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BRAZIL
SOUTH AMERICA'S BIG BEAST

by

PETER CRISELL

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Brazil: South America's Big Beast
Brazil’s potential economic importance has long been apparent. It is the fifth largest country in the world in land area and has a population of nearly 200 million. Its economy is the seventh largest in the world. It extends over the eastern half of the South American continent. It stretches 4,000km (2,500 miles) from east to west and 4,300km (2,700 miles) from north to south. It is the fifth largest country in the world, both in territory and population. It is rich in natu­ral resources and navigable rivers. The 12 smaller nations that surround it are not, at least individually, a threat. Brazil has, therefore, lived peaceably with its South American neighbours for 143 years since it joined forces with Argentina and Uruguay in a war with Paraguay from 1864 to 1870. Since 1985, Brazil has become a stable democracy, the world’s fourth largest, with regular, fair and free elections based on universal suffrage.

Brazil is rich in natural resources including bauxite, gold, iron ore, manganese, nickel, phosphates, platinum, tin, rare earth elements, uranium, petroleum, hydropower and, thanks to the huge Amazon rainforest, timber. It is largely self-sufficient in energy and is about to become a major exporter of oil. It is also a world leader in alternative, renewable-energy technology and three quarters of the Amazon rainforest is in Brazil.

Brazil’s main language, Portuguese, ranks seventh in the world’s language league table and is spoken by more people than French, German or Italian. Brazil’s cultural contribution to the world is considerable - especially its music, art, architecture and cinema – and, of course, football.

Brazil’s rising economy
Brazil’s economic history has been marked by a series of booms and busts – in gold, sugar, coffee and rubber, for example. The end of World War 2 to the early 1960s saw a period of import substitution - both of essential goods, such as machinery and fuel - and consumer goods. The policy of import substitution was intended to replace dependency on foreign imports of goods with industrial products produced domestically. After years of stagnation, rapid industrial expansion and modernisation occurred between 1968 and 1973. The growth in exports of manufactured goods was accompanied by growing debt. The 1980s, the ‘lost decade’ as it has been called, was a time of stagnation, inflation and crisis caused by the rapid rise in the cost of imported oil and high world interest rates. Assorted stabilisation plans and attempts at fiscal reform were of limited success and by the end of the 1980s, there was enormous public debt, rising inflation and a stagnant economy.

Brazil suffered considerable political as well as economic instability throughout this post-war period. There were democratically elected governments from 1945 to 1964 but popular discontent caused by slow economic growth, rising inflation and strong nationalist sentiment led to a military coup in 1964. The military held on to power until 1985. Only a veneer of democracy was maintained. The elected Congress saw its powers reduced, presidential and gubernatorial elections became indirect and the multi-party system was replaced by a two-party system. The regime exercised its power brutally and repressively. During this period in its history, Brazilian society had become increasingly urbanised with 70% of its population living in cities. The economy had become more industrialized, with more manufactured goods than primary goods exported.

Following the end of military rule various unsuccessful attempts were made to control rampant inflation and to stabilise the economy. In 1994, Fernando Henrique Cardoso, the finance minister, put forward the financial programme known as the ‘Plano Real’ or real plan. The existing currency- the cruzeiro – was replaced by a new currency the ‘real’ (‘real’ in Portuguese means ‘royal’ as well as ‘real’). The real’s exchange rate was partially linked to the US dollar. The plan also proposed cuts in government spending. The plan was successful in that economic growth was not impaired. Cardoso’s resulting popularity impelled him to run successfully for president and during his first term from 1995 to 1999, there was strong economic growth and a dramatic lowering of inflation. Major fiscal and administrative reforms were instituted along with privatisation of some government-owned enterprises.

Luiz Inacio da Silva was elected president in 2002, at his fourth attempt. He was known as ‘Lula’ which is commonly a nickname for people called Luiz. His life is an extraordinary tale of ‘rags to riches’ or, in his case, ‘metal worker to President’. In 1980, Lula founded the Partido dos Trabalhadores or Workers’ Party - together with other union members, intellectuals, politicians and representatives of social movements, such as rural and religious leaders. In 1986 he was elected to the parliamentary assembly after the end of military rule. Upon his election he promised social change and the eradication of hunger. This was enough to scare potential investors in Brazil. The Brazilian currency weakened. However, after his election he successfully managed to balance the needs of his people with the needs of the international financial markets. He took a conservative fiscal path and warned that social reforms would take years. The real recovered dramatically. International investors had hitherto viewed leftist governments as exponents of costly social reform programmes that stoke inflation and increase public debt. There were concerns that Lula would be another version of South American leaders like Cuba’s Fidel Castro and Venezuela’s Hugo Chavez. Not for the first time they were wrong.

Lula gave priority to alleviating poverty by spending large sums on social programmes designed to reverse Brazil’s traditional economic inequalities. He raised the minimum wage from 200 to 240 reals a month and instituted a family grant programme. Also his "Zero Hunger" initiative was designed to give each Brazilian three meals a day. It has been estimated that 30 million people were taken out of poverty by these measures. According to the Brazilian Institute of Applied Economic Research (IPEA), some 22.6% of Brazilians were living below the poverty line in 2008, compared to 34% in 2002. (1)

Shortly before the end of Lula Da Silva’s second term, a study published by the Getulio Vargas Foundation, a Rio-based policy group, found that some 29 million Brazilians had entered what is termed the middle class between 2003 and 2009, with average monthly incomes between 1,126 reals and 4,854 reals ($658-$2839; £417-£1797). (2)

Dilma Rousseff is the middle class daughter of a Bulgarian immigrant. She became involved in left-wing politics and joined the underground resistance to the military dictatorship that seized power in 1964. In 2010, she was elected president of Brazil to succeed Lula da Silva. She was the country's first woman president and was Lula’s preferred successor. She was a career civil servant who, until she was elected, had never before run for public office. Ms Rousseff joined President Lula da Silva's government in 2003 as energy minister and in 2005, Mr Lula made her his chief of staff, a post she held until March 2010, when she launched her campaign for the presidency as the Workers Party (PT) candidate. Once elected, she made it clear that she represented continuity with the Lula government.

Ms Rousseff’s personality and inexperience of political campaigning means that she does not excel at glad-handing voters and kissing their babies. But despite her brusque manner she has continued to enjoy approval ratings of above 60%. She has sacked several ministers over allegations of corruption and has repeatedly emphasised that she will not tolerate wrongdoing. Half way through her term, Rousseff is this year seeking to revive growth in the flagging economy, in anticipation of an election run in October 2014. The economy is growing at 1.87 per cent - a quarter of the rate she targeted on taking office. Inflation is rising. In January it climbed to 0.86%, the highest for the month in the last ten years, according to the country’s statistical office IBGE.  This could mean that Rousseff may not achieve a second term despite her current popularity. In an attempt to revive growth, her government has reduced borrowing costs to a record low, cut taxes for industry and consumers, pushed banks to lower lending rates and taken measures to boost exports by weakening the real. Meanwhile unemployment remains low at under 5 per cent which may partly explain her continuing popularity.

Much of Brazil’s economic success in recent years is due to its increased trade with China.(3) China overtook the USA as Brazil's most important economic partner in 2009. Trade between the two countries has risen 17-fold since 2002 and Brazil has a big overall trade surplus with China. Most of Brazil’s exports have been of commodities - mainly iron ore, soya beans and crude oil – to meet the voracious demands of China’s expanding and industrialising economy. But Brazil has a big deficit in manufactures with China. This is at least partly due to Brazil’s strong currency, high interest rates, high taxes, poor infrastructure and a poorly educated workforce. All these changes raise the question as to how Brazil’s recent economic success affected its relations with the USA.

Brazil and the USA
Historically Brazil thought of itself as having a separate identity from the rest of South America and in the late nineteenth century looked towards closer relations with the USA.

Relations with the USA have always been complicated. It was the USA which, in 1824, was the first country to recognise Brazil’s independence from Portugal in 1822. Cooperation depended on whether the two countries’ interests converged or diverged. It is a complex relationship, with some minor and a few major crises, yet with no intense involvement on either side.

Relations became closer during World War Two when Brazil provided troops and facilities to assist the allied cause. In return Brazil hoped the USA would fulfil its promise to help Brazil secure a permanent seat on the UN Security Council. However, the USA did not succeed because of opposition from the Soviet Union and Britain. After the war Brazil somewhat resented the USA’s focus on the reconstruction of Europe which it perceived to be at the expense of its relationships elsewhere.

During the cold war Brazil, although moderately supportive of US policies, focused more on improving its ties with African and Asian countries. After disputes over trade and debt during the 1980s and Brazil’s opposition to US military involvement in Central America, relations began to improve with the end of the cold war. However, there were few concrete, practical initiatives by either party to bring them closer together.

During the last decade everything changed. The USA was irritated by Brazil’s ambivalent and contradictory attitude to Hugo Chávez in Venezuela. Lula’s warm embrace of Mahmoud Ahmadinejad and support for Iran’s nuclear programme went down badly in Washington and has since been repudiated by Rousseff. In 2001 Brazil’s growing economic stability and success were acknowledged by the financial markets when Brazil was named by bankers Goldman Sachs - along with Russia, India and China (BRICs) - as countries that would eclipse the G8 in the years to come. Now America and Europe are mired in economic recession the balance of power has shifted towards the relatively more successful BRICS. Brazil for the USA has now become an important and emerging power that it can work with on issues of global financial stability, climate change, reform of multilateral institutions like the UN, G20, WTO, IMF etc. as well as regional security, stability and development. It came as no surprise that President Obama emphasised Brazil's rising influence in global affairs when Dilma Rousseff visited the USA in April last year. He cited "the extraordinary progress that Brazil has made" to become "not only a leading voice in the region, but also a leading voice in the world." (4) This new found respect has resulted in improved visa arrangements for Brazilians visiting the USA. It seems no longer a case of what Uncle Sam can do for Brazil but what Brazil can do for Uncle Sam.

Brazil and ‘Spanish America’
Historically Brazil did not regard itself as an integral part of ‘Latin America’ or ‘Spanish America’, as it calls it, because it has a different history, language and culture. Spanish America’s republics were equally suspicious of their large Portuguese-speaking neighbour. It was not inevitable that Brazil would become South America’s major power. Argentina was a strong military and economic power during the 1970s before it imploded and Brazil at this time contributed only 30 per cent of South America’s GDP. Only later did it expand to 60 per cent.

Brazil’s attitude to its neighbours began to change under the Cardoso administration in the 1990s. Closer relations were developed with Argentina. There was greater cooperation with its neighbours such as the development of the Itaipu Dam with Paraguay and a gas pipes project with Bolivia. The trend continued with the 1991 signing of a political and economic agreement known as Mercosul (or Mercosur in Spanish) by Brazil, Argentina, Paraguay, Uruguay and Venezuela, to promote free trade and free movement of goods, people and currency between them. Bolivia and Ecuador are associate members who will join shortly. The Mercosul (O Mercado Comum do Sul or the Common Market of the South) has increased Brazil’s interest in supporting democracy in the region and in helping to resolve conflict between its different states. (5)

President Cardoso hosted the first summit of South American presidents in Brasília in 2000. The Lula administration continued the policy of closer engagement and at the third summit held in Cusco in December 2004, a South American Community of Nations was formed, consisting of twelve nations, including Guyana and Surinam. At the summit held in Brasília in May 2008, the community became the Union of South American Nations (Unasul). (6)

The closer links between Brazil and its neighbours have brought undoubted benefits. There has been a massive increase in infrastructure projects and increased cooperation in regional security issues –such as Haiti. However, there are limits to what Brazil is willing and able to provide. Its limited economic resources prevent it from large scale investment. Also domestic opinion is divided on how active Brazil should be in the region and whether the obligations it does incur restrict its sovereignty and freedom of action. For this reason and perhaps because of the novelty of its role, Brazil has perhaps not always presented its own case convincingly enough to its neighbours.

But how much does Spanish America accept Brazil’s leading role in the region? Argentina, Brazil’s historic rival in South America, has long ceased to be so and the two countries have enjoyed a friendly relationship – helped no doubt by each country having a female president! Relations between Brazil and Chile – which also had a woman President from 2006 to 2010 - are amicable, perhaps for the same reason. While Chile and Colombia each have a close relationship with the United States, Venezuela, Bolivia and Ecuador are hostile to the US and have ideological differences with Brazil. They are also strong supporters of Hugo Chávez’s regime in Venezuela. Venezuela, traditionally suspicious of its large neighbour, has managed to exploit Brazil’s growing power to its advantage. It has supported Brazil’s regional integration agenda which it sees is a counterweight to US influence. It also sees its own trade relations and economic integration with Brazil as a means of replacing the economic influence and imports from Colombia, with whom relations have been fraught. Relations between Brazil and Colombia are pragmatic rather than warm and there has been much misunderstanding over Colombia’s special relationship with the USA.

Beyond its near neighbours, Brazil has expanded its influence with Mexico, Central American and Caribbean countries in considerable part due to diminishing US power in the area. However, there has always existed in South America a certain suspicion of Brazilian “imperialism”, and this has intensified as Brazil’s dominance in the region has become more manifest in recent years.

If Brazil sees regional integration as in its long term economic and strategic interest, the Brazilian ministry of foreign affairs (ITAMARATY) sees regional power as a necessary stepping stone to enhanced global power. (7)

Brazil as a global power
Brazil’s presence and influence in the world have grown significantly since Ronald Reagan famously offered a toast to “the people of Bolivia” at a state dinner in Brasilia in 1982. Since the end of the cold war more than two decades ago, there have been profound changes in the world order. The power of the USA has declined in relative terms and the European Union, mired in economic and financial problems, continues to be politically ineffective. Meanwhile, economic and financial globalisation has proceeded apace. These events have created opportunities for the emergence of new powers like China, India and, of course, Brazil. Brazil itself has consolidated its democratic system and its economy has grown during the last ten years. Unsurprisingly both Lula da Silva and Dilma Rousseff have sought to use Brazil’s growing economic power, diplomatic capabilities, social credibility and vast size as a means of establishing Brazil as an international power - as well as a regional power.(8)

These efforts have been successful to a certain extent. Brazil has played an increasingly important role in the World Trade Organisation, in world trade negotiations and in the efforts to bring the Doha round to a conclusion. It has been active in promoting the reform of international, multilateral institutions. It continues to argue for reform of political institutions - especially the United Nations - where it is pressing for a permanent seat on the UN Security Council for all of the “G4” [Brazil, India, Germany and Japan]. It is making its influence felt as a member of the International Monetary Fund, the World Bank, and the G8/G13 (now G20). Perhaps most important of all, Brazil has been playing a major role in discussions on such urgent global issues as nuclear proliferation, the reduction of world poverty and disease (especially HIV/Aids), intellectual-property rights and climate change.

Brazil has also been working to strengthen relations with China, its biggest trading partner and competitor, and also with India and South Africa. It is forging closer links in Africa and Asia – especially the Portuguese-speaking countries such as Angola. Brazil also has close ties with the EU, its third most important trading partner, as well as to several individual European countries: Portugal, France, Spain, Italy, Germany, Britain and the Netherlands.

Brazil has now established itself on the international stage in a way that would have been unimaginable only twenty years ago. It will continue to command world attention as it hosts the football World Cup in 2014. It will also be the first South American country to host the Olympic Games in Rio de Janeiro in 2016.

Some questions remain for the future. Will Brazil be content to wield ‘soft power’, given that it lacks the military power of Russia, China and India? Will it prefer to wield influence as part of an alliance with the emerging global powers of the twenty first century, or will it seek a closer relationship with the USA and Europe? Brazil may one day find its place as one of the great powers in a multipolar world. It is an aspiration perhaps more achievable today than ever before in the nation’s history. (9)

References
(1) http://www.gwu.edu/~ibi/FGV%20Report%20Files/2010_December.pdf
(2) www.ibge.gov.br/english
(3) http://www.brasil.gov.br/para/press/files/fact-sheet-brazil-china-tradehttp://www.brasil.gov.br/para/press/files/fact-sheet-brazil-china-tra
(4) reported by Voice of America: http://www.voanews.com/content/us-brazil-presidents-meet-at-white-house-146681635/181127.html
(5) http://www.sice.oas.org/trade/mrcsr/mrcsrtoc.asp
(6) http://www.crwflags.com/fotw/flags/int-unsr.html
(7) A useful summary of Brazil’s official foreign policy is on this website: http://www.un.int/brazil/brasil/brazilian-foreign-policy.htm
(8) http://opendemocracy.net/leslie-bethell/brazil-regional-power-global-power
(9) A pleasant five minute YouTube film on ‘Brazil: New Global Power’: http://www.youtube.com/watch?v=wMOPWtWmtlI  

                                                                                           Peter Crisell