A surge of confidence can be felt in São Paulo and its business community these days, and it inspires the international lawyer to adopt a similar level of confidence about Brazil. You meet international and local bankers everywhere, and businessmen with renewed confidence suggesting they are beginning to fulfil their potential for a leading role in Latin America and eventually a greater role on the world stage.

Five years ago, who would have bet on Brazil becoming the economic engine of Latin America and an increasing political force in the region? The country always had potential, but it had difficulty realising it in the face of its continued internal focus. Indeed, the more internationally-oriented Mexico and Argentina seemed better positioned to deal with the effects of globalisation. But Mexico’s peso crisis severely affected its external credibility, and Argentina was hit not only by the Mexican crisis but the Russian and Asian crises and Brazilian currency devaluation.

Meanwhile, Brazil was getting its economic act together with the taming of inflation and a more stable new currency. It continued to attract growing levels of foreign investment. Despite 1999’s badly-handled currency devaluation, the economy survived well, and new and continuing investment streams from abroad continue. Foreign direct investment has reached $15-20bn (£10-14bn) a year and Moody’s recently upgraded the country’s rating, although it is not yet investment grade.

A number of concerns remain, however, and these will need to be dealt with, perhaps at a somewhat more aggressive pace than the administration of President Cardoso has yet been able to achieve.

There is the macro-economic effect of continued state paternalism. The government still employs far more people than it can afford not only on a current basis but also in terms of accrued benefits such as pensions.

Hand in hand with this goes the slow pace of liberalising markets and labour. Many companies have been privatised, most notably Telebras, the national telephone company, but there is still work to be done in major industry segments such as oil and gas, and electricity. There is also the high indirect cost and lack of mobility of labour, which deter young companies from taking on employees and deter established companies from improving their efficiency.

Corruption through all levels of government is a continuing problem. There must be enforcement of legislation to prohibit this conduct, but we are beginning to see action towards making this happen. And then there is the legal framework. There is a highly burdensome cost of compliance with what are sometimes over-complex, frequently changing, and arcane laws and regulations. Legislation for specific legal development is slow to be passed.

These considerations may sound gloomy but they should not diminish just how far Brazil has come in the past five years. There is a general sense of conviction on the streets of S„o Paulo that business is getting better and that the reforms to accompany it are necessary and happening. Coupled with this is the sense that the Brazilians are recognising that they are increasingly in a position to fix what needs fixing.

Demand for sophisticated legal services in Brazil is increasing and some of the larger Brazilian firms have recognised the importance of international networks and have established links with firms in other Latin American countries and the Iberian Peninsula. The accounting firms have also been active in acquiring Brazilian law capacity. Within the next few years, expect to see alliances and mergers between the top Brazilian firms and some international firms or networks.

Caird Forbes-Cockell is managing partner of Linklaters & Alliance’s Americas offices in S„o Paulo, Washington and New York.