Brazil – Lula’s Last Year in Review and Future Expectations

– Brazil had a strong 2008 and will continue to rise in the global hierarchy despite setbacks caused by the world financial crisis
– New ties to China, Russia, and other quasi-super power nations show Brazil trying to balance relations between Latin America and extra-hemispheric emerging markets

In 1823 U.S. President James Monroe set forth a new policy, later known as the Monroe Doctrine, which explicitly stated that no foreign power could meddle in the affairs of the Western Hemisphere without expecting swift U.S. retribution. Almost two centuries later, Monroe’s fears are finally coming true, as extra-hemispheric powers such as Russia and China are beginning to foster a new generation of intrusive relations with Latin American nations. What Monroe did not predict was the rise of a nation within the hemisphere itself to rival U.S. hegemonic tendencies.

Brazil has held the precarious title of a rising power for several decades, but only recently has the fifth most populous nation in the world begun to cement itself as a motive force in global politics. Despite setbacks caused by the ongoing international financial crisis, 2008 was a year of progress for Brazil in multiple respects. Likewise, 2009 provides Brazil with a unique opportunity to uplift its standing in the regional order by continuing its stellar role in promoting economic interdependence and a strong leadership position in dealing with international and regional organizations.

Brazilian Foreign Relations
It is most appropriate to initiate a discussion about Brazil by exploring its political status. Despite the rise of left-leaning governments, headed by Venezuela’s Hugo Chávez under his definition of a 21st century socialist movement that he dubbed the “Bolivarian Revolution”, Brazil under President Lula has maintained a more moderate system characterized by orthodox economics and at best populist politics.

In contrast to some of its neighbors, Brazil has taken a more moderate approach in both political and economic terms, fostering relatively warm relations with the United States, while more vehement anti-U.S. leaders such as Hugo Chávez and Evo Morales have hedged their bets when it came to their ties with Washington. While Caracas and La Paz were cutting their links with the U.S. in favor of focusing on other, non-first world powers, Brazil has been able to do this at the same time as cultivating relations with rising major powers, such as China and Russia, without alienating the White House.

In the last calendar year, Brazil and Russia joined in a strategic partnership that aims to double their trade within the next few years. The Economist, describing this relationship as “Friends of Opportunity,” explains that the two nations have moved to begin to sign accords that now focus on nuclear and defense industries. With respect to China, the two nations earlier had begun discussing various techniques in producing, storing, and transporting ethanol. According to the Asia Times, although China does not have a direct interest in producing ethanol from sugarcane, it has begun to look into investment opportunities within Brazil.

The United States has tacitly begun to recognize the rising influence of Brazil as the South American nation continues to expand its relations with countries once considered “non-traditional.’’ Former U.S. President Bush and Lula of Brazil have met on several occasions and worked on issues essential to both nations. These issues include such topics as such as counter-narcotics, trade, the environment, and the HIV/AIDS pandemic. Meanwhile, President Barack Obama looks to be following in his predecessor’s footsteps, as a recent report indicates that he wishes to work with Brazil on key issues such as combating the financial crisis, and strengthening economic ties between the two nations.

Brazil’s role in Latin America as a regional leader and burgeoning world power has in the past led it to focus slightly more on cultivating relations with developing nations rather than with more established ones. However, the country is currently at a crossroads in terms of its foreign policy and trade strategies. Brazil is now such a powerful economic force that it has in essence outgrown the regional trade bloc it once championed, MERCOSUR. Originally consisting of Argentina, Brazil, Paraguay, and Uruguay, MERCOSUR was conceived under the premise of creating a trade organization similar to the European Union. MERCOSUR, however, has failed to achieve any significant progress in the past few years. More importantly, with the upcoming inclusion of Venezuela, a country whose political ideals do not easily fit with some of the other members, it appears that the bloc may even lose some of its momentum.

The European Union has been making calls upon President Lula to negotiate with it bilaterally, hoping that he will recant an earlier statement regarding his refusal to negotiate with the EU unless all MERCOSUR nations were involved in the discussion. The year 2008 witnessed the rise of another initiative aimed at creating a regional body. The Union of South American Nations (UNASUR) was formed in May with the goal of, according to Hugo Chávez, “complete political, economic, cultural, scientific, technological, and military independence [from the United States].”[1] While UNASUR is hailed for providing the continent with regional integration in many areas, it has been unsuccessful in becoming the force many thought it would be. Brazil showed its dominant role in the organization when it “stepped in (under the auspices of UNASUR) to broker a truce between Bolivia’s government and the regional autonomy movements.”[2] Brazil’s penchant for playing the role of regional leader may, in fact, end up doing more harm than good, due to faltering over a proper path for it to take.

While the emerging giant has focused on leading groups such as MERCOSUR and UNASUR, it has failed for the most part to focus on processes that would further cement its place in the global hierarchy. Analysts say that Brazil’s political goals for 2009 should be twofold. The first should be to secure a permanent seat on the United Nations Security Council. Latin America is not currently represented in this elite group, and recent calls for the Council’s expansion to include member nations from both South America and Africa point to Brazil as making compelling logic. While some countries back the concept of expanding the number of permanent Security Council members, some of its current seat holders are apprehensive about giving veto rights to even more nations.

Brazil’s resume leads many to believe it is deserving of a permanent spot on the Security Council. It is the fifth most populous nation in the world and is ranked ninth in gross domestic product based on purchasing power parity (PPP). Furthermore, Brazil has shown its ability to decisively lead in various instances, most notably as the head of the United Nations Stabilization Mission in Haiti (MINUSTAH), (although some would fault the quality of its leadership in this instance).

As previously mentioned, Brazil’s preference for working with other important developing nations may in fact hurt the country in the future. Its second political goal of 2009 rather should be to expand its relations with other emerging extra-hemispheric powers. If Lula wishes to further his country’s international standing, he would be best off by building strong ties to the other BRIC nations: Russia, India, and China. Fortunately, Lula belatedly has recognized this need and has begun working on deals with all three nations. It would be most prudent of him to use these budding relationships, as these four nations together are without question among the world’s most important emerging markets. The power that the BRIC nations can wield is potentially awesome and by working together they can gain economic concessions from the United States and European Union that will only further bolster their economies.

Brazil’s Economy, the 2008 Financial Crisis and its Political Implications
Despite Brazil’s economic strength, the country was unable to entirely avoid the fallout from the past year’s global financial crisis. While the country was fortunate enough to avoid any crushing economic downturns, the IMF predicts that 2009 will result in a two point drop in growth, down to 3%. As a result of the financial crisis, Brazil, like many other nations, has begun to formulate a series of measures aimed at injecting money back into the economy. Amongst these tactics include a $72.5 billion package spread out to the nation’s many banks. Like their American counterparts, Brazilian consumers are currently experiencing a credit freeze that is making it difficult to borrow money due to a lack of fluidity. The Economist comments that in hopes of further stabilizing a rocky economic outlook, Lula’s government “has reserved the right to take stakes in struggling banks, via two big state-owned ones, Banco do Brasil and Caixa Econômica Federal.” The worldwide decrease of foreign investment caused by the past year’s financial crisis may have been compounded in Brazil due to a poorly structured tax system. Infamous for its complicated levy system, the Economist describes Brazil’s tax as a, “Poorly structured revenue system characterized by heavy tax burdens, a narrow taxable base…and widespread tax evasion.” Although taxes are considered efficient within Brazil itself, the Ministry of Finance would be well served to revise this complicated system and make it more user-friendly for foreign nations and corporations wishing to invest in the country.

Brazil’s economy gave its citizens reasons to boast in 2008. In less than two years, 20 million citizens have risen out of poverty thanks to a number of well-managed government programs. According to a recent OECD report on market access in Latin America, Brazilian exports have diversified over the years, making the country less susceptible to the boom-bust shocks often experienced by heavily agricultural nations. Furthermore, the government has undertaken steps to expand the country’s energy sector. The green revolution is beginning to spread worldwide, and perhaps no country is as prepared for it as Brazil.

In efforts to become less dependent on imported oil, 80% of the nation is now powered by hydro-electricity. Vast amounts of sugar cane allow for the cheap production, domestic consumption, and export of ethanol. The impact of ethanol has been great as the nation’s poorest members have found steady employment and a living wage, while a small percentage of state profits go towards helping to maintain schools and nurseries. Recent discoveries of offshore oil fields will work as an additional bargaining chip in upcoming trade negotiations. These reserves are expected to make Brazil the tenth largest oil producing nation in the world, and second on the continent, behind Venezuela. Lastly, Brazil finally became a net foreign creditor in 2008 after decades of being the largest emerging market debtor. The nation’s debt was upgraded by both the Fitch and S&P rating systems. This change will most certainly promulgate newfound foreign investment once financial markets become bullish sometime in the future.

One can safely predict that the president’s left-leaning Workers’ Party (PT) will take some hits in upcoming elections as a result of the international financial crisis. In fact, it looks more than likely that Lula will have to turn his back on his own party’s candidate for the presidency of the upper house, in favor of Jose Sarney, leader of the Brazilian Democratic Movement Party (PMDC). Because the Workers’ Party is only the fourth largest holder of seats in Brazil’s upper house, Lula is dependent on Sarney’s PMDC to effectively introduce legislation aimed at achieving the policy goals of the Lula administration. Even though Brazil will be less negatively affected by the financial crisis than many other nations, its citizens will still feel some strain. Disapproval of how Lula is handling the situation may result in defeat for the Workers’ Party in the presidential election in 2010, a contest in which the two-term incumbent will not be eligible to run.

Social Issues
Like any nation, Brazil is not without its problems. Political corruption has ailed the country for years despite constant efforts to crack down on such fraud. According to a BBC report in September, it was discovered that ABIN, Brazil’s intelligence agency, had recorded conversations between high-level politicians, including the president of the Supreme Court and various senators. Unfortunately, although the organization was not authorized to do this, and a lower level employee was most likely bribed to rig the wiretap, the event did not cause that much of a stir. Another aspect of the corruption that Brazil chronically faces is political patronage, a practice which continues to fill important governmental positions with inexperienced or even venal politicians, who more often than not, are unqualified for the job.

It is possible that future generations of Brazilian politicians will be less corrupt than their predecessors, allowing the country to focus more on recruiting and training experts in sustainable development. Demographic changes over the past few years have allowed Brazil to flourish by incorporating large numbers of the poor into the middle class. According to an article in the Economist, education could be the primary reason for this change – teenagers and young adults now spend an average of three or more years in school than their counterparts a decade earlier. Lula’s administration is partially responsible for this shift, as he has put an emphasis on education. Another improvement that has occurred under Lula’s stewardship is that of a dramatic decrease in malnutrition. One such program, Bolsa Familia, offered a stipend to poor families who sent their children to school and had them vaccinated. Another successful program is the Movement of Landless Rural Workers (MST). “Since 1985, the MST has occupied unused land where it has established co-operative farms, built houses, schools and clinics, winning land titles for more than 350,000 families in 2,000 settlements,” said a recent BBC report. These bottom-up social programs have been incredibly successful and have helped to empower millions of the nation’s poor.

A burgeoning middle class could, conceivably, threaten the social visions which Lula and the Workers’ Party have stood for. The PT was originally founded as a socialist populist left-wing party that championed the plight of the lower class. Brazil has changed greatly since the party was founded in 1980, and most of its candidates have drifted over to a more center-left ideology in recent years. While one might believe that the newfound middle class would veer away from the Workers’ Party ideological tent, many Brazilians feel connected to Lula and his party and will continue to vote for PT candidates despite their being more “populist” in orientation.

Looking Forward
Brazil has been mocked for decades as being the perpetual country of the future, but for the first time in its modern history it appears to have finally achieved the high expectations set by both its own citizens and the international community. While economic disparity is decreasing worldwide, as witnessed in the diminishing share of wealth held by the United States and Western Europe, Brazil has the rare opportunity to emerge as a world power in the future multipolar arena. This resource-rich nation is growing in all of the germane sectors, such as the service industry, manufactured goods, and most importantly, energy. However, the advantages this nation has will be wasted if it fails to think globally. Recent international action has been too limited, focusing too much on the integration of South America and not enough on a more global approach. If Brazil centers on becoming a more powerful force through utilizing its relationships with the other BRIC nations, it will be able to better assist its own neighbors. This method may be more preferable to Brazil’s current inclinations toward getting bogged down in Latin American preoccupations that tend to be high on pageantry and low on substance. As a nation that has healthy political and economic sectors in addition to a burgeoning middle class, Brazil will doubtlessly fulfill its anticipated role; thus it simply entails careful but ebullient execution.

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[1] http://www.venezuelanalysis.com/news/3488
[2] “Brazil’s Lula in Bolivia,” Latin News, 16 January, 2009.
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