The financial crisis of 2008 began with the failure of major financial institutions in the United States and then evolved into a global crisis with worldwide consequences. Brazil was no exception to this infectious tide, with President Luiz Inácio Lula da Silva stating that his nation, like other emerging markets, must have a voice in developing strict rules that will guarantee that international financial institutions and rich nations will help, rather than harm, developing countries.
Lula da Silva argued that central banks around the world must adopt new rules, and governments must make certain that their countries’ financial institutions are in compliance with their own regulations in order to prevent another meltdown like the one whipped up by the U.S. financial crisis.
Brazil: Solid Progress
Despite the adverse repercussions flowing from the current state of the U.S. financial system, Brazil’s economy now is stronger, more multi-sectoral and better able to withstand global shocks than it was in the 1990s – even after factoring in the economic ups and downs of its powerful hemispheric neighbor to the north.
“A few years ago, if the United States coughed, Brazil got pneumonia,” Lula said at a recent gathering in the northern city of Mossoró. “Now we have diversified; we don’t depend so much on one or two countries.”
Optimism that Brazil’s economy is strengthening is evident, for example, in booming appliance sales at the retail chain Casas Bahia; in home sales being made by Cyrela Brazil Realty, the nation’s leading residential home builder; and in an expanding entertainment industry that is attracting cable and movie franchises from the United States and Mexico.
Economist Edmar Bacha of Banco Itaú in Rio de Janeiro says that the economy of Brazil is now stronger because it no longer holds significant dollar-denominated debt, as was the case in the 1990s. Two of the largest banks in Brazil, Itaú and Unibanco, just agreed to merge, thus creating Latin America’s biggest bank and one of the largest in the world.
The two banks said that “with this joint venture, Itaú and Unibanco reassure their confidence in the future of Brazil, especially in this moment of important challenges in the economic environment and in the global financial markets.”
Brazilian Secretary of Development Ivan Ramalho remarks that he hopes to enhance trade with other countries in order to diminish Brazil’s over-reliance on the U.S. market. President Lula da Silva argues that U.S. policy in fact keeps developing countries from fully playing an influential role in the world economy. This is but one example of Brazil’s increasing restlessness when it comes to demanding respect and recognition for its regional ranking position.
President Lula can be excused for aspiring to have Brazil to stand out among world powers; in order to assure his country this new position, he must enhance Brazil’s trading potential. Improving the breadth and depth of Brazilian trade with other countries will make it possible to diminish Brazil’s dependence on the U.S. market. Evidence of Brazil’s will for independence is its biofuels policy.
Biofuels Business
Brazil is the world’s second largest producer, and largest exporter, of ethanol. Not only did it fashion the world’s first sustainable biofuels economy, but it also is considered to be the leader in the field. Together, Brazil and the United States dominate the industrial world in global ethanol production, accounting for 70% of the world’s production and nearly 90 percent of the ethanol used for fuel.
Recently, the Brazilian sugar-based ethanol industry pushed to further its development at the expense of the less efficient U.S. model, which is predicated on corn-based production. The Brazilian government wants to show the rest of the world the benefits of its sugar ethanol market. In comparison with corn-based ethanol, sugar-based ethanol is more efficient; it is cheaper to produce and uses less valuable land to produce its crop.
In defense of sugar-based ethanol, President Lula da Silva has argued that the U.S. misguidedly produces corn for its ethanol instead of devoting its acreage to high grade crops, which could be used for human consumption. Meanwhile, Washington keeps subsidies high to benefit multinational U.S. agro-industries.
Lula maintains that this is yet another case of the U.S. keeping developing countries from playing their rightful role in the world economy. This criticism represents a critical aspect of Brazil’s opposition to the U.S. version of an FTAA.
President Lula da Silva, supported by Brazil’s robust economy and his ability to work with political figures across the ideological spectrum, has emerged as South America’s chief power broker and mediator. As a result of his country’s economic prosperity, this has helped him win soaring popularity at home and abroad.
The President seems to be intent on fulfilling Brazil’s long-unrealized economic and political potential, which would allow for the transformation of the South American behemoth into a recognized world power. In a related matter, Julio Burdman, an Argentine political analyst, noted that “since the beginning of his second term, Lula began to compete vigorously to counter [Hugo] Chávez’s aspirations as a regional leader.”
Conservative U.S. policymakers see Lula as a welcomed counter weight to Chávez. Under the Bush administration, Washington was preoccupied with the Middle East which in turn led U.S. influence in Latin America to visibly fade. Meanwhile, some Latin American countries unobtrusively began their swing to the left while others moved to join in the process using various gradations of ideology underlining their political realignment.
Latin American countries, forced by Washington to swallow unfair and often unanticipated austerity measures in the 1980s and 1990s, are now being made anxious by the U.S. failure to police its own markets.
With the results of the U.S. presidential election, the horizon may be changing. One of Barack Obama’s senior advisers on Latin America, Dan Restrepo, acknowledges that his boss is essentially proposing a symbolic shift in style – even considering going as far as appointing a special White House envoy for the Americas.
“Barack doesn’t see the United States as the savior of the Americas, but as a constructive partner,” Restrepo has declared. President-elect Obama also has stated several times that he would pay more attention to Latin American countries by trying to strengthen trade ties in order to reverse some of the more destructive commercial initiatives that were established by the Bush administration.
In the last eight years, priority was often given to dealing with Iraq and Middle Eastern countries, with the result being that little interest was given to engaging in serious policy-making regarding other western hemispheric countries.
What Obama wishes for the future, in his own words, is that “we don’t have the notion that Latin American countries are a junior partner to the United States. That is outmoded. We need to be full partners with those countries, [and] show them the respect that they deserve.”
Lula da Silva previously has said that one of the benefits of the current worldwide economic turmoil could be the election of Barack Obama as U.S. president. Therefore, the relationship between the two countries must be recast in light of Brazil’s new position of hemispheric eminence, and its role on the international scene as a rising world power.
At the same time, the rest of Latin America is going through a process of autonomous development in which the region is pluralizing and diversifying its relations with a whole skein of new hemispheric players.
This analysis was prepared by COHA Research Associate Cristina Militi. The Council on Hemispheric Affairs (COHA) – www.coha.org – is a think tank established in 1975 to discuss and promote inter-American relationship. Email: coha@coha.org.
