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Brazil: The Sleeping Giant Awakens?
marsopa
>《巴西》
2009.01.15
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Peter Kingstone |
12 Jan 2009
In recent years, Brazil has generated a level of international interest and excitement that was wholly unexpected and unpredictable as little as 10 years ago. As one of the so-called BRIC countries -- the emerging powers of Brazil, Russia, India and China -- Brazil has been drawing increasing attention on a variety of fronts.
Brazil's economy has been growing steadily and solidly since roughly 2002, with low inflation, expanding trade, and gradually declining public debt. As a consequence, the country has been an inviting location for both foreign direct and portfolio investment.
Internationally, Brazil has been in the forefront in South America as well as a leader among developing nations. In addition, Brazil arguably has become the most important interlocutor in Latin America for the United States, in particular as a balance to Hugo Chávez's oil-financed efforts to build an anti-U.S. coalition. At the head of this array of successes is President Luiz Inácio Lula da Silva -- the Teflon-coated, storybook icon of the workingman who rose from poverty to become the leader of the region's largest, richest nation. President Lula is possibly the only world leader who is equally at home and welcome at the World Economic Forum in Davos, Switzerland, and the World Social Forum.
The enthusiasm about Brazil as an emerging power can sound somewhat hyperbolic at times, and the country's potential arguably is at least a little exaggerated. In fact, this is not the first time that observers (and Brazilians alike) have believed that the country was finally emerging as a global force. As early as 1800, observers were already noting that Brazil's economic power and potential grossly exceeded that of Portugal, its colonial ruler. During the "miracle" years from 1968-1974, Brazil was the fastest growing country in the world. Yet, reality has always fallen short of expectations, often quite disappointingly so.
In short, the "sleeping giant" has been sleeping for a long time. The question, then, is whether this new period of enthusiasm is any different than those that have come before and, if so, why?
Brazil's Real Accomplishments
One reason to be more optimistic this time around is that the enthusiasm rests on some real accomplishments. For one, Brazil's economy is much stronger and better positioned globally than it has been at any other point in its history. Prior to the Great Depression, Brazil largely depended on commodity exports, notably coffee. After the 1930s, however, the country turned to import-substitution industrialization -- a growth strategy that produced the largest industrial economy in the developing world, but which created industries that could not and did not compete in the global economy. At the same time, agriculture declined in competitiveness.
Today, Brazil's economic performance rests on the base of a globalized, highly competitive agricultural sector that is a leading producer of soy, meat, and orange juice, among other commodities. Brazil is also a leader in important, emerging sectors like biofuels, while companies like Vale do Rio Doce, Embraer and Odebrecht are global leaders in mining, aeronautics, and construction. In addition, the recent discovery of enormous reserves of offshore oil -- possibly as much as 40 billion barrels -- promises to catapult Brazil into the ranks of major oil producers, in the same category with Venezuela or Nigeria. While the extraction of deepwater oil is expensive, Petrobrás -- the Brazilian state-owned oil company -- is a global leader in deep-water extraction and well-positioned to take advantage of the finds.
The growth potential of the economy has been complemented by generally good news on the financial front. For much of its modern history, Brazil has suffered from high inflation, debt, and deficits and has often faced tricky balance of payments situations. Even at the height of the "Brazilian miracle," inflation plagued the economy and of course the heavy external debt accumulated in the 1970s led to the crippling debt crisis of the 1980s. By contrast, inflation has largely been under control since the 1994 Real Plan and there is a strong consensus across the political system on the need to maintain price stability.
In fact, President Lula shifted sharply to the right during his electoral campaign in 2002, pledging to the Brazilian people that he would make stability his top priority. He maintained this commitment even at the cost of overt criticism and conflict with the left wing of his party. He was rewarded with low inflation and booming trade surpluses that allowed the country to retire all of its dollar-denominated debt and to reduce its overall public sector debt from more than 60 percent to roughly 40 percent of GDP. The success led to Brazilian paper being rated as investment grade for the first time in modern Brazilian history.
Brazil's accomplishments extend to the social and policy realm, where for the first time in decades the country has made tangible and impressive gains tackling perhaps its most intractable problem: poverty. Brazil has ranked among the most unequal societies in the world for much of the past century, with poverty in both the countryside and in the cities. Brazil's slums (
favelas
) account for roughly 30-40 percent of its urban population and are characterized by a host of ills, including non-existent property rights, poor enforcement of basic liberties, and inadequate access to sanitation, safe drinking water and medicine.
Over decades, poverty and inequality have persisted, often without any real policy response from successive governments. In recent years, however, Brazil has unveiled a series of innovative programs designed to combat poverty and improve critical social policy in areas like education and health. The best-known of these initiatives, the
bolsa família
(family stipend), is a conditional-cash-transfer program that pays a monthly stipend to the poorest families in the country on condition that school-age children remain enrolled in school and maintain adequate attendance. The program began at the local level under the Workers' Party (PT), but its success and popularity quickly led the government of Fernando Henrique Cardoso (Brazilian Social Democratic Party, 1994-2002) to federalize the program. Under Lula, it has expanded significantly and now reaches the 11 million poorest families in the country -- some 55 million people. As a consequence, millions of Brazilians have been lifted out of poverty and extreme poverty, enrollments in primary schools have swelled, and the country's GINI coefficient of inequality has fallen from .60 to .57.
Brazil's solid economic growth has also been important for reducing poverty and inequality, as 20 million Brazilians have moved into the middle class and 97 percent of Brazilians with labor contracts have enjoyed real wage increases since 2002. Along with steady increases in the minimum wage, the country witnessed some of its highest rates of social mobility since the miracle years of the 1970s.
Next page: Confident Brazil . . .
Confident Brazil
All this economic and social policy success has given Brazilian leaders a newfound confidence in their international dealings. Beginning with President Cardoso and continuing under President Lula, Brazil has emerged as a key player in the developing world generally, and Latin America specifically. Brazil has long had aspirations of assuming a more visible and important role in global affairs -- a natural extension of its status as a continent sized country. That has translated into efforts to use "soft" power to run an independent foreign policy. (Brazil generally has resisted developing its military power as a foreign policy tool). For the most part, this had little real consequence during the Cold War, but in recent years the country has led an invigorated effort to shape international institutions, to develop new relationships -- especially with China and in Africa and the Middle East -- and to forge a unified South American bloc behind a common diplomatic and trade agenda.
Under Cardoso, the Brazilian foreign policy agenda focused primarily on trade, as the country led regional resistance to expansion of the Free Trade Area of the Americas (FTAA). Brazil represented the key skeptical voice on U.S. trade interests in the region. At the same time, Brazil looked to deepen the Southern Cone trade integration treaty, Mercosul (Argentina, Brazil, Paraguay, and Uruguay) from a free trade agreement to a customs union and finally to a full-fledged common market with common political, diplomatic and defense positions.
The propitious economic conditions under Lula have facilitated both a deepening and expanding of Brazil's foreign policy agenda. While Lula has continued Brazil's role as FTAA skeptic (or at least critic of an FTAA created on U.S. terms), he has also pushed the regional integration process further than Cardoso. Most notably, Brazil played a leading role in the creation in 2008 of Unasul, the Union of South American Nations.
Unasul
is modeled after the European Union and the goal is to forge a true union that includes the creation of a single common market with a single currency and passport, the free movement of people, a common defense, and integrated energy, infrastructure and economic development cooperation.
Under Lula, Brazil also played a key role in bringing together the G-20, the bloc of developing countries that defended common positions in the Doha round of WTO trade negotiations -- most importantly against agriculture protectionism in the EU and the U.S. Finally, Lula articulated a strong critique of the decision-making structure of international institutions as part of his efforts to forge South-South alliances. This concern about the exclusion of developing countries framed an intense campaign for Brazil's inclusion as a permanent member of an enlarged United Nations Security Council.
In all these efforts, Brazil has presented itself as a model for developing countries, drawing on both its approach to economic development (a sort of pragmatic neoliberalism), as well as its innovative and widely admired approach to combating poverty through conditional cash transfer programs. This model stands in stark contrast to Hugo Chávez's Venezuela, Brazil's principal rival for regional leadership. While Chavez has used his ample oil revenues to support anti-American governments in Ecuador and Bolivia (and to try to influence campaigns elsewhere), Brazil's position is much more moderate and connected to its domestic politics, where radical, anti-U.S. positions don't hold sway. Brazil's model is one of support for global integration and open markets, but on terms that respect developing countries' differing needs: protecting and promoting domestic industries, combating poverty, and allowing genuinely unfettered access to developed countries' markets. While Brazil's stance can and has created conflicts and disagreements with the United States, it is also much more amenable to cooperation than Venezueal under Chávez. That moderation offers real opportunities for the Obama administration to work with Brazil in the region -- provided that Brazil's confident stance continues.
How Real is Brazil's Achievement?
Brazil has had some notable successes in recent years in building a solid foundation for growing power, and it deservedly takes its place among the BRICs. Nevertheless, there are some reasons for wondering whether enthusiasm about Brazil's prospects is overstated. An important one is the global economic crisis, which spared Brazil initially but has now found its way to the country's shores. Brazil's vulnerability is particularly marked because its economic success in the Lula years has been predicated primarily (although not exclusively) on commodity exports to satisfy the voracious appetites of India and China, and on the expansion of consumer credit that drove a domestic consumption boom.
Neither of these looks likely to weather the current economic storm especially well. Already, Brazil's booming trade surplus has begun to decline quite sharply as the Indian and Chinese economies contract. In addition, consumer credit has begun drying up in Brazil. Expectations for continuing good times are high in Brazil, but the economy is unlikely to live up to them. That does not change the underlying competitiveness of key export-led sectors, and there is no reason to doubt their future potential. But the country's rapid declines in poverty and increases in wages, income, and consumption are not only unlikely to continue in the short term, but could be reversed.
Part of the problem is that Brazil's economic outlook has never been as rosy as some BRIC enthusiasts have suggested. From 2002-2008, Brazil's average growth rate of a little under 4 percent per year was very good relative to its own recent past, but was much less impressive compared to the regional average, and especially compared to regional leaders Argentina, Chile, Ecuador, Peru and Venezuela. Growth in GDP per capita was even less impressive compared to those neighboring countries.
Public and private sector investment as a percent of GDP (averaging less than 20 percent annually) changed little from the 1990s into the new millennium, which was in no small measure a reflection of the incompleteness of Brazil's economic reform project. Real interest rates have remained at high levels continuously since the 1994 Real Plan. While they have come down somewhat in recent years, at nearly 14 percent per year, they continue to discourage competitiveness.
Brazil's tax system is inefficient and onerous for manufacturing, and while tax reform has been a high priority for successive administrations, little progress has been made to date. Lula shows few signs that he is willing or able to tackle it during his dwindling time in office. Labor markets are also extremely inefficient and rigid, driving up the cost of labor for business (mostly through taxes and fees that do not end up in workers' pockets), while simultaneously depressing formal employment. As a result, the country's declared unemployment rate remains stuck above 10 percent, thought this is almost certainly a serious underestimate of the real level of unemployment and underemployment in the country.
Brazil's punishing real interest rates, in turn, are a reflection of its need to maintain confidence in its currency in the face of continuing debt and budget strains (in particular, the country's highly regressive and expensive pension system). Brazil has maintained, through both Cardoso and Lula, a commitment to preserving a primary budget surplus -- averaging close to 4 percent under Lula -- as an anchor for the currency. High real interest rates have encouraged capital inflows, disciplined government spending, and secured price stability. But they have weakened domestic investment and limit the country's capacity to use fiscal stimulus to weather the global crisis.
Even on the social policy front, the Brazilian story is not as good as much of the international excitement about its conditional cash transfer programs suggests. Bolsa Família's accomplishments are not trivial. The program roughly doubled household income for the nation's poorest, and the large increase in enrollment in primary school is wonderful news. But creating human capital requires more than that. Critics have argued that the Bolsa Família is a low-cost palliative that does not really give the poor the means to rise out of poverty. Furthermore, increased enrollment does not lead to better education if the level of investment in education remains anemic, is skewed to favor the wealthy, and prioritizes higher education over lower levels. Education and health spending have remained more or less flat -- at anemic levels -- through the Lula administration. Schools remain inadequate and underfunded, with insufficient materials and resources and under-trained, underpaid teachers. The average secondary school dropout rate remains about 50 percent and the country's illiteracy rate remains around 11 percent.
Despite the good news, the poor continue to suffer from what former Finance Minister Luiz Carlos Bresser Pereira called the "citizenship" problem -- that is they are voters, but lack meaningful enjoyment of many of the rights and protections of citizens. This is nowhere more apparent than in Brazil's dizzying rates of violent crime. Brazil accounts for 11 percent of the world's homicides, with the poor the greatest victims. The police, unfortunately, represent as much of a threat to the poor as the perpetrators of violence. In police protection, education, health, sanitation, and access to basic services, the poor in Brazil suffer from the country's lack of basic investment in creating social capital.
Brazilians often speak of the country as being divided into two Brazils: one Belgium and the other Bangladesh. Several years of growth and innovative social policy have ameliorated the conditions of those living in Bangladesh, but there is no reason to believe that the divide is disappearing any time soon.
Finally, it is worth remembering that this model of success was constructed on a base of deep corruption. The PT long stood as the party of transparency, participatory decision-making, social justice, and honest government. Certainly, Lula's foreign policy rhetoric reflects that. But the Lula administration has revealed itself to be business as usual in Brazil. Openness, inclusiveness, and transparency have been replaced by patronage and exclusionary, centralized decision-making. Honest government has given way to revelations about extensive corruption schemes dating back to well before Lula's 2002 presidential election. Discoveries about corruption starting in 2005 have revealed monthly payment schemes to members of Congress (the mensalão scandal), financed by illegal campaign contributions through offshore bank accounts.
Subsequent investigations also revealed a sordid scheme to rob the public purse through the sale of ambulances. Although the sanguesuga scandal, as it was known, was not a PT scheme to begin with, a PT effort to frame an opposition rival by linking him to the scandal was later revealed. Investigations also uncovered an extensive public contracting kickback scheme in states and cities governed by the PT prior to 2002. Lula was able to survive the scandals through his personal appeal as a man of the people, but virtually all his top advisers in the party were brought down by specific allegations of corruption. In sum, the gap between the promise of Brazil's social policy programs and the reality that underlies them has been considerable.
Next page: Foreign policy troubles . . .
Foreign Policy Troubles
Perhaps as a consequence, Brazil's foreign policy successes have been limited compared to the country's aspirations. Soft power may not be as effective when there is little real hard power to back it up, and when the rhetoric does not fully match the reality. Whatever the causes, Brazil's foreign policy agenda has been a lot of show, but not as much substance. On the global level, Brazil's push for a seat on the Security Council fell short, blocked in particular by China -- one of the country's Brazil has been trying to cultivate as a key ally in its South-South strategy. The G-20 were able to crack open the decision-making process in global trade negotiations, but were unable to maintain a common position as Brazil and India drifted apart. In any event, negotiations in 2008 broke down with no meaningful achievements, as neither the U.S. nor the EU eased their positions on agricultural policy.
At the regional level, neither Unasul nor Mercosul look promising. The founding Unasul nations have made steady progress since 2004, when the union was first proposed. The 2008 inauguration of the union occurred as planned, but has already run into difficulties as the member nations failed to agree on a first secretary-general. Mercosul has been particularly disappointing as a regional bloc. Although the pact has expanded to include associate members like Bolivia, Chile and Venezuela, the member nations have had little to no success at building a strong institutional foundation.
As a result, the expected deepening into a customs union and a true common market has fallen far short and conflicts over trade policies have weakened even the pact's common external tariffs. On a last note, Brazil's relations with Venezuela -- its chief rival -- have also proved complicated. Lula's approach to Chávez has been largely to treat him like a fellow leftist and an important ally in the attempt to carve out a common front against U.S. domination of the region. Lula rarely criticizes Chávez and has been careful to avoid direct confrontations. The two rivals, however, have real differences in ideas, tactics, and interests, particularly on issues of energy and Petrobrás' dealings in Bolivia.
The gulf between the two countries presents a considerable limit to the formation of an effective common front in the region. Lula has been astute in his dealings with Chávez -- direct confrontation probably offers little real benefit. But Brazil's shortfalls in its foreign policy aims, both regionally and globally, reveal the limits of soft power. Without the economic power to induce cooperation (something Chávez has enjoyed at least until recently), or the military power to coerce it, Brazil only has the power of persuasion. And that has not been enough to forge strong alliances, build lasting institutions, or cement common programs among Latin American and developing nations.
Implications for U.S. Policy
U.S.-Latin American relations have suffered from deep neglect over the past eight years, and therefore the Obama administration faces opportunities for reconstructing the relationship almost by default. Brazil could and should be the most valuable partner for the United States. Whatever weaknesses the country faces economically and politically, it remains a big country with a big economy. As long as the Brazilian economy remains stable and avoids a return to the chaos and volatility of the 1980s and 90s, then Brazil will continue to be a country to be reckoned with.
Lula's time in office is coming to a close and as yet there is no clear successor. Regardless, however, it is unlikely that Brazilian foreign policy will change much. Lula's foreign policy agenda differed from the past mostly in its ambitiousness. The country's foreign policy elite, housed in Itamaraty, the foreign affairs ministry, is highly professional and strongly nationalist, and helps to maintain a consistent and competent presence in foreign affairs.
Perhaps most importantly, Brazil continues to be the United States' best option to find a reasonable and serious interlocutor with, and a crucial balance to, Chávez. The key is a different approach to the region. Brazil's often thorny trade disputes with the U.S. rest on reasonable concerns. As a developing country, Brazil cannot and will not expose its manufacturing sector to uncontrolled competition, because its domestic producers face structural limits to competitiveness and a large percentage of the economy depends on its continued existence. At the same time, U.S. demands for openness on manufacturing are not matched by a similar flexibility on agricultural protectionism. As a result, U.S. positions are sometimes perceived as arrogant and unfair.
If the U.S. continues to approach Brazil in this manner, it is likely to continue to face Brazilian skepticism and resistance. However, on larger matters, the U.S. and Brazil have common interests. Expanded trade is one of them, since after decades of a closed economy Brazil has taken up the mantle of trade in earnest. Moreover, Brazilian skepticism of the United States does not even compare to Venezuelan or Bolivian hostility. Brazil's approach to Venezuela -- essentially to walk quietly and try to outmaneuver Chávez -- represents another possible line of common interest. Brazil and the U.S. also have the possibility of working together to promote support for democracy -- another common interest.
Brazil's model may face weaknesses. Its soft power, while sufficient to complicate the U.S. agenda or thwart its objectives, is not great enough to construct any real alternative to cooperation with the United States. But Brazil is not going away as a major player in the region. With some U.S. understanding and respect for Brazil's legitimate concerns, the door is open for an effective and cooperative relationship.
Peter Kingstone is an associate professor of political science at the University of Connecticut. He is the author of "Crafting Coalitions for Reform: Business Preferences, Political Institutions and Neoliberal Reform in Brazil"(Penn State, 1999) and co-editor with Timothy Power of "Democratic Brazil: Actors, Institutions and Processes" (Pittsburgh, 2000) and "Democratic
Brazil Revisited" (Pittsburgh, 2008). His articles on the politics of Latin American economic reform have appeared in Comparative Politics, Comparative Political Studies, Latin American Politics and Society, and Political Research Quarterly. He is currently working on the comparative politics of privatization and pension reform in Latin America, and a study of Latin American political institutions and neoliberal economic reform.
Photo: President Lula de Silva of Brazil talks to young Mozambicans, November 2003 (
Agência Brasil photo
by Ricardo Stuckert licensed under the
Creative Commons License Attribution 2.5 Brazil
).
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