Brazil's New Middle Class Goes on a Spree

Francisca de Carvalho lives in Rocinha, a shantytown that climbs a hillside just beyond the fancy Rio de Janeiro neighborhood of Leblon. Her fourth-floor apartment isn't what you'd expect in a favela: It's spic-and-span, with modern furnishings and a sweeping view. Carvalho, 54, recently spent about $400 to remodel her bathroom. She borrowed the money on her Banco Itaú credit card and pays 14 percent interest—per month. "I like nice things," she says.

More and more Brazilians are developing a taste for nice things and borrowing to pay for them. The world's seventh-largest economy expanded by 7.5 percent last year, and the Finance Ministry predicts growth of 4.5 percent this year, energized by demand for the goodies of the good life. Consumer debt is growing so fast that President Dilma Rousseff's government, in an attempt to deflate a possible credit bubble, has boosted the taxes that consumers pay on loans. The central bank has raised rates to discourage spending.