In the new issue of Foreign Affairs, journalist Juan de Onis writes about Brazil’s present opportunity to establish itself as the dominant regional power, fulfilling its long-awaited goals. But Onis underlines that the process remains “a work in progress” and Brazil must deal with corruption, outdated tax and labor codes, and inequality. Los Angeles Times warns that the present credit crunch affects Brazil’s efforts to modernize and expand its infrastructure, especially Brazilian President Luis Inácio Lula da Silva’s flagship Growth Acceleration Program, in partnership with the private sector.
In an article published earlier this month in Poder magazine, COA’s Eric Farnsworth says Brazil “can no longer be taken for granted,” and urges the next U.S. administration to work closely with this new global player.
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Brazil's Big Moment
A South American Giant Wakes Up
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Foreign Affairs, November/December 2008
After decades of stop-and-start growth and political disorder, Brazil today seems poised to finally fulfill its long-unrealized potential as a global player. The key features of Brazil's awakening are widely recognized: expanded exports, oil discoveries, financial stability, low inflation, growing foreign and domestic investment, booming consumer demand, social assistance focused on the neediest, and democratic political cohesion. Brazil's diverse economy is now founded on strong sectors in oil, mining, agriculture, and, more recently, biofuels -- all of which have benefited from a combination of technological advancements and strong incentives for private investment. The country now boasts a GDP of $1.58 trillion, which ranks in the top ten worldwide.
Brazil's ascendance is not the result of lucky breaks. Although global factors, such as rising commodity prices and easy access to foreign capital, have helped, there has been no tropical alchemy or voodoo economics. The secret of Brazil's current success lies in the continuity of its sound economic and political management. Over the past five years, under the leadership of President Luiz Inácio Lula da Silva (known as Lula), Brazil has continued the market-friendly economic policies begun by previous governments that tamed inflation and stimulated private investment.
Still, Brazil remains a work in progress. Continued stability and future growth will require avoiding the mistakes of the past while finding new solutions to the problems that remain. These include rampant corruption, stalled tax and labor reforms, low levels of domestic saving, inadequate achievements in public education, and not enough highly skilled labor. Successfully resolving such issues would allow Brazil's rise to continue, and Brazil -- long viewed as a peripheral country -- would finally become a global player.
MORE THAN A PETROSTATE
Brazil's booming economic growth and newfound geopolitical importance became especially clear last year with the discovery of major new oil and gas deposits under the South Atlantic continental shelf in Brazilian waters. An initial find in the Gulf of Santos was quickly followed by others, and by mid-2008 it was being hailed as "a new North Sea." Industry estimates of Brazil's oil reserves tripled, to 40 billion barrels, less than those of Iran, Iraq, Russia, Saudi Arabia, and the United States but equivalent to those of Nigeria and Venezuela. This placed Brazil in the ranks of the ten countries with the largest oil reserves, making headlines in a world reeling from oil priced at over $150 a barrel and fearful of another war in the Middle East.
It will take several years and at least $300 billion to bring the newfound oil and gas into full production. These offshore fields are the deepest marine properties in the world, three to four miles below the surface and covered by thick layers of salt. The cost of drilling and gathering the oil is high, estimated at $60 a barrel. Still, the payoff for Brazil in terms of energy security and economic growth will be enormous. Until last year, Brazil was struggling to maintain self-sufficiency in oil, producing two million barrels a year.
SOURCE:JUAN DE ONIS
JUAN DE ONIS is a former correspondent for The New York Times and the Los Angeles Times who lives in Brazil. He is the author of The Green Cathedral: Sustainable Development of Amazonia.
From Foreign Affairs, November/December 2008,
http://www.foreignaffairs.org
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October 27, 2008
Economic crisis hits as Brazil builds
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Financing is jeopardized for road, port and energy projects the country hoped would hasten its growth.
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Sao Paulo, Brazil -- With investors and credit markets spooked by the global financial crisis, Brazil is facing delays in crucial billion-dollar public works projects that it needs to modernize its economy and join the upper tier of world powers.
Word of likely delays in electric power, oil and wood pulp projects comes as Brazil hosts an emergency meeting today in Brasilia of leaders of Mercosur, the trade bloc that includes Argentina, Uruguay, Paraguay, Chile and Bolivia.
Markets across the hemisphere were battered last week. Brazil's main stock index, Bovespa, plummeted nearly 40% this month after the finance minister encouraged banks to merge and the nation's central bank said it was committing $50 billion in reserves to shore up the currency, the real, which lost 17.5% of its value against the dollar last week.
Prices of commodities, on which Brazil and other countries in the region depend, sank like stones. The World Bank, Inter-American Development Bank and International Monetary Fund all said they would offer billions of dollars in short-term credit to Third World countries reeling from the global shocks.
In Brazil, the mood has darkened since mid-September, when President Luiz Inacio Lula da Silva flippantly referred to the crisis as "President Bush's problem" and assured Brazilians that hundreds of billions' worth of major port, road and electric power projects would go ahead.
But in recent weeks, the credit crunch has begun to affect plans near and dear to Lula's heart, including a $250-billion Growth Acceleration Program in partnership with private industry. The plan was designed to make up for a 25-year deficit in public works construction since currency devaluations and hyperinflation plagued Brazil in the 1980s and 1990s.
Central Bank President Henrique Meirelles, who last month said the nation had enough reserves to protect the currency, is taking a more cautious tone these days. He told reporters Friday the "situation is very, very serious. We should stop making jokes about it."
The gravity became evident Friday, when the leader of a 160-member group of the nation's largest contractors, known by its initials ABDIB, pleaded with Lula to establish a $5-billion emergency loan fund to provide short-term credit for infrastructure projects already in progress or about to begin construction.
"Credit is closing down or getting expensive," said spokesman Jose Casadei of ABDIB. He added that $40 billion in hydroelectric projects, some situated in the Amazon, were among those in jeopardy.
Last week, Brazil announced it was putting off an auction for building the $3.5-billion Rio Madeira high-tension power line stretching from the Amazon basin to the outskirts of Sao Paulo. State-controlled oil company Petrobras indicated it may delay a deadline for proposals from companies interested in exploring a promising offshore field called Pre-salt, a project that could put Brazil in the major league of oil exporters.
Other Latin American nations are coming to grips with the crisis. Mexico said last week it would put off initial phases of a multibillion-dollar port and rail project called Punta Colonet in Baja California, 150 miles south of San Diego. According to the plan, the project would rival the Long Beach-Los Angeles port complex.
Big private projects also have been affected, including new and expanded mines in Peru and Chile, and the construction in southern Brazil of a huge wood pulp factory. The factory's promoter, Aracruz, was one of several companies burned by the collapse of Brazil's currency in recent weeks.
The crisis hit Brazil -- flush with four years of economic growth, strengthened public finances and growing investor confidence -- as it was preparing a massive push to address its infrastructure gap.
Brazil has added little in the way of ports, roads, electric power capacity and air terminals since the late 1970s. The nation's stagnant economy and debt default in the 1980s, and boom-and-bust cycles in the 1990s, made planning and financing such megaprojects next to impossible.
Now, a healthier economy has only made the infrastructure deficit more acute. Those arriving at Rio de Janeiro's international airport, for example, are met by an overpowering stench emanating from the surrounding saltwater lagoon that has become a sewage catch basin for much of the city.
The lack of adequate infrastructure also is apparent during the soybean harvest at the port of Paranagua south of Sao Paulo, where trucks line up for 15 miles to unload their cargo. Sao Paulo's chronic gridlock bespeaks the lack of a ring road around the metropolis of 18 million residents.
A dry season in the Amazon, where much of the nation's hydropower is generated, could lead to a nationwide electricity brownout, said Adriano Pires, director of the Rio-based think tank Brazilian Center for Infrastructure.
"We are now dealing with the consequences of low growth and the weakened capacity of the state to plan and implement public policy," said Joao Carlos Ferraz, an economist at a Rio-based development bank known by its initials BNDES.
To respond, Lula had pushed for the construction of a variety of projects under the Growth Acceleration Program, including a north-south railroad, two major hydroelectric dams in the Amazon, liquid natural gas facilities and 4,000 miles of roads.
In a twist for a longtime socialist, Lula was leaving much of the financing for megaprojects not to Central Planning but to private companies. Advisor and former Finance Minister Delphim Netto said Lula realized he couldn't pay for his ambitious social projects while also funding brick-and-mortar projects.
Now the projects may remain plans for some time.
"The government will have to cut spending," said Paulo Levy, an economist with the IPEA think tank in Rio de Janeiro. Plans to finance public works were based on tax revenue projections "that are falling because of the crisis."
Aldo Musacchio, a Harvard Business School economic historian and Brazil expert, said he doubted the infrastructure projects would get done.
"The higher cost of capital for Brazil is an obstacle, as well as the uncertainty that the crisis has brought upon the economy," Musacchio said. "They still haven't grasped how harsh the crisis will be."
SOURCE:
Chris Kraul, Staff Writer,
Los Angeles Times
chris.kraul@latimes.com
Contribution by
Special correspondent Marcelo Soares
LAT Home > World News > Latin America
http://www.latimes.com/news/nationworld/world/latinamerica/
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October 2008
Brazil Rising
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To the extent people are talking about Latin America during this presidential campaign, the primary issues have been Cuba, immigration, and trade. All are important and well worth discussing. At the same time, focusing on these matters to the virtual exclusion of others in the region threatens to overlook a number of other pressing and pertinent topics which are literally remaking the hemisphere, and the world. And it is an appreciation of these broader issues that will underlay the prospects for success of hemispheric policy in the next administration.
A case in point: rising Brazil.
OK, let’s dispense right away with the outdated and unfunny joke about Brazil always being the country of the future. If those sentiments were ever true, they are emphatically not now. In fact, one of the most important issues that the next U.S. administration may need to deal with—not just in South America, but perhaps globally as well—is the rise of Brazil and how that will play into a range of important matters including trade, energy policy and global climate change, and nuclear non-proliferation. If handled with sophistication and deft diplomacy, this changing worldscape can be of real benefit for the United States. If ignored or mishandled, it will prove to be an unnecessary additional challenge to US interests among the many others that will face the incoming President, his administration, and the new Congress.
Virtually all the economic news coming out of Brazil these days is positive, and Brazil’s global weight has dramatically increased as a result. The largest economy in South America and now the world’s 10th largest, Brazil’s emergence as a middle-income BRIC nation, with powerful growth rates driven by the global commodities boom, have repositioned Brazil as a global actor. Annual growth is projected at over 4 percent for the next several years, not Chinese-equivalent rates and indeed slightly less than the 4.4 percent average of recent years, but nonetheless stronger than the longer term average of just over 2 percent. Economic stability has been maintained by successive governments and remains a high priority. Inflation is contained and manageable, and debt is now investment grade. Direct, fiscally-responsible steps are being taken to reduce grinding poverty and the income gap. Banco Itaú, Embraer, Petrobras, Vale, and a number of other companies are globally competitive. Brazil enjoys a new prominence on energy due both to its agriculture sector producing sugar-based ethanol as well as huge proven oil and gas reserves newly discovered in the deep water off the coast.
This cascade of economic news has had important international implications. Perhaps the most obvious has been Brazil’s impact in global trade discussions, where the country’s grasp has now proven equal to its reach. The country can no longer be taken for granted, it is now a global player on trade. Brazil’s efforts to forge a new, independent center of gravity have fundamentally changed negotiation dynamics going forward. Along with other interested parties, Brazil now has an important and in fact historic opportunity to advance the global and hemispheric trade and investment agenda in a manner consistent with its efforts to be seen as a responsible global actor.
More broadly, we have yet to really hear Brazil’s voice in global energy discussions, but it’s coming like a freight train onto the international scene. Already the world is lapping up sugar based ethanol as fast as Brazil can produce it. Were the U.S. market to be fully open to Brazilian ethanol—and there’s really no sound reason why it should not be—the story would be even more impressive. Fully opening our market to Brazilian ethanol would help address our own addiction to oil, while providing an energy source less harmful to the environment than the burning of conventional fuels.
But it’s Brazil’s recent finds of oil and gas in the deep water that are really grabbing the world’s attention. China and other developing markets’ growing thirst for fuel has caused gas to spike well above $4 per gallon in the United States and even more elsewhere. With recent finds of massive reserves, Brazil has the potential to become the eighth largest oil nation in the world, surpassing Russia. That’s a game changer. Technical and other issues must first be resolved. But once they are—and they will be—Brazil stands to profit handsomely both financially and politically from its new status in energy. As a result, the nation will have an even larger and potentially positive role in hemispheric and world affairs. The United States is already working to develop an energy partnership with Brazil, and efforts should continue along these lines under the new U.S. president. But more, much more, can be done.
At the same time, Brazil can play an important role in advancing the cause of global nuclear non-proliferation, particularly with reference to Iran’s efforts to enrich uranium. Brazil is one of only a handful of nations that has voluntarily foresworn the development of nuclear weapons, yet it maintains an active nuclear program for peaceful purposes. The Lula Administration has also convened leaders from the Middle East for summit discussions on a developing trade, investment and energy program between the two regions. For these reasons Brazil is perhaps uniquely suited, should its leaders so desire, to play an important role in working with the international community to help ensure a peaceful, positive outcome to the reality of Iran’s continued push for enhanced nuclear capabilities. Such actions should be discussed as a priority matter between the United States and Brazil, as a nuclear-armed Iran could well be one of the most important strategic issues facing the next U.S. administration.
It must be said that not all is perfect in Brazil, just as not all is perfect anywhere including the United States. Education rates and workforce development issues cry out for attention. The tax regime continues to be overly complicated and burdensome. A strategy of building “national champions” in industries will have to be addressed at some point through competition policy. According to the World Bank, it takes 152 days to start a business, compared to 77 in the rest of Latin America. Personal security continues to be problematic, particularly in the cities.
And yet, Brazil is undergoing a second economic takeoff establishing it as a major global player. This has already had important effects globally; more will follow. From the U.S. perspective, this offers a significant opportunity to pursue mutually beneficial interests in a spirit of partnership and mutual respect. This is not about hemispheric policy, it’s about global foreign policy. To the next administration: take note.
SOURCE:
Eric Farnsworth,
Poder,
Vice President of the Council of the Americas,
http://www.as-coa.org/
