Investors should see Brazil’s leadership in the recent BRIC meeting as another sign of a profound transformation in its international role. While Brazil prides itself on being structurally anti-status quo, and still seeks opportunities to distance itself from U.S. and European institutions, Brazil is moving toward a more active role within a (reformed) international status quo. It is a transformation that Brazil has long awaited and one that the U.S. and the rest of the G-7 should welcome and accommodate.
Until recently, Brazil’s regarded engagement with the global economy with suspicion. Over many decades, its business and diplomatic elites fashioned a world view defined by inherently unequal exchange between the wealthy countries of the North and the impoverished commodity producers of the South, in other words, between the technological haves and have-nots separated by an unbridgeable divide.
This traditional world view has led Brazil to be overly protectionist in terms of its industrial sector and helps explain why Brazil has downgraded bilateral U.S. and E.U. trade talks while rushing to sign economically marginal agreements on trade with the global South, including the India-Brazil-South Africa Initiative and the emphasis in South America given to UNASUR, a framework for integration that conveniently excludes both Mexico and the United States. In the realm of ideology, President Lula’s has been a leading voice demanding a more equal distribution of international wealth and power, reform of the IMF and the UN and other global bodies, and a stronger role for governments in regulating global market forces which Brazil distrusts. His remarks in China just prior to the BRIC summit calling for a new global currency to replace the dollar generated headlines.
The leadership dilemma for Brazil can be traced to a mismatch between aspirations for a global role and its own modest capabilities to project itself on the global stage. What is changing the game now for Brazil is that aspirations and capabilities are, slowly, coming into better balance. While still a minor player in world affairs, Brazil is beginning to test its voice on this larger stage, likes the sound of that voice, and is finding a more attentive audience.
We see this change in Brazil’s projection in the unfolding of the economic crisis.
First, Brazil’s main reaction to the crisis has been to accept a shared responsibility for global management within the context of existing world institutions. At home, Brazil has been able to implement significant counter-cyclical policies, especially in terms of monetary and credit policy. Externally, Brazil last week agreed to subscribe to $10 billion in the new IMF bond issue. Ironically, Brazil is now prospectively a creditor to an institution – the IMF – it more often criticizes.
Second, the domestic debate in Brazil following the crisis of global capitalism has been to reaffirm, rather than repudiate, a rules-based approach to economic management which has consolidated over the last fifteen years in Brazil. Brazil is somewhat ambiguous about joining the OECD if invited, but increasingly its economic policies and practices resemble those of European OECD members such as Germany and Italy. I can see little in the campaign rhetoric for the 2010 presidential elections that suggest any significant change of orientation will occur in fiscal monetary, and exchange rate policies. With some exaggeration, it might be said concerning economic policy in Brazil in the light of the global crisis: The Washington Consensus is dead; long live the Washington Consensus.”
Third, the much closer integration of Brazil into the global economy in the 2003-2008 “golden era” brought transformational changes, especially the growth of the commodity trade with China, the rise of Brazil-based multinational firms, and the emergence of a global agribusiness based in Brazil. In particular, the success of agribusiness has injected a more offensive tone into Brazil’s trade policies, offsetting and diminishing the force of the traditional protectionist lobby.
In sum, the above factors of global integration are very powerful forces that suggest that the predominant tendency in Brazil over the next decades will be marked by cooperation with the global North within the context of a gradual reform of the global institutions.
It is not difficult to think of a large variety of global initiatives on behalf of which Brazil’s position as a reliable bridge to the global South can be of enormous benefit: reform of the IMF and the BIS, restarting the stalled Doha Round talks, and striking a post-Kyoto grand bargain on climate change. Of course, Brazil will be an important player in global energy, particularly trade in biofuels and development of its own pre-salt crude reserves. Brazil can also play an important role in re-capitalizing and strengthening non-market sources of development finance, including the World Bank and IADB, to play in the future a much greater role when private financing for investment emerging economies dries up as it so evidently has in this crisis.
Finally, Brazil seems to be emerging from this crisis on substantially more solid ground than its regional neighbors. The ALBA countries, which Ecuador has just joined, seem to be in competition with one another to jump off an economic cliff. Mexico is consumed by drugs, crime, and excessive dependence on the U.S. economy. Argentina is going through another of its disheartening eras of political infighting and bumbling economic mismanagement. While the Latin American countries have been reluctant to follow Brazil’s lead, none of them at present can aspire to the global role which seems to be within Brazil’s grasp.