of infant mortality and such communicable diseases as malaria, tuberculosis, dengue fever, and polio. One-third of the workers earn less than the miserable minimum wage of $60 a month, while the richest 10% of the people enjoy nearly half the nation's income. Says Sayad, a balding, bearded economist with a Ph.D. from Yale: ''It's impossible to think of democracy in a country so sharply divided.'' How well the economy performs depends a lot on the mood of business executives. Interviews with several dozen leading Brazilian and foreign executives indicate much optimism but so far not much commitment of hard cash. Foreign lenders and investors, who poured billions into the country in the Seventies, have almost stopped sending fresh funds to Brazil. Domestic investors are hardly more enthusiastic. ''I don't see anyone investing in new capacity,'' says the Bank of New England's Richard Hayes, who has been observing the Brazilian economy from Sao Paulo for two decades. The present boom is based mainly on squeezing every possible bit of production out of existing equipment and maybe adding some machine tools, but rarely on big new investments. What Brazil does have is an entrepreneurial class with a flair and vigor unmatched in Latin America. Its enthusiastic risk-takers have built up booming new export businesses in goods ranging from shoes and orange juice to arms and aircraft, and they are ready to go again when they think the time is ripe. The ebullient spirit of the Brazilian entrepreneur is exemplifed by Roberto Civita, 50, who runs the family-owned Editora Abril, Brazil's biggest publishing and printing company. In the consumer buying spree that followed the combination of frozen prices and higher wages, Civita's magazines took off. Circulation rocketed 50% in three months, to a total of 15 million copies in June, but the government will not let him raise his advertising rates. Nevertheless, Civita says he is still making money, and he feels so optimistic about Brazil's future that, after stewing over what to do for several months, he has decided to ''bet the store'' and plunge into new investments -- buying new presses and a new plant, creating two new publishing companies, and starting other ventures he doesn't want to talk about yet. ''There's no way this country is not going to develop,'' he says. ''We're back on track, and if the economy grows by 5% or 6% a year we are going to double this business and every other business in Brazil in less than a decade.'' BRAZILIAN entrepreneurs have lived through so many ups and downs and so many different governments, each with a different way of meddling in business, that they have developed unusual agility. ''I think it is the Brazilian businessmen who keep this place going,'' says Richard Hayes of the Bank of New England. ''They have labor problems, supplier problems, taxes, shortages of foreign exchange, price controls, price freezes, limits on imports of needed equipment, more problems than the average American businessman would know how to deal with. But they survive and prosper.'' The agility of Brazilian businessmen served them well after February 28, when yet another swerve took them by surprise: the Cruzado Plan. Until then short-term deposits paid the enormous if illusory return of 15% or more a month, so businessmen and investors focused their energy on getting cash and putting it to work from day to day. At the beginning of March interest rates dropped to 6% a year, and productivity, profit margins, and planning suddenly became important again. ''With a good financial director you could make huge profits even if you were inefficient,'' says Arthur Joao Donato, a shipbuilder and machine tool maker who is president of the Federation of Industries of the state of Rio de Janeiro. ''It was all a fantasy. Now you have to be productive. I can pay attention to the real job. I'm an industrialist.'' Orders for his machine tools moved from a standstill to a backlog in a few months, and orders for ships are firm. But the plan caused trouble for other manufacturers. Explains Jochen Prange, the Austrian-born chief financial officer of Volkswagen do Brasil: ''We can sell all the cars we can make, but we lose money on every one we sell.'' The auto industry was about to raise prices when they were frozen by the Cruzado Plan, but the government has raised real wages 8% to 30%. ''It was an absolute disaster for us,'' says Prange. So why does Volkswagen continue to make cars? To hang on to its 27% share of the $5-billion Brazilian auto market. Until February Brazilian banks were geared entirely to inflation. Banks play a special role because Brazilians tend not to transact business by mail or computer, conducting it instead at the bank in person. So the banks are mobbed with clients or their office boys. The banks provided all the free services they could, opened branches everywhere, and used the float from depositors to earn that big 15% monthly return. When the Cruzado Plan cut interest rates, the banks instantly lost a huge portion of their revenues but were stuck with the high costs they had built into their operations. Marcilio Marques Moreira, a director of Unibanco, one of the country's five largest banks, explains that once Unibanco figured out how it should react, it fired 12,000 of its 42,000 employees and closed 200 of 700 branches. In Brazil's banking system about 80,000 out of 750,000 workers lost their jobs. Yet because of the explosion in consumer spending, most of the dismissed bank employees found jobs quickly in retail businesses. To make up for lost income, the banks got government permission to charge businesses for the services that had been free. First-half results indicate they will earn meager profits this year. Brazil's promise and problems combine in Sao Paulo, an urban monster of 15 million where the wealthy and the wretched live utterly different lives in uncomfortable proximity. The nondescript skyscrapers that march across its hills mark the city as a business capital. While executives work long hours in their offices, the downtown streets swarm with office boys hurrying on myriad missions, along with loafers, hawkers, the unemployed, and the homeless. Country people pour into Sao Paulo, escaping landless poverty only to find themselves living in favelas, those collections of scrapwood and metal fashioned into huts that grow on any bit of unoccupied land the immigrants can grab. One of the favelas, called Satellite Garden, has grown from 425 to 1,000 huts in two years, all closely packed on garbage-strewn alleys. New shacks get slapped together overnight.

Although the government will not recognize the legality of the favela, it has run water and electricity to some of the huts nearest the streets. None have sewers. Sister Angela Mary, an American Holy Cross nun who works in the favela, says that even if a father can earn the minimum pay of $60 a month at an unskilled laborer's job and the mother brings in half that as a housemaid, their children will always be hungry. A visitor staying at the Maksoud Plaza Hotel with its 22-story atrium and its panels of bedside electronic controls cannot move far without being reminded of the other Sao Paulo. The apartment buildings near the hotel in the new business area around the Avenida Paulista are walled or fenced and can be entered only after a guard in a pillbox presses a buzzer. The city's madcap traffic is infuriatingly congested and, since Brazil will not require emission controls until 1988, irritating to eyes and nose. But the auto pollution is a gentle whiff beside the stench of the Tiete River, a broad stream that carries an overburden of raw sewage and industrial waste through the northern part of the city. FOR ALL ITS OPEN SORES, Sao Paulo is the heart of entrepreneurial Brazil, a center for business brains, technology, hard work, imagination, and capital. It produces people like Jose Luiz Whitaker Ribeiro, a disarming arms manufacturer, 57 years old and 6 feet 3 1/2 inches of patrician charm. Whitaker established his company, Engesa, in 1966, converting GM and Mercedes trucks to four-wheel drive. He expects sales to reach $600 million this year, two-thirds in foreign arms exports, and to cross the $1-billion line next year. Since he is primarily an exporter, he is happily free of the Cruzado Plan's price controls, but development and expansion costs will slice this year's profits. Whitaker's biggest talent is reaching markets, mainly in undeveloped countries, that are not well served by others and providing them with cheap, easily serviced equipment. Whitaker says his 41-ton Osorio tank costs $3 million, compared with $4.6 million for the U.S. equivalent, the M-1. Moreover, he adds, while the U.S. needed a decade to develop the M-1, the Osorio went from paper to prototype in 11 months. Whitaker sells tanks, armored cars, trucks, missiles, and munitions to Iraq and other Middle Eastern countries, to Africa, and to the Brazilian armed . forces. He also makes oil-pumping equipment, truck frames, streetcars, and tractors. He involves his family in the company. His daughter, an architect, designed the new headquarters and research center. His wife did the landscaping. When his son was a little boy, Whitaker let him test-drive new vehicles, on the theory that if a 10-year-old couldn't ruin them, neither could an army recruit in an undeveloped country who had never driven a car. JUST WHY Brazil should have a spirit lacking in the rest of Latin America is hard to explain. Eliezer Batista da Silva, 62, until recently president of Cia. Vale do Rio Doce, a huge and profitable state-owned mineral enterprise, says, ''It is clear that Brazilian society is very dynamic, different from the rest of Latin America. The others are baroque, still living in the Spain of grand speeches and bullshitology. Brazil is more scientific and technology- oriented, more American than it would like to admit. We like to take risks and do things.'' The entrepreneurial spirit has even penetrated a few of Brazil's vast state enterprises to create first-rate, profitable organizations, although many state companies are giant money losers. Vale do Rio Doce has become a world volume leader and price setter in iron ore with its $3-billion investment in Carajas, a mountain range of 66% pure ore that can be shoveled out of the ground like strip-mined coal for centuries to come. This year Carajas will ship 15 million tons of ore and in 1988 expects to reach its goal of 35 million. Carajas is the centerpiece in a complex of mineral and agricultural development, public and private, in northern Brazil, including a 553-mile railroad from Carajas to a newly developed port near Sao Luis. Last year the company mined a spectacular profit of $578 million on sales of $1.8 billion. Ozires Silva, 55, who must be to the Brazilian bureaucracy what Hyman Rickover was to the U.S. Navy, is Brazil's top government entrepreneur. In 1969 Colonel Silva was ordered to quit the air force and establish an aircraft-manufacturing company known as Embraer. He quickly established the principles that he was the boss (by making sure he had four of the seven votes on the board) and that even if ''the bureaucracy never leaves us alone we won't do what is not convenient to us.'' He adds, ''We are run like a private company.'' Silva looked at the world market and decided Embraer should become the ''head of the rat rather than the tail of the lion,'' which means he picked niches where Brazil could compete. Embraer has sold 130 $18-million Bandeirante commuter planes to U.S. airlines, and Britain's Royal Air Force has chosen the $1.2-million Tucano as its basic trainer. Embraer will export about $400 million of aircraft this year. Silva moved on earlier this year to become head of Petrobras, the largest enterprise in Brazil and the 18th-largest manufacturing company in the world outside the U.S. As the state oil monopoly, Petrobras has reduced Brazil's dependence on fuel imports by developing Brazilian wells and selling alcohol as a heavily subsidized fuel, while at the same time earning profits of $1.8 billion last year. One of Silva's jobs will be to protect those profits from government budgeters looking for ways of cutting the deficit. Petrobras has 450,000 stockholders to share its earnings, but the government holds 86% of the voting stock. Even in agricultural commodities, entrepreneurs have recently pushed Brazil into important new markets. The rich red earth of the state of Sao Paulo (which if it were a country would have the second-biggest GNP in South America after Brazil itself) still produces a wealth of coffee and other agricultural products. Coffee remains the country's biggest export crop, with foreign sales estimated at $3.5 billion this year. In recent years Brazil has filled the gap left by frosts in Florida, and today half the orange juice Americans drink comes from Brazil. New orange groves in Sao Paulo state send their produce down to the port of Santos to be shipped north in juice tankers. Brazilian soybeans have also come from nowhere to second place in world trade, with exports estimated at $1.7 billion this year. Olacyr Francisco de Moraes, 55, has become a soybean millionaire. He went to work at 14, helping his father, a Singer sewing machine salesman in a small town in Sao Paulo state. At 19 he launched a freight business with some ancient trucks. Six years later, in 1957, with the fleet modernized, he branched into public works construction and in the 1960s diversified into finance and agriculture. From headquarters in a nondescript bank building in downtown Sao Paulo staffed with attractive secretaries in royal-blue pantsuits, de Moraes now runs the Itamarati Group, which had sales of $500 million last year. He began farming with cattle in the Mato Grosso and now has 70,000 head on 300,000 acres. When Brazilians started to use soybean oil in the early 1970s, de Moraes acquired 125,000 acres in Mato Grosso do Sul, near the Paraguayan border, which is planted mainly with soybeans. He is not committed, however, to the soybean. It has been a good crop, and soy is an excellent plant for conditioning newly cultivated soils. But the Itamarati farms, with their own trucks, planes, laboratories, and power plants, are ready to switch to any crop that de Moraes thinks looks more promising -- rice or sorghum, for instance. ''There are any number of possibilities,'' says de Moraes, who believes Brazil is ''an investor's paradise.'' He wishes more foreigners would realize this.

The benefits of Brazil's agricultural wealth reach only a few of the 38 million Brazilians who live on the land. A country larger than the 48 contiguous United States and abounding in rich, uncultivated soil, Brazil has more severe rural poverty than any place in the Western Hemisphere except Haiti. Especially in the vast, parched northeast, feudal patterns of landholding combine with lack of irrigation, official corruption, illiteracy, and disease. Land and agricultural reform are therefore among Brazil's hottest political problems. The World Bank has authorized $852 million in new loans for expanding irrigation, improving rural credit, and financing other agricultural projects. The government has an ambitious program for extending irrigation to millions of acres. But the most pressing problem is to get farmland into the hands of Brazil's ten million rural poor. TO HELP THE LANDLESS, the government is moving to break up a number of nonproducing latifundios, or large estates, some of which originated as royal land grants in colonial days. Working farms, however large, are not threatened, but absentee landlords who don't cultivate their estates may lose them. The government promises to settle 150,000 peasants this year on expropriated land. The Catholic clergy, which has taken up the cause of the peasant, claims the program is lagging. Says Dom Paulo Evaristo Arns, the cardinal archbishop of Sao Paulo: ''The government promised too much and gave only a little, practically nothing for the year and a half it has been in office now.'' Nevertheless, the reform is a reversal of the previous regime's policy. The 25- to 50-acre farms awarded to the peasants, while not big enough for profitable cash crops, may provide a subsistence, which is more than many of them have. In some areas, especially on the Amazon frontier, the peasants just move ! into unfarmed jungle. When a landlord finds settlers have occupied land he claims, he may hire gunmen to shoo them off or even kill them. The land wars have cost about 300 lives in the past year; among the victims were a priest and two nuns who had been working with the settlers. On a recent visit to Maraba, a center of conflict in the north, FORTUNE's Wilton Woods found some 60 men sheltering in a campground run by the government's land reform agency. They had been farming 20 miles outside Maraba for two years, producing rice, manioc, beans, and nuts on previously uncultivated land. That morning, without warning, armed men (some in police uniform) had forced them off at gunpoint and burned some of their houses. Land reform and all the other problems that face the country end up in Brasilia, which was planted in 1960 in the dry central highlands to replace Rio de Janeiro as the capital. Brasilia is a planner's dream, where you can have an address like ''Business District 107/108 South Wing'' or live in a so- called superblock where planners have placed all the amenities they think you'll need within walking distance. Hotels are confined to the hotel zones and embassies to the embassy zones. The result is an architect's rendition of 1984, barren ranks of identical government ministries symmetrically set in almost treeless expanses of dried-up grass and bare earth. President Jose Sarney, a stocky man with a bushy mustache and double-breasted suits that close high around the chest, looks like the provincial politician he was for many years. He has written enough creditable poetry to get elected to the Brazilian Academy of Letters. His administration drifted along until he electrified the country with the Cruzado Plan. In addition to freezing prices he canceled the price indexing system, created by an earlier crop of technocrats, that virtually guaranteed what came to be known as inertial inflation. He asked the nation's housewives to police store prices for him, which they did with enthusiasm. Roberto Maksoud, owner and manager of the Maksoud Plaza Hotel in Sao Paulo, still seethes at the memory of being arrested and fingerprinted because he sold a Coca-Cola for more than the controlled price of 14 cents -- before that price had been announced. ''We have put an end to inertial inflation and restored great confidence in productive activities,'' Sarney said during an interview in his office, seated below a portrait of Brazil's first Emperor, Dom Pedro I. ''We have stopped financial speculation and have won great popular support for these measures.'' The government did accomplish these things, but Sarney's plan has flaws. For example, cars are listed at official low prices, but unless a buyer hands the dealer an extra 10% to 40% he is likely to wait forever for the car. Clothes and household products disappear from the market and then reappear with a slight design change or new label and a higher price tag. So inflation has certainly not dropped to the officially proclaimed 1% a month. The cracks in the Cruzado Plan are inevitable, since the government, by raising wages while trying to freeze prices, unleashed a wave of buying power that would push up prices against any official restraints. Retail sales rose 24% in five months. THE INNOVATIVE technocrats who helped devise the Cruzado Plan, including two MIT graduates, Andre Lara Resende, 35, and Persio Arida, 34, both now of the Central Bank, reconvened in July to figure out how to curb buying power. Dilson Funaro, 53, is a Sao Paulo plastics manufacturer serving as finance minister with such integrity that Brazilians accustomed to nepotism and opportunism in high places find him almost saintly. He announced the unorthodox repairs in July. The ministry took an old and untried suggestion by Lord Keynes that World War II be financed by a ''compulsory loan'' on consumption. The technocrats slapped a 30% ''loan'' on new-car sales (on top of the 76% in taxes already paid, with slight variations from state to state), plus a 28% loan on gasoline and the alcohol fuel used by most Brazilian autos, and a 25% tax on tickets for foreign travel. The loans, which the government promises to repay in three years, will be used for public enterprises and projects. Sarney explains: ''In order for private investments to grow, it is obvious that we have to make government investments grow. We have to increase our energy 5% a year if we want to expand 5% a year; we have to expand steel; we have to expand transport. With the compulsory loans we hope to raise 100 billion cruzados ($7.2 billion) this year and 50 billion cruzados ($3.6 billion) in the two subsequent years.'' The remedy, however, is one of many signs that Sarney has yet to attack what many economists and businessmen consider the major cause of inflation and other ills -- the government's size. Brazil has a tradition of unusual perquisites, such as the ''happiness trains,'' special acts of Congress that provide friends and relatives of legislators with jobs that amount to tickets- for-life on the government gravy train. Even under the Sarney administration, a government salary does not necessarily impose any obligation to turn up at the office. The administration has talked about cutbacks, and Funaro avers that the budget deficit this year will amount to less than 1% of the GNP. But independent sources such as the Getulio Vargas Foundation, an economic research group, are looking for a deficit of 5% or more. The government has yet to publish a 1987 budget and is unlikely to make any basic reforms until after the national elections in November to elect a constitutional congress, which could reshape Brazil's government. Despite the successes of Petrobras and Vale do Rio Doce, public enterprises -- about 200 of them in all -- are among the Brazilian economy's greatest burdens. The profits of a few are offset by the losses of others, especially in railroads and steel. Subsidies to state-owned companies will amount to $1.3 billion this year, about 4% of their combined budget. The government talks of privatizing public companies and encouraging private enterprise, but little happens. Some public companies are selling nonvoting stock, which simply enlarges the public behemoths with private funds. Brazilians still seem to have faith in large public enterprises, and even businessmen are loath to dismantle the public sector since it holds an umbrella under which they can compete easily. Brazil has been so preoccupied with domestic economics that its $100-billion debt -- the largest in the Third World -- and other international problems have taken a back seat lately. On the strength of its booming economy and its fat trade surplus, the country has taken a cavalier attitude toward the outside world. It refused to accept the International Monetary Fund's supervision because, as Marcilio Marques Moreira of Unibanco wrote recently, IMF officials ''wandered around Brasilia -- even through the presidential palace -- as if they were overseers in a feudal or colonial era.'' Brazil bargained hard with a group of 750 foreign banks in renegotiating $31 billion of debt due in 1985 and 1986. Funaro announced recently that his country would spend no more than 2.5% of its GNP on servicing foreign debt next year and no more than 2% in 1988, which would cover about two-thirds of the $9 billion needed just to pay interest at current rates. His statement is probably an opening shot in negotiations for better repayment terms and not a guide to how Brazil will eventually act. SUCH DISDAIN of larger interests is just what Brazil cannot afford. Despite the verve and progress of its entrepreneurs, it is in the same bind as all countries struggling to rise from the Third World: It must somehow persuade the developed countries to welcome its exports and invest in its industry while simultaneously protecting nascent domestic businesses from the predations of foreign competitors. No developed country is more important to Brazil's future than the U.S., which buys 27% of Brazil's exports. Brazil desperately wants the U.S. to buy more and to invest more, but it cannot escape a fear of economic domination going back to 1700, when Queen Maria I of Portugal ordered textile factories in Brazil closed. So Brazil rebuffs foreign investors even as it courts them. A particularly controversial expression of that fear is the so-called informatics law, effective since 1979, which bans the importation of small computers or their manufacture by foreign-owned companies in Brazil. The country wants to develop its own high-tech industries. Scopus, one of the largest companies nurtured by that policy, was started by three engineering- school classmates in a garage, just like Apple and Hewlett-Packard. It will sell $80 million of video terminals and microcomputers this year, almost twice last year's sales. Without the informatics law, says President Edson Fregni, 39, Scopus would never have survived. He admits Brazilian computers are generally twice the price of imports but argues that Brazil will never develop competent engineers without such protection. Another electronics manufacturer, Thomas Michael Lanz, 38, makes the opposite argument. He says that with its limited research capabilities, Brazil will cut itself off from new technology unless it finds ''an intelligent way to cooperate with foreign capital and entrepreneurs.'' Lanz runs Maxitec SA, which produces numeric control systems under a Siemens license. This year's sales will hit $10 million. Fearing that Brazil may freeze U.S. companies out of other high-tech markets by creating more such so-called reserves, U.S. trade representatives have pressed the Sarney government to modify the informatics law. For public consumption, Brazil has replied huffily that the law is ''untouchable,'' but offstage discussions between the two governments have taken place. Yet while President Sarney says, ''We have no intention of making any new market reserves,'' other politicians are seeking protection for certain chemicals and pharmaceuticals. ''They say they want investments, but they won't get them if they go the way of the informatics law,'' concludes Dow Chemical's Cuban-born manager of industrial products in Brazil, Ernesto Ramon. For now, foreign companies are willing to reinvest Brazilian earnings but not bring in fresh capital. Dow, for example, plans to plow back $70 million in 1986 and 1987, a bit less than its likely Brazilian profits for those two years. General Motors is trying to finance about $500 million of capital spending over the next three to four years out of local earnings. It won't be easy. With prices frozen, GM has to sell Chevettes to dealers for about $2,000, compared with a minimum $5,500 in the U.S. G. Richard Wagoner Jr., GM's executive director for finance in Brazil, says GM's costs are lower there than anywhere else in the world, but while the company profits on exports, which have no price restrictions, it is not making money in the domestic market. President Sarney hopes ''that with the return of growth to Brazil, foreign investment will also return.'' So far, despite Sarney's achievements, wary foreign companies are holding back, and growth alone will probably not be enough to lure them in. Brazil, like its neighbors, still leans too heavily on big government to solve economic problems. Until the country sheds that attitude, placing more faith in the dynamism of its society and entrepreneurial sector, the capital Brazil needs to solidify its hopeful democracy will remain in short supply.