U.S. President Barack Obama and Brazil's President Dilma Rousseff toast during lunch in Brasilia (Ho New/Courtesy Reuters).
Today the Council on Foreign Relations is releasing its independent Task Force report, “Global Brazil and U.S.-Brazil Relations”. I sat in as an observer for the Task Force, ably led by co-chairs Samuel W. Bodman — former Secretary of Energy under George W. Bush — and James D. Wolfensohn — chairman of Citigroup’s international advisory board and former president of the World Bank Group — and directed by my CFR colleague, Julia Sweig. The project’s 30 participants hail from diverse backgrounds, some old Brazil hands and others with functional and/or wide-ranging expertise. Needless to say, the four meetings that took place over the course of a year yielded a stimulating and fruitful dialogue. Although there were some differences of opinion among Task Force members (some of which are noted in the additional comments and dissents section of the report), everyone agreed to Brazil’s rising importance.
We addressed a wide range of issues, including Brazil’s economic health, its energy agenda, its role as a dominant regional power and its relationship with the U.S. government. The report’s core recommendations focus on deepening cooperation between Brazil and the United States so that both can more effectively advance their common interests (and better manage areas where we might come into conflict). In particular, the Task Force points to Chinese monetary policy, climate change mitigation, the expansion of the biofuels industry and regional counternarcotics policy as issue areas that provide opportunities for bilateral cooperation. It calls for Washington to better appreciate Brasilia’s increasing potential as a global strategic ally. As a sign of goodwill, the Task Force recommends a particular concrete step: fully endorsing Brazil as a permanent member of the United Nations Security Council.
The report’s most basic takeaway is that Brazil is the newest pillar in a multipolar world and must be treated as such. Slotted to become the world’s fifth largest economy within the next decade, it grew at a stunning pace of 7.5% in 2010 (whether this is sustainable remains a big question mark), and is expected to expand 4.5% this year. Unemployment and inequality — perennial concerns for the nation—have fallen. Still, Brazil’s economic outlook is not entirely rosy. In the short to medium term, rising exchange rates and inflation threaten Brazil’s growth. Decrepit infrastructure and an overwhelmed public education system threaten its longer term competitiveness. Whether Brazil can take on these myriad obstacles effectively remains to be seen.
Whatever its economic future may hold, the Task Force report is worth a full read, as it provides important insights and ideas on how both Brazil and the U.S. can manage the challenges that lie ahead, and the U.S.-Brazil relationship, for the better of both nations.
Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.
Venezuelan President Chavez looks on as his Brazilian counterpart Lula da Silva speaks during their meeting at Miraflores Palace in Caracas in July, 2010 (Jorge Silva/Courtesy Reuters).
Jorge Dominguez’s recent testimony before the Senate Subcommittee on Western Hemisphere gives an overview of Latin America’s progress toward democratic consolidation in recent history, and the role the international community has played in this slow, but steady, march.
Time and America’s Quarterly have two good pieces on Mexico’s state level elections last weekend. While both rightly focus on the PRI’s strength coming out of the election, it didn’t win everywhere. The party lost nine municipalities it previously held in the state of Hidalgo, due in large part to successful alliances between the PAN and PRD. Meanwhile, the PRD mayor of Mexico City urges that these ties must become stronger to give his party and its allies a fighting chance in the 2012 presidential elections.
A recent New York Times article looks at the current state of illegal immigration from Mexico to the U.S., highlighting how changing dynamics within both countries dissuade Mexicans from crossing the border illegally. This discussion addresses issues I raised in the past, namely changing demographics and new economic realities, including the rise of the middle class in Mexico and the region more broadly.
Lastly, for readers worried about Brazil’s overheating, this Economist graph won’t calm your fears.
Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.
A resident rides a tricycle past the head of a bullet train outside an exhibition for the Seventh World Congress on High Speed Rail in Beijing (Jason Lee/Courtesy Reuters).
China’s recurring 10 percent annual average growth rate has won it predominantly accolades (and not a little envy); making it the global economic powerhouse it is today. But as Brazil nears these numbers – growing 7.5 percent in 2010 — it is the naysayers and doubters that have come to the fore. Even the government has labored to reassure investors and the public that it is working hard to “slow down” growth: Finance Minister Guido Mantega assured last week that “[Brazil] will grow moderately” due to proactive measures to raise interests rates and cut public spending.
Why the stark contrast?
One reason is the source of economic growth. China’s has been primarily investment led. From 2000-2008 China invested an average of 41 percent of GDP, a ratio more than double that of Brazil (and other countries such as the United States). In 2009, in the depths of the worldwide global downturn, investment soared to almost 50 percent of GDP, much dedicated to infrastructure. Thousands of factories, millions of miles of road, new ports, high speed railway lines, and airports have sprung up over the past decade. The country is now populated by entirely new cities and manufacturing centers that then drive growth.
Brazil, by comparison, invests less than 19 percent of GDP a year. Infrastructure is notoriously bad – which some economists estimate will curtail future growth by nearly 1 percent a year. Instead, consumption fuels Brazil’s recent rise. In 2009 a whopping 84 percent of GDP was consumption – compared to 17 percent in the United States and just 13 percent in China. Brazil now ranks at the top of the list of the world’s best shoppers led by booming credit, the expansion of foreign and domestic retailers, and the now 100 million strong middle class. The current over reliance on consumption leads economists and policymakers alike to worry about overheating.
Furthermore, China’s transformative growth has been mostly self-funded. It leads the world in internal domestic savings, which has risen steadily since the turn of the 21st century and in 2007 topped 54 percent of GDP, dwarfing the 23 percent average rate of OECD countries. Brazil’s internal savings rate, meanwhile, is only 15 percent, making it more reliant on foreign investment (both long term FDI and more worryingly shorter term portfolio or “hot money” flows) to fund needed investment. Even with these inflows, the savings available don’t approximate those China wields, limiting the potential pace of growth.
But another real and important reason for the discrepancy is that Brazil is already a much more developed economy. Brazil’s per capita income is more than double China’s – $8,230 vs. $3,650 in 2009. Its mortality rates, education rates and urban development rates all top China’s. The basic health improvements, spread of education, and urbanization behind much of China’s growth occurred in Brazil from 1967-1979, when it too grew at rates of almost 9 percent a year.
This current growth differential between China and Brazil isn’t a permanent status quo. China’s per capita income has now already risen, and much of the “easy” productivity gains are behind it. Some China observers point to the growing speculative real estate bubble, the rapid aging of its population, and a less than open government as further obstacles to sustainable high growth. Brazil, in turn, has many advantages – a sizable and diversified economy, low government debt and healthy banks. But going forward, for Brazil to grow quickly (and sustainably) it must increase its productivity (and not rely on just high commodity prices and consumption). This will depend on more investment, better education, and other structural reforms. If these changes happen, then the skeptics should fade, and a true second “Brazilian miracle” will be possible.
Published in conjunction with Latin America’s Moment at the Council on Foreign Relations
Fans outside Johannesburg's Soccer City stadium before Mexico and Brazil World Cup game (Siphiwe Sibeko / Courtesy Reuters).
The conventional U.S. wisdom today is that Mexico is a problem, and Brazil is an opportunity. The reality is that while Mexico faces serious challenges, the United States shouldn’t count it out. And, while Brazil does present real promise, there are serious issues it has yet to take on.
Economically, these two countries are not as drastically different as current analyses suggest. Yes, Brazil has had six years of consistent high growth. In large part, these were the dividends from macroeconomic reforms begun in the mid-1990s under President Cardoso and reinforced and deepened by President Lula (in fact, the pick up in growth coincided with the start of Lula’s second term, when domestic money finally believed his centrist promises).
By comparison, Mexico embarked on a similar reform process ten years earlier and earned its macroeconomic dividend in the 1990s, when Brazil was still struggling to rein in hyperinflation. Looking at per capita growth rates over the last twenty years (not just the last 7 or 8), Mexico and Brazil actually look fairly similar (with annual average per capita growth of 2.25% and 2.5% respectively).
While both countries have now solidified a range of necessary macro reforms, they face somewhat similar long term challenges. Both desperately need to invest in infrastructure, in education, and to find ways to reduce stark inequalities. Both too are now thriving democracies – a plus on so many levels, but not for pushing through big comprehensive reforms.
There are of course big differences – but those don’t necessarily cut just in Brazil’s favor. Brazil is a bigger market, has ever increasing oil finds, and is a complement to China’s rise – all positive. But it is also a more bloated state, stands in a much worse place vis-à-vis inequality and infrastructure, and faces worrisome inflationary and exchange rate pressures that threaten to undermine its recent gains.
Mexico is already a more export and manufacturing-led economy. And while Obama (and others) made much of the potential of US-Brazil trade during his March visit, the reality is that the United States already depends on Mexico as its second largest export market – earning some $163 bn last year compared to $35 bn with Brazil.
Mexico is also a much more friendly business environment. According the World Bank’s Doing Business index, Mexico ranks 35th globally – and the highest in Latin America — while Brazil is a woeful 127th (out of a total of 183 countries). On the downside, Mexico lacks widespread credit (which is much more available in Brazil), suffers from too many monopolies and oligopolies, and so far competes with (rather than complements) China’s rise.
The upshot is that there is no clear “winner” in terms of future potential or peril. So what drives the misguided conventional wisdom? A recent paper by Roberto Newell, founder of the Mexican Institute for Competitiveness (IMCO), provides a partial answer. Analyzing the Mexico coverage in the New York Times and Wall Street Journal since the late 1980s, he shows the increasingly negative tone and focus of the main U.S. papers of record. While political and economic news dominated both papers in the 1990s (in large part due to NAFTA), in recent years crime and the border have taken over the new cycle. Economic and political news – much of it good – rarely merit a mention, much less a sustained focus.
Without doing a similar in depth study, anecdotal readings of Brazil in the U.S. media shows the reverse – an almost ebullient focus on economics and politics, with relatively few stories on crime (even though Brazil’s 25 per 100,000 inhabitants murder rate far exceeds Mexico’s 14).
This negative shift isn’t because that is the only news coming out of Mexico. Yes Mexico’s security situation is grave, but it isn’t Mexico’s only story. As the brief comparison above shows, there are many economic and political strengths (and weaknesses) in both countries. Newell lays out many more of Mexico’s advantages and advances vis-à-vis the much touted BRICs, which include Brazil.
This skewed coverage hits both countries – though Mexico the hardest. For Brazil, it encourages the “hot money” flowing in, further aggravating the underlying economic weaknesses. For Mexico, the resoundingly negative take may, somewhat paradoxically, make it harder to address the security challenge. To see through necessary changes, Mexicans need some sense of optimism and can-do spirit, as well as a sense of what can be lost – and that is so much of what Mexico has gained.
Brazil's President Luiz Inacio Lula da Silva holds up his oil-covered hands at the Cidade Angra dos Reis offshore platform (Ho New/Courtesy Reuters).
Each day it seems Brazil finds more and more oil in the Santos Basin. Its estimated reserves almost doubled this year, totaling over 30 billion barrels (some expect them to rise as high as 50 billion barrels). This launches Brazil’s reserves to 9th in the world, just behind Russia’s.
In the last months of the Lula administration, the government passed legislation that would make Petrobras, the state-controlled oil giant, the operator of these new finds. It grants Petrobras at least a 30% stake in all future joint ventures, with contracts to be awarded to companies offering the largest share of output to the government. These changes, and the increasing role of the state, have led many to question whether the newfound oil may prove a curse rather than a blessing.
Brazil has a better chance than most to achieve the vaunted Norwegian model of oil exploitation, and avoid the pitfalls of the Middle East (or closer to home in Venezuela). In large part this is due to timing. Countries such as Venezuela, Saudi Arabia, or Nigeria found oil at the start of their process of state formation. Oil let them avoid hard choices – in particular the need for a broad based economy to tax (as well as subsequent demands for representation). Brazil already has a vibrant and diversified economy, which won’t easily fade, even with the oil influx.
Second, Brazil has had significant experience in implementing national energy policies. During the 1970s, Brazil faced a situation somewhat similar to that the United States faces today – overreliance on foreign oil during years of volatile pricing. In an effort to limit its dependence, Brazil’s military government boosted hydroelectric power, and created Pro-Alcool, the National Alcohol Program. It created a now world class ethanol industry by offering low-cost loans and credit guarantees, mandating percentages in gasoline, setting government purchase prices, and guaranteeing monopolistic distribution by the state-owned energy company, Petrobras. Forty years later, Brazil is second only to the United States in terms of ethanol production, which powers 20% of its transportation matrix. Now largely self-sufficient, its overall energy portfolio is one of the cleanest in the world. While the pre-salt finds will test this last achievement, Brazil’s history of energy management shows that it can conduct a successful long-term energy policy.
Third, the pre-salt oil is hard to get at. Buried almost four miles below the ocean surface and a mile-thick layer of salt (the reason for the name), it is relatively expensive to extract. Unlike Mexico’s Cantarell fields, which were discovered by a fisherman as the oil seeping to the surface tangled his nets, extraction will require significant technology, expertise, and management. The time and effort needed to extract may work in Brazil’s favor, boosting local human capital and technology companies rather than the reverse. It may also mean that revenues enter the domestic economy more slowly, limiting the inflationary effects on domestic prices and other areas of the economy (avoiding the so-called Dutch disease.). Brazil already faces inflationary pressure—from both industrial expansion and natural resources like timber, iron ore, and beef—but prudent use of oil revenue could help not hinder their already impressive long-term growth prospects.
Finally, and perhaps counterintuitively, Brazil’s vibrant (if messy) democracy may rescue it from a less attractive fate. Hardly immune from patronage, corruption, and the like, Brazil’s democratic politics provide a platform for a multitude of interests and a system of checks and balances between branches and levels of government. This true political back-and-forth and compromise has never fully operated in the Middle East (much to the region’s detriment), and arguably was never firmly established next door in Venezuela. This isn’t to suggest that everyone gets heard in Brazil or that special interests don’t have a louder say than others. But it does give a broader array of political and economic players a voice, something that doesn’t occur under non-democratic regimes.
Taken together this suggests that the pre-salt oil can be what the Brazilians dream about— a means to tackle the big issues of poverty and structural inequality by boosting the social safety net, improving education, investing in infrastructure, and continuing to build foreign reserves to protect against inflation. The technological investment could also spill over into the broader economy, attracting engineers, scientists, and oilfield specialists. There are some positive examples from emerging economies— most notably Chile. Under its democratic leadership, it has managed its copper reserves (making up sixteen percent of GDP and nearly half of all exports—more than enough to curse instead of bless the nation) quite admirably. Let’s hope that Brazil follows a similar path.
Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.
Executive Summary
The United States has always seen Brazil as a significant regional powerhouse, but its perceived importance has risen in the last decade. Due to Brazil’s economic strength, its hemispheric leadership, and its growing geostrategic role through multilateral international forums, it has become a vital player in both regional and global politics across numerous dimensions. While US recognition of Brazil’s political and economic emergence brought the question of how Washington should manage relations with Brasilia to the fore, the ability to translate this new awareness into concrete bilateral policies and partnerships remains difficult. Whether the US and Brazil will be willing and able to form a ‘special relationship’ remains unclear.
Introduction
In the last century, the US has viewed Brazil as an important nation on the world stage – based on the sheer size of its territory, economy, and population, as well as its shared Western values. At times, the US has pushed for a ‘special relationship’ with Brazil, recognizing its importance for hemispheric and global stability. During World War II, the US promised support for Brazil’s development agenda and, in exchange, Brazil became the only Latin American nation to send troops to Europe’s battlefields. Although the pledged alliance faded after the war, throughout the 1950s Brazil largely supported US Cold War policies, if at somewhat of a distance. This support continued under Brazil’s military government in the 1960s. During the 1970s the US – especially Henry Kissinger – tried to reaffirm the ‘special relationship’ between the two nations, envisioning greater consultation and cooperation on an array of issues. These efforts were scuttled by a Carter administration more concerned with Brazil’s equivocal position on human rights and nuclear nonproliferation. These differences led not to conflict, but to detachment between the two governments.
By the 1980s, relations tilted further toward tensions and away from commonalities. The US disapproved of Brazilian trade policies and of its hardline stance when negotiating with the International Monetary Fund (IMF) and other creditors in the wake of the debt crisis. As the largest of all Third World debtors, Brazil repeatedly refused to pay interest on its arrears, threatening the deals US banks were negotiating with other nations. Newly democratic Brazil and the United States were also at odds over US military involvement in Central America.
By the 1990s, the debt crisis was resolved, and Brazil again became a welcome partner for the United States in the evolving post-Cold War world. Even if few concrete actions were taken, Presidents Cardoso and Clinton agreed on many matters. Some progress was made in the realm of democracy. Both the US and Brazil supported the consolidation of democracy in the region and leaned on Paraguay to reverse the attempted coup by an army commander against the elected government in 1996. Later, Brazil would prove important in pushing through the Inter-American Democratic Charter of the Organization of American States (OAS), which binds all 34 active member states to strengthen and uphold democratic institutions in the hemisphere.
Yet, as globalization became the driver behind much of US foreign policy, trade again became a sticking point between the two nations. In particular, Brazil’s reluctance to fully support the Free Trade Area of the Americas (FTAA) frustrated the Clinton administration and thwarted a closer relationship.
Generalizing five decades of foreign policy, the US rhetorically recognized Brazil’s importance, but concrete, practical initiatives or partnerships were few. This left little in the way of tangible policy outcomes between the US and Brazil. Instead, the two countries maintained a fairly warm, if distant, status quo, befitting Washington’s viewpoint that Brazil occupied an influential — but not central — role in the world pecking order.
A Turning Point in US-Brazil Relations
The urgency for bilateral relations began to change in the last decade. While blessed with natural resources, an almost 200 million-strong domestic market, and a well diversified economy (with robust agricultural, mining, manufacturing and service sectors), for decades Brazil suffered from high inflation, exchange rate instability, and low growth. This chronic economic instability meant that while viewed as geographically and geostrategically important, Brazil was seen by many in Washington, to quote General Charles de Gaulle, as ‘not a serious country’.
These reservations began to fade with the rise of Brazil’s economy. Anchored by the 1994 Plan Real, Brazil finally tamed its historically high inflation through solid macroeconomic and monetary policies and embarked on a process of privatization and other economic reforms. Put in place by President Fernando Henrique Cardoso, these initiatives were adopted and deepened by his leftist successor and current president Luiz Inácio ‘Lula’ da Silva.
By 2001, Brazil’s ascent was recognized by the financial markets. Banking giant Goldman Sachs named it one of the countries — alongside Russia, India and China (BRICs) – that could potentially eclipse the G8 in the coming decades. By the mid 2000s, Brazil’s macroeconomic instability seemed fully relegated to the past, and its economy boomed with higher commodity prices and the long awaited expansion of its own middle class.
At the same time, climbing worldwide energy prices and rising concerns over climate change brought Brazil’s biofuel successes and technology to Washington’s attention. Brazil’s biofuel industry dates back to the 1970s when the military government launched an ethanol program mandating a blend of sugar cane ethanol into transportation fuel with the hope of weaning the country off its dependence on imported fossil fuels. The program gained competitive traction by the late 1980s when more than a third of the country’s motor vehicle fleet was running on pure ethanol. In the 1990s the program experienced some growing pains as a 1993 federal law increased the mandate to a 25% ethanol blend, and demand outstripped local supply. The later technological breakthrough of flex-fuel vehicles restored widespread confidence (and investment) in ethanol, allowing motorists to switch to any blend of gasoline and ethanol at anytime.
By the turn of the 21st century, Brazil boasted the most efficient biofuel production in the world, with volumes rivaling those of the United States, and vast expanses of pasture land ready for planting more sugar cane. In February 2008, the market share of ethanol surpassed that of traditional gasoline at Brazilian pumps, proving the market viability of alternative fuels in one of the world’s largest economies. Add to this the recent discovery of significant oil fields off its coast and Brazil’s image as a global energy leader was secured.
Politically, the United States came to see Brazil’s well-grounded democracy and President Lula’s centrist even-handedness – particularly in comparison to some of its neighbors such as Venezuela – as important for US interests in the hemisphere. In addition, Presidents George W. Bush and Lula seemed to genuinely like each other, encouraging greater efforts to work together.
For Washington, Brazil’s rise came at a propitious time, one of changing policies and priorities. As the Bush administration took on two wars abroad, little bandwidth remained for policing its own hemisphere, despite what many saw as worrisome political shifts in the Andean region. The White House hoped that Brazil, as an important stakeholder and leader, would also take on the responsibility to push for stability and democracy in South America. During his visit in 2005, George W. Bush recognized Brazil as a ‘leader — …exercising its leadership across the globe’ and reassured Lula that as he ‘works for a better tomorrow, Brazil must know (it has) a strong partner in the United States’.
The US View Today
The events of the last few years and a change in the US administration make Brazil perhaps even more important than ever for US foreign policy. After the worldwide financial meltdown, the relative success of Brazil, China, and other developing economies has definitively shifted the multilateral center of global financial agreements from the G8 to the G20. This gives Brazil a permanent seat going forward in all major global macroeconomic discussions, where it has already become a vital voice in the North-South dialogue.
With climate change a priority for the Obama administration, Brazil’s perceived importance has grown, both on account of its leadership in alternative energy and its fight against deforestation. Brazil already boasts one of the most eco-friendly energy matrices in the world, with 46% of primary energy coming from renewable energies, far above the world average of 8%. In addition, as the majority owner of the planet’s largest rainforest, the Amazon, Brazil will play perhaps the central role in slowing worldwide deforestation, the leading cause of carbon emissions, ahead of the global transportation network.
While still not given as much airtime in Washington as many of its BRIC partners – China in particular – Brazil is seen as an emerging power that the United States can work with, be it on issues of global financial stability, climate change, reform of multilateral institutions (e.g.: the UN, G20, WTO, IMF) or regional security, stability and development.
Stumbling to Translate Interest into Policy
For all these reasons, many in Washington are calling yet again for a new special relationship with Brazil. While this is progress, significant limitations exist to translating growing US interest in Brazil as an emerging power into concrete policies.
On a practical level, the US-Latin America policy community has historically been biased toward Spanish-speaking Latin America. Few in Washington know Brazil well or speak Portuguese. The lack of a dedicated group of experts – both inside and outside of government – limits the constant pressure needed to keep Brazil firmly on the US foreign policy agenda. Adding to this, due to US domestic political battles it took nearly a year for President Obama to confirm his new Ambassador to Brazil. To date, this gap has severely hampered the administration’s ability to create a more dynamic engagement with Brazil.
Beyond these logistical challenges, it is still unclear how best to promote the two countries’ common interests. While they share many concerns in principle, priorities and policies are often not aligned, and at times even in conflict. In the realm of security, the United States prioritizes counterterrorism, which sits low on the list of Brazilian concerns. Regarding drug trafficking, US counter-narcotics assistance to the region often focuses on military responses, while Brazil has tended toward policing and law enforcement solutions. Add to this long-standing suspicion over US military involvement in the region, which recently resurfaced with the Colombian base agreement that granted the US military access to seven Colombian bases to combat drug trafficking and the guerrillas, or US concerns about Iranian President Mahmoud Ahmadinejad’s official visit to Brasilia in November 2009, and these differences may make it difficult to find a middle ground for deeper partnership around security issues in the hemisphere – while highlighting the need for Washington to more openly communicate with its regional partners.
The debate over free trade poses similar dilemmas. While both the US and Brazil rhetorically support the expansion of global free trade through the World Trade Organization’s Doha round and other mechanisms, their fundamental interests often diverge. Brazil wants the reduction and/or elimination of extensive US agricultural subsidies and protections, as well as tariffs on products such as ethanol. The vagaries of US domestic politics will make it difficult to deliver on these demands. The US, in turn, is suspicious of Brazilian protection of its industrial sector, and of what it sees as a weak intellectual property rights regime, and hopes Brazil is willing to change its position on services and market access.
Finally, assuming that Washington stays focused on developing and deepening its relationship with Brazil (a big assumption), it is unclear whether Brazil actually aspires to closer relations with the United States. It might benefit Brazil to keep the northern behemoth at arm’s length, particularly given the role the United States likely envisions for Brazil as an active regional ‘stakeholder’, shouldering greater responsibilities in the hemisphere and acting in US interests.
Conclusion
In recent years, the US view of Brazil has likely changed permanently, recognizing the nation’s importance for regional and world order. Brazil is finally seen by the United States as a genuine emerging power. The enhanced strategic dialogue and cooperative steps taken in recent years in light of this recognition has benefited both countries. Nevertheless, many areas of disengagement and even conflict remain. Whether the newly invoked ‘special relationship’ will be more multifaceted and long-lasting this time than on previous attempts remains to be seen.
Recommendations
• Brazil’s rise as an economic and global emerging power has finally been recognized by the US. To effectively leverage this interest, Washington needs to strengthen the policy community dedicated to Brazil – perhaps separately from Spanish-speaking Latin America, thus reflecting its emerging power status – in order to ensure more thorough and consistent attention to US-Brazil relations.
• Despite the potential, an ambitious ‘special relationship’ may be difficult to achieve. Too many differences in policies and priorities remain, particularly in the areas of security and trade. This is most evident in the context of regional leadership and a broader vision for the Americas.
• Bilateral relations should focus on a more permanent dialogue across multiple issue areas, thus converting growing areas of interest into concrete action and policy on a bilateral and multilateral level.
• The United States and Brazil should identify clear issues and strategies of mutual interest to start deepening the bilateral partnership and multilateral engagement. Energy and climate change, as well as global financial stability, are good starting points.
• The biofuel industry and associated technology development is an area of mutual interest that satisfies national and multilateral ambitions related to climate change. This is an obvious point of intersection between the US and Brazil where bilateral cooperation would have a global impact.
This piece was first published by the South African Institute of International Affairs and is available to download here
Energy is not just an important domestic policy issue in Brazil, but has also been a key element of its foreign policy. While Brazil has an admirable mix of energy sources – including hydroelectric, natural gas, oil, and ethanol – it has struggled and continues to struggle with potential energy shortages. These limits led to energy rationing in 2001, hitting the Cardoso government hard in the polls and providing Lula with an effective campaign issue in the 2002 Presidential race.
During the 1990s these energy needs spurred an active foreign policy promoting energy integration with South America. In particular, Petrobras invested heavily in Bolivia to increase its supply of natural gas. It also reached out to Argentina and others, increasing both commercial and political ties through energy interdependence.
Yet now in 2007, energy-based integration is dying. Despite rhetoric to the contrary by South American leaders, the time for deepening energy ties has passed. Argentina has shut out Chile in these last few months from its gas sources, encouraging the Chilean government to look abroad. Peru has decided that it will sell any surplus gas to Mexico and the United States, rather than its local neighbors. And for Brazil, recent events in Bolivia have pushed both Petrobras and the government away from diversifying regionally. Instead, the country has turned to developing its own natural gas supplies, as well as bringing in liquid natural gas – LNG – from sources other than Latin America.
This changing energy plan will likely significantly influence Brazil’s foreign policy. Brazil’s stated South-South diplomacy focus is faltering, due in no small part to the limitations in the area of energy security. These domestic economic realities are pushing the government to engage with a broader set of nations – including the United States and European nations. While currently led by Lula himself (and his March agreement with President Bush on ethanol), these economic needs will pressure the famously independent Foreign Ministry as well in the months to come. This trend bodes well for Brazil, which should be able to diversify its energy sources and provide for the future. It bodes poorly for Bolivia, as its largest energy investor and client turns outward. And it means that the studies for a regional gas pipeline spanning South America will remain just that, limiting yet again integration in the region.
Over the last eighteen months Presidential elections occurred in twelve Latin American countries. While Hugo Chavez and his anti-American tirades grab most of the headlines, these elections actually show the rise of a new Left in Latin America. In contrast to Chavez’s more socialist populism, these new leaders promise to balance market-friendly economics with broader social policies and protections.
These new governments have already shown their commitment to free markets. In less than a year, Chile’s President Michelle Bachelet has signed free trade agreements with China, New Zealand, and Singapore, and is negotiating new accords with both Japan and Australia. Alan Garcia of Peru appointed a well-known private banker as Finance minister and vocally supports free trade agreements with the United States, Canada, and many Asian countries. Brazil’s Luiz Ignacio Lula da Silva was re-elected based on his conservative first term economic policies. Tabare Vazquez of Uruguay also continued the orthodox economic choices of the previous government, attracting both Finnish and Spanish foreign investment for Uruguay’s cellulose industry.
Even the more rhetorically radical leaders are governing or likely to govern near a pragmatic center. During his first year in office, Bolivian President Evo Morales drew back from his more populist campaign appeals. He cancelled the nationalization of the mining industry, and is now negotiating gas contracts with foreign companies. While peppering campaign speeches with anti-American quips, Nicaragua’s Daniel Ortega left the Sandinista’s economic ideology behind. During his first weeks in office he has already started courting domestic and foreign investment, promising to uphold contracts and maintain open markets. Rafael Correa’s of Ecuador began moderating his promises in the final weeks of the presidential campaign, and even reached out to U.S. ambassador, Linda Jewel. In fact, only Venezuela’s Hugo Chavez, supported by oil revenues – represents a firm holdover from the political past.
Yet while rejecting old-style socialism, Latin American voters did turn left. The winning candidates all reached out to the large portions of the population that have not benefited from economic reforms. They promised to improve the social welfare of ordinary citizens. Now in office, they are pushing forward to create jobs, eliminate hunger, and provide better access to education, social security and health care.
This shift Left reflects the real needs of Latin America’s populations. While Latin America’s economies have grown in recent years, these benefits have not trickled down. Some 25% of the population still lives in poverty. The difference between the haves and have nots stubbornly remains one of the most pronounced in the world.
More positively, this political turn reflects the spread of democracy. As more open and inclusive governments take root, politicians are responding to voter demands. The winning electoral campaigns focused not just on overall economic growth but also on increasing economic opportunities, particularly for the poor.
These newly elected leaders now will try to soften the rough edges of globalization while continuing to compete in international markets. This is a difficult balancing act for any leader, and many will not meet the challenge. But as Leftists, they have an opportunity to build a social consensus behind the long-term investments necessary for real change in these countries. To that end, this new Left represents the best chance for strengthening the economies and the democracies of Latin America.
