Poster Boy of Globalization Charts Own Course

Kevin Casas-Zamora
Kevin Casas-Zamora Former Brookings Expert, Director, Programa Estado de Derecho, Diálogo Interamericano

April 9, 2010

In 1964, in the lead up to a coup that opened 21 years of military rule in Brazil, a popular bumper sticker in Rio de Janeiro read: “Enough of intermediaries! – [U.S. Ambassador] Lincoln Gordon for President!” In the coup’s wake, Brazil received $2 billion in aid from the U.S., becoming for a time the third largest US-aid recipient in the world. Brazil’s military rulers were as tightly bound to the U.S. national security strategy as any in Latin America during the 1970s. But a reformed Brazil has shed its subservient past. Instead of becoming a victim of globalization, like many in the underdeveloped South, Brazil emerged a victor to claim a leading role in world affairs.

Just how much Brazil’s standing has changed was evinced during U.S. Secretary of State Hillary Clinton’s trip to Latin America in March. While in Brasilia, Clinton requested Brazil’s support for a new round of sanctions against Iran for its pursuit of nuclear weapons. Her plea was a perfect chance for Brazil to fall in line with the U.S. after President Lula da Silva’s recent overtures towards Iran, including a warm reception granted to President Mahmoud Ahmadinejad in November. Instead, both Lula and his top diplomat, Celso Amorim, bluntly dismissed Clinton’s petition. “We will not simply bow down to an evolving consensus if we do not agree,” observed Amorim dryly. That Clinton felt compelled to travel to Brazil to talk about a faraway issue was significant in itself, but the hosts’ curt refusal to toe the line spoke volumes more about Brazil’s newfound self-assurance.

The source of this new frame of mind is the country’s transformation from macroeconomic basket case to stable market economy during the past 16 years. Under the stewardship of two exceptionally good leaders from the center-left, Fernando Henrique Cardoso and Lula, the country deregulated and opened up its economy, privatized large chunks of a bloated public sector and, above all, cured a chronic case of high inflation. It accomplished all this while putting in place successful social programs and preserving crucial state functions, notably in the realm of research and development. The result has been a reduction of poverty – from 48 percent of the population in 1990 to 26 percent in 2008 – and rapid expansion of the middle class, always good news for democratic consolidation. According to a study by the Getulio Vargas Foundation, upward social mobility allowed 10 million Brazilians to join the middle class between 2004 and 2008.

To put it simply, the convergence of political stability, market-oriented reforms and macroeconomic soundness allowed Brazil to unleash its natural potential just as globalization was gathering pace. Exports of an increasingly open Brazil have grown fivefold in two decades, pushing trade from 11 percent of GDP in 1990 to 18 percent in 2009. Crucially, this trend has been coupled with more diversified trading relations, in which countries like Iran and, above all, China play more visible roles. Indeed, in 2009 China surpassed the U.S. as both Brazil’s largest trading partner and export market. Massive recent oil discoveries give Brazil the second largest oil reserves in South America (12.6 billion barrels). Combined with large-scale ethanol production (37 percent of the world’s total), and huge soybean exports (32 percent of the world’s total), among many other assets, Brazil has become an energy and commodity powerhouse.

This is not the only transformation that bolsters the country’s growing economic might. Once the largest debtor in the developing world, today Brazil is much less dependent on foreign financial and investment flows than a generation ago. Brazil’s foreign debt today stands at less than 14 percent of GDP, a fraction of what it was at the onset of the debt crisis of the early 1980s. Even more remarkably, while the country continues to attract large quantities of foreign direct investment ($45 billion in 2008 alone), it has become a major investor in its own right. In 2006, Brazil became a significant net foreign investor, a feat not seen in any other Latin American country. Moreover, any account of why the country emerged virtually unscathed from the global economic crisis must take into account the conspicuous role of the state-owned Brazilian Development Bank, which today boasts a larger lending portfolio than the World Bank.

The combination of heavy presence in crucial commodity markets, more diverse commercial links and greater financial autonomy have compounded Brazil’s sheer size to give it unprecedented diplomatic clout. This is evident, first, in Latin America. From the rhetorical flare-ups between Colombia and Venezuela to the 2008 diplomatic rift between Colombia and Ecuador to the conflicts between Bolivia’s President Evo Morales and his internal opponents in 2007-08, which threatened to split the Andean country apart, virtually every diplomatic crisis in South America during the past few years has featured moderating intervention by President Lula. While Lula’s personal appeal is part of the reason, structural factors are at play, too, including the sudden proliferation of regional organizations – notably the recently launched Latin American and Caribbean Community of States – that threatens to hollow out the mandate and relevance of the Organization of American States. The new outfits, which pointedly exclude the U.S. and Canada, are tangible signs of Brazil’s intention to redraw the Western Hemisphere’s diplomatic architecture, suiting the leadership role that the country envisions playing in South America.

Nothing perhaps demonstrates Brazil’s new self-confidence as its relations with Iran, a trade partner to the tune of $1.3 billion a year – nearly all in Brazilian exports. Iran’s nuclear dispute with the U.S. and Europe offers Brazil the opportunity to assert its autonomy. Brazil has not forgotten being at the receiving end of the U.S. hectoring during the 1970s regarding the development of its own nuclear program. For many observers outside of Brazil, giving Iran the benefit of the doubt on the nuclear issue may appear either as naïve or cynical. Yet, for many Brazilians, the stance is simply a rejection of their past subservience to the U.S. In an election year, this is useful rhetorical meat that Lula can throw to his own leftist party’s political base, often doubtful about his friendly approach to markets. Finally, the Iranian issue is a chance to test the limits of a clever diplomatic device that has benefited Lula in the past: the dynamic whereby he, the acceptable face of the Left in Latin America, plays good cop to Venezuela’s Hugo Chavez’s boisterous and deranged bad cop. Lula’s position on Iran may be irksome and even prove unsustainable, but it is not devoid of rationality. Above all, it’s a message of independence vis-à-vis the U.S. that Brazil can afford as never before.

A cruel and oft-repeated joke says that Brazil is the country of the future…and will always be. As Hillary Clinton found out, easygoing Brazilians are not willing to be the butt of jokes anymore. They act as though the future has finally arrived. They may well be right.