RIO DE JANEIROWell get to the unalloyed optimism in a moment.

The ocean-grabbing vista from the corporate headquarters, featuring floor-to-ceiling windows overlooking Copacabana. The trim CEOs lifestyle of running the length of Ipanema beach, religiously, every evening, in the sand. The contrast between the Brazilian ethos and, shall we say, the rather dour demeanour of what we will sweepingly generalize as The North. But first, consider that Marcio Mello, Mr. Optimism, is wearing Crocs yes, the moulded, perforated, jellylike footwear with his navy blue pinstripe suit. They are ugly. His proper shoes are in his desk drawer. My pumps are encased in little white operating-theatre booties, a requirement of all visitors theres a machine right inside the front door of HRT Oil & Gas into which you place one foot, then the other, and voila, disposable booties envelop each shoe. The booties are ridiculous. To state it gently, this is odd. A more generous observation: the freedom of being ones own boss accommodates the fulfilled expression of such fetishes, including a distaste for what dirt will do to an offwhite corporate carpet, not to mention Mellos preference for prefacing an annual report with the unconventionally swooning statement: One look makes you discover love. Agreed, then, that Mello is a transformational and unconventional CEO, and as such serves as a convenient proxy for the new Brazil. Mere months before Goldman Sachs economist Jim ONeill caught the Brazilian wave in

2001 and prophesied that growth in the newly named BRIC (subsequently BRICS) countries could outpace the group of industrialized nations then known as the G7, Mello threw over his 26-year career at the state-owned oil company, Petrobras, and set out on his own. READ MORE: Our Emerging Markets series Lets stop there. Petrobras, Mellos ex-employer, is on a tear. The company aims to double its current oil production of 2.6 million barrels a day by the end of the decade. It has thumbed its nose at skeptics with its offshore deep drilling of the subsalt or pre-salt layer, 200 kilometres off Rios shores at an incomprehensible depth of more than 7,000 metres. (The Lula field an El Dorado at the bottom of the sea, as the company likes to say is named after the increasingly mythic former Brazilian president Luiz Incio Lula da Silva, now stricken with cancer.) Its only a slight exaggeration to state that new discoveries are announced almost daily, and the company has crowed that it hopes to overtake Exxon Mobil as the worlds largest oil and gas producer, by market capitalization, within a few short years. Exxons market cap is a mind-boggling $378 billion (U.S.). In other words, Petrobras is big. And the world is still not fully focused on the degree to which oil and gas is reshaping Brazil into an emerging superpower. Marcio Mello takes some credit for such success. Im the guy who helped to predict all this sub salt, and thats why people call me Mr. Go Deep! he exalts. Still, he pulled the plug on his career, a moment he poetically and mysteriously alludes to in the manner that evokes the inimitable Inigo Montoya in A Princess Bride: Never betray your feelings. If you betray your feelings,

you betray your soul. You are dead. Instead Mello, a petroleum geologist with a PhD in molecular geochemistry, launched a handful of companies before creating HRT. He took HRT public last autumn in an initial public offering that raised 2.5 billion reais (about $1.4 billion). The Ontario Teachers Pension Plan took a small stake in the HRT exploration story, which is chiefly focused on the hunt for oil and gas in two regions: the Solimes sedimentary basin in the Amazonian rainforest, and a vast holding of close to 100,000 square kilometres off the coast of Namibia, a geological match, Mello believes, with Petrobrass own deep-water successes off the Brazilian coast. In late October, HRT announced an agreement with a Brazilian subsidiary of Russias TNK-BP, through which TNK gained a 45-per-cent stake in Solimes in exchange for $1billion. It all sounds so upbeat. We are in a magic moment! Mello enthuses about the prospects for his country. The World Cup of soccer is on its way (2014). The Summer Olympics will overtake Rio in 2016, making Brazil the first South American country to host the Games. Now the worlds eighth-largest economy, Brazil is expected by some analysts to claim fifth spot by the time the Olympics arrive. And right out his window the peacock pageant that is Rio bathing attire is microscopic unfolds as if it were Mellos personal playground. To appropriate Mellos own outlook: whats not to love? Brazil, he continues enthusiastically, is unique. Why? Why? People. Second, natural resources. There is no other country on the planet with so many natural resources. Plus, its the largest agricultural land in the whole planet. (Brazil is an enormous beef producer, the largest poultry producer

in the world and claims second spot to the United States in soybean production.) We have 20 per cent of the fresh water. We are a young generation and our culture is different. We are an optimistic people. The Anglo-Saxonic culture, they have suffered so much, if you know what I mean. They are pessimists. We believe in the future and we live day by day. The others, they worry about the future and they dont live day by day, but if you live day by day with worries, its a nightmare. All good news for Marcio Mello and all good news for his country, yes? No. Shares in HRT are off by 70 per cent, give or take, a reality that brings Mello pause. He traces the fever line of HRTs stock performance and stops in the summer at the point coinciding with the Greek debt crisis. I was doing everything, he bleats. The company was wonderful. Jesus Christ, every day we give good news and the shares go down. A chestnut horse is being led across a bridge that crosses a stream of sewage, a canal of waste. The officer manning the police post on the perimeter of the City of God favela falls into conversation. Shakira came to visit recently, he says, adding the Latina pop singer was more accessible than U.S. President Barack Obama, who passed swiftly through the shanty on a tightly controlled tour last March. This is the other Rio, the city of slum housing thrown against hillsides to which more than a million residents cleave, pivotal examination points to any understanding of Brazils transformation of the past decade.

Last Sunday, 3,000 troops secured Rocinha, a notorious favela infected with drug dons and gun runners. By midafternoon, Robert Muggah, a Canadian fellow at the International Relations Institute at Rios Pontifical Catholic University, had hopped a cab to the foot of the favela to watch the hoisting of the national flag. Tapping on his BlackBerry, Muggah called the taking of Rocinha a major symbolic victory. I had met Muggah in October at a coffee shop in Cobal do Leblon, a bustling market that is to Rio what St. Lawrence Market is to Toronto. Muggah has been working in Rio on and off for 10 years. A decade ago, he says, people were leaving in droves because it was a death trap. . . . When I went to parties with friends people would be literally flinching when we passed windows. He elaborated: stray bullets, bala perdida. Friends exited for one reason and one reason alone: Security, security, security. In 2008, the government launched a major initiative, establishing so-called Police Pacification Units, or UPPs, within favelas, designed not only to secure the peace but, as Muggah says, bring governance to these areas. Thats lasting governance, along with the introduction, or the reintroduction, of absent public services. No more fly-in, fly-out storm-trooper tactics aimed at stamping out innerslum violence, as effective as stamping out one fire as the forest smoulders. Its part of the whole act of the state trying to initiate social contracts with areas outside the state, he says. The long-term objective is to formalize settlements, make them part of the city. Or, as they put it in Rio, to integrate the hills with the asphalt. Thus far, UPPs have been established in 19 favelas, and the pacification program has been a public relations win with a big push on to secure twice as many shanties by the time of the World Cup. It looks a lot like counter-insurgency, says Muggah of the program. Clear, shape, hold, build, like what we have in Afghanistan.

The short-term prognosis, in Muggahs assessment, is islands of safety. The long-term effects are unclear. There are as many as 1,000 favelas in the city. (Viva Rio, an NGO established in the city in 1993, puts the number at 600, but many are shanty clusters.) The UPP focus has been largely in the citys south, where most of the Olympic activities are scheduled. And as much as crime indexes have declined, there is a photo-op aspect to the exercise, especially in the run-up to the Olympics, with the country anxious to project an its-safe-to-come-here impression. I think this is a huge branding exercise, says Muggah, acknowledging the cynicism that comes with the statement. UPP has become a brand, a brand theyre selling at home and abroad. City of God, in this sense, has been branded. Famous as the backdrop for the 2002 movie of the same name, the favela has become a highly visible test case in the citys attempts to sell a new, improved image. In midday, Sueli leans into a door jamb, dressed in a loose muumuu, her cheeks caving as she takes a long draw on her cigarette, the accumulating ash defying gravity, the cigarette pincered by nails polished bright red. Sueli is 56. Her son died in September: drinking and drugs. Plastic dolls dressed in baby pink and baby blue sit on top of the television in the background, each doll encased in plastic packaging. Before the UPP settled in there were shootings every day, Sueli says. Life is better. More peaceful. Other residents similarly attest to a change in mood. Raimundo de Sousa, a chatty, 31-year-old fresh-faced barber, places a new Lord platinum blade into his razor. Electricity is, if not constant, at least semi-reliable, he says.

He has running water in his home. He was able to enrol his 7-year-old daughter, Kathleen, in a nearby school. Five years ago the scene was dramatically different. Guns were common on the streets. Not now, he says, in the midst of a precision haircut for which a Bay Streeter would pay 50 bucks. Raimundo charges nine reais, approximately $5. Is de Sousas story meaningful? As it happens, yes. Marcelo Crtes Neri is the chief economist for Fundao Getulio Vargas, a Rio-based educational centre renowned for its social sciences research. I think Brazil is very much at odds with the other BRICS, he says in an interview in his office. Most analysts look at GDP growth, which is not that interesting. Brazil is quite interesting in terms of social performance. In September of last year, FGV released a substantial 115page study titled The New Middle Class in Brazil: The Bright Side of the Poor. The baseline for middle-class income is exceedingly modest: 1,126 reais, or $650 monthly. What is significant, Neri points out, is the number of Brazilians who have been lifted out of poverty starting in 2003, the year Lula assumed the presidency. In the five years that followed, 20 million Brazilians emerged from poverty (in a country of 203 million). In the six-year period to 2009, 29 million people entered Class C, or the middle class. Its still a very bad picture, but not in terms of what it used to be, Neri says. To say the country has a lot of catching up to do is a seismic understatement. If Brazil continues on the same path toward reducing inequality, it will take two decades to reach U.S. levels. And you know, Neri adds, the U.S. is not a very egalitarian society. There are other micro social indicators that, while still grim,

are showing marked advances. The quality-of-education picture remains bleak, yet Neri notes that while 16 per cent of children between 7 and 14 were out of school 20 years ago, that number has been reduced to less than 2 per cent. The incomes of the 30 per cent poorest should grow at 5.5 per cent a year just because of this education transformation. You may say, whats the big deal? The place of children is in school, so Brazil is just becoming a normal country. But this transition from an abnormal to normal country is a revolution in itself. The revolution is credited to Lula and his predecessor, Fernando Henrique Cardoso. It was Lula, a factory worker with the common touch, who introduced Fome Zero, or the Zero Hunger program, followed by Bolsa-Famlia, welfare payments for the poorest of the poor. Neri likes to say that Brazil has chosen a middle path. I think Brazil has found a different way, Neri says. We respect market groups, but we have a very active social policy. Last summer, when the U.S. Council on Foreign Relations decreed that Brazil is on the short list of countries that will most shape the 21st century, it lauded the countrys approach to inclusive growth. Current President Dilma Rousseff recently announced a poverty-eradication initiative, with a deadline of 2014 to eliminate extreme poverty, defined as a monthly income of 70 reais ($45 U.S.) or less, a group currently comprised of 16.2 million Brazilians. Marcio Mello is standing before a small gathering of investors from DnB NOR, Norways largest financial institution, a company that must have considerable allure, given its commercials currently feature George Clooney. Mello is doing the big sell on the exploration excitement in

the Amazon and Namibia. Okay guys, welcome to Brazil! The sheer size of operations. Imagine! Can you guys, like, mentalize that? Sadly, the cool Norwegians do not appear to love him. At least not outwardly. Theres a smattering of questions, but nothing to suggest that Mellos stock The company is really cheap today, he points out eagerly holds much appeal. On the ride back to the office, during which Mello grows impatient with his driver, he regains his optimistic footing. We are growing at the pace of five or six Norways in two years! he trumpets, with Brazilians moving from Class C to B and B to A. Thats a huge social transformation! Not everyone is going to get it, at least not yet. The Norwegians? Norwegians are crazy people. They are so cold. Theyre cold and emotionless. Brazil, he says, Brazil is the land of the possible.