By turns charming and cagey, cool to America and close to Obama, Lula is building a unique regional giant

Brazilian President Luiz Inácio Lula da Silva is on a roll. In recent weeks he’s shared a dais with Gordon Brown and Nicolas Sarkozy, and drew effusive praise ("My man!”) from Barack Obama at the G20 summit in London.

He even had a photo op with Queen Elizabeth II. The former machine-tool worker, who spent decades picketing "savage capitalism,” is now the toast of bankers and boardrooms. "Don’t you think it’s chic that we are now lending the IMF money?” he joked at a press conference.

Not so long ago, such scenes would have been improbable. With Brazil’s tender democracy, clawing poverty and an accident-prone economy, the country’s leaders were more likely to be queuing for a bailout than standing toe-to-toe with rainmakers on the international stage.

After decades of false steps, Brazil has become a solid free-market democracy, a rare island of stability in a region of turmoil and governed by the rule of law instead of the whims of autocrats. Now Brazil is asserting itself as never before, but in a way that is markedly different from other big global players.

Over the past decade, Brazil has emerged as a unique regional powerhouse. Relying on the cover of America’s security umbrella, and a hemisphere with no credible enemies, Brazil has been free to leverage its vast economic size advantage within South America to befriend, sway or co-opt neighbors, while managing to contain its most troublesome regional rival, Venezuela.

Lula presides over a crafty superpower unlike any other emerging giant.

The Chinese police the Taiwan Strait, and Moscow never relinquished the Soviet sphere of influence in the Caucasus.

India’s security duties stretch from the Pakistani border to the Persian Gulf, and Washington casts a long shadow from pole to pole. Yet Brazil has asserted its international ambitions without rattling a saber.

When tempers flare between neighbors—as when Ecuador and Peru nearly went to war in the 1990s, and after Colombia bombed guerrilla camps in the Ecuadoran jungle last year—diplomats and lawyers are dispatched to the hot zones rather than flotillas or tanks.

And when U.N. peacekeepers clashed with street gangs in Haiti, the Brazilians called not for a troop surge, but for footballers Ronaldinho, Robinho and Ronaldo, who played a friendly in the war zone. Now Haitian youths do battle with cleats, not Kalashnikovs.

The Brazilians have also become a more assertive voice for the emerging markets in international affairs. They rallied the major developing nations to challenge the rich world’s agricultural subsidies, forming a group now known as the G5.

At Brasília’s prodding, the ambassadors of Brazil, China, India and Russia now meet monthly in Washington to coordinate a common BRIC policy strategy, often to counter U.S. positions. Pushing its "south-south” agenda, the Lula government has opened 35 embassies since taking office in 2003, most of them in Africa and the Caribbean.

Brazil also leads a widely acclaimed peacekeeping mission in Haiti, one of the hemisphere’s biggest basket cases.

Brazil can do all this in large part because it has no credible state enemies with which to contend, and is therefore unshackled from many of the responsibilities of power, like patrolling sea lanes.

Moreover, the United States has always been the peacemaker of last resort in the region, so while emerging nations in many global trouble zones must pump precious wealth into defense, Brazil’s military expenditures have remained stagnant at about 1.5 percent of GDP, a quarter of China’s defense spending and about 60 percent of India’s and Russia’s.

"Brazil doesn’t have the ambition to be a military power,” says Amaury de Souza, a Brazilian political analyst.

"What we have is economic strength, a history of defending our interests and a complex and compelling culture.”

For years, Brazilians have wanted a larger role in world affairs, and the world has refused. Despite its war efforts—Brazil was the only Latin country to send troops to Europe during World War II—it had no seat at the postwar negotiating table.

Brazil’s international standing finally won an upgrade in the mid-1990s, when the reform-minded administration of Fernando Henrique Cardoso stopped inflation, opened the country to trade and normalized tattered relations with the world financial community.

Cardoso parlayed the young democracy’s new bona fides into a more assertive role abroad. He argued for a seat on the U.N. Security Council, jump-started the Mercosur free-trade zone for South America and rallied the larger developing nations under the banner of free trade.

But no government has been as determined as Lula’s in extending Brazil’s international footprint. Though he began his political career on the left, Lula surprised foreign and national investors alike by preserving Cardoso’s market-friendly policies at home, much to the frustration of his militant Workers’ Party allies.

For the left, he offered a pumped-up foreign policy. "Lula put Cardoso’s foreign policy on steroids,” says Donna Hrinak, a former U.S. ambassador to a number of Latin countries.

Lula has doubled the number of departments in the Foreign Ministry and embarked on a breathless international itinerary, visiting 45 countries and spending nearly one of every five months in office abroad just since 2007.

"Aero-Lula,” the local press has dubbed him. The explicit purpose of all this diplomacy has been to boost relations with other developing countries.

But Lula’s increased visibility has also helped force the richest nations to lower trade barriers. In two major cases in 2004, the WTO ruled in favor of Brazil, ordering the U.S. to drop subsidies to cotton farmers, and told Europe to end its protection of the sugar-beet industry.

In keeping with Lula’s staunch support for free trade, Brazil also sided with the U.S. at the recent Doha trade talks over the developing world’s own protectionist barriers.

In a recent report warning of rising protectionism in developing nations, the World Bank praised Brazilians for resisting pressures to close down its own borders.

At least part of these efforts spring from Brazil’s undeclared strategy to blunt U.S. influence in the region and dispel expectations that it play a proxy role for Washington.

In fact, while U.S. officials wax diplomatic over their new "global partner,” Brasília has been mostly silent as Venezuelan strongman Hugo Chávez threatens foreign companies, intimidates the opposition and bullies its courts and Congress.

"No one can claim that democracy doesn’t exist in Venezuela” is Lula’s canned defense of companheiro Chávez. Citing the catchall rule of sovereignty, Brazil also roundly condemned Colombia, the U.S.’s closest ally in the region, for attacking a guerrilla encampment in the Ecuadoran jungle last year, and routinely abstains on U.N. resolutions condemning human-rights violations in Cuba.

But Lula has hardly thrown in with the Bolivarian revolution. Instead, he has controlled the region by co-opting his neighbors with trade, turning the whole continent into a captive market for Brazilian goods.

Ultimately, Brazil’s power derives not from guns but from its immense store of natural resources, including oil and gas, metals, soybeans and beef—and it has become a key supplier of markets in Asia and closer to home.

Brazil now enjoys a trade surplus with every country in the region, including a $1 billion surplus with Venezuela. "Turning natural resources into value-added goods has helped Brazil punch above its weight,” says David Rothkopf, a former U.S. Commerce Department official.

For instance, Lula has curbed two grandiose initiatives from Chávez’s playbook, a regional development bank (Banco del Sur) and a joint Brazilian-Venezuelan oil refinery, by quietly never getting around to allocating money to help.

He also chided Chávez for his lavish spending on modern weapons even though Venezuela’s economy is so weak it has become utterly dependent on Brazil for basic consumer goods. "Christ, what do you want these weapons for?” Lula reportedly berated Chávez in a recent visit.

"You can’t even get milk for your coffee in the hotels.” Brazil’s Congress will probably end up approving Venezuela’s entry into Mercosur in the coming weeks, not as an endorsement of Chávez’s imperial designs but as a way to contain him through the trading bloc’s treaty obligations, such as respect for democracy and property protection.

This might be risky politics. But the smart money is on the Brazilians. With no manual for becoming a global power, Lula’s Brazil seems to be writing one of its own.

Newsweek