New Winds in South America

New Winds in South America

Ingo Plöger Brazilian entrepreneur, Pres. CEAL Conselho Empresarial da America Latina – Brazil
Brazil, since January 2019, has a new administration. It is a country of continental dimensions that borders on more than 10 countries in South America. Its economy is the largest in Latin America, followed by Mexico and Argentina. The direction that Brazil takes makes a big difference in the Region and in reaching the 10TH position in the international ranking, makes weight in the G20.

Brazil, from 2004 to 2017, had a moderate left-wing political bias, with a strong social insertion and international alliances more linked to social democracy and socialism. Between 2017 and 2019 there was a transitional government that shifted the direction towards a more conservative and reformist government. Brazil’s political agenda was focused on managing its profoundly changing issues, especially on the institutional side of corruption and mismanagement. All 3 Powers were heavily involved in this process, placing institutions under a strong stress test. The recession was brutal because of the fact, contrary to Argentina, of Temer’s administration in transition, to bring inflation in less than two years from 10% to 3% a year. This is only possible by having stratospheric interest rates and holding the public accounts to the maximum. The brake was extremely abrupt, had its economic results of reducing the inflation, but the public expenditures with the GDP were very high (mainly by the reduction of the receivables, even if there are expenses reduction). The market understood this upset, so much that the exchange variation remained in civilized bands and the FDI (Foreign Direct Investments) continued to beat records.

The election came, brought great surprises in the choice of its politicians with a huge change.

More than 50% of the federal deputies are new and more than 2/3 of the Senate has been renewed, leaving old politicians as unelected, like former president Dilma Rousseff, rebutting the PT’s thesis of the “coup”; the elector chose to change.

Jair Bolsonaro is elected, a deputy who has 27 years of experience in the Brazilian Congress, who uses a direct, non-diplomatic language, shocking the ears of the “politically correct”. The people chose someone who, they believe, could change what many people always said but were never able to accomplish. Someone had to come, who spoke their language, and had the courage to put the sensitive subjects in motion. He begun by indicating Sergio Moro, now a national hero, for his tireless fight against corruption, to be his super-minister of Justice including the issues of the Federal Police, Prison System, Financial Crimes and others that give him the power to put “order in the house”. Bolsonaro chooses an Agribusiness Minister, a very courageous parliamentarian who led the agribusiness parliamentary front, including, in its attribution’s the former Ministry of Agrarian Development, Agrarian Reform and the definition of indigenous demarcations with strong influence on environmental issues. He also chooses to lead the Science and Technology area a former Brazilian astronaut. He transformed the Ministry of Industry and Commerce and the Ministry of Planning in one Ministry of Economy and appoints the super-minister Paulo Guedes for this function.

Jair Bolsonaro concentrates efforts and reduces to 22 the number of Ministries. In the Foreign Affairs, he surprises everyone by nominating a young diplomat, ambassador Ernesto Araujo, an intellectual, with a vast culture, who wants to promote Brazilian issues more than global issues. He approaches Trump’s USA, Israel, and other countries that are more nationalistic than globalist. What these measures will bring to the Brazilian foreign policy direction?

Jair Bolsonaro and his team want Brazil to return to the international scene, more for its qualities than for its defects. It places Brazil as an Agribusiness power, as an Energetic power, potent of its consumer market, opening the markets to the allies that give it this attention. The US (like China and Russia) are economies that have long productive chains, from the grain to the consumer table, from the tree reforested to the book, from the ore to the airplane, etc. The US and Brazil’s GDP has more than 40% linked to the long productive chains, hence the low ratio between Exports + Imports / GDP is not higher than 25%. It is an economists’ old mistake to argue that it is an index of market opening. The comparison has to be made between countries of long and short productive chains.

What could be the unfolding of this vision?

Brazil should strongly align itself with the US, reopen discussions with Mercosur and the Pacific Alliance and finalize an agreement with Mexico that would bring Brazil closer to USMECA (formerly NAFTA). This process may take some time, but seeing Trump’s willingness to negotiate with Mexico (while maintaining the polemic of the wall) and Canada, it would not be surprising if an agreement were concluded, of no more than 5 to 6 strategic sectors, that would involve the logic above. The rest is for later. Latin America would have a renewed FTAA …

The European Union would continue to negotiate, for another 20 years, the Mercosur agreement and the European Union …

The alliances in South America could be much stronger and more objective, starting from an inductive market. China would maintain its relationship with Brazil in the commercial areas, but with a bias of more American norms, and investments in areas not considered strategic for Brazil, such as in energy, oil and gas, and some IT areas, the others would be as they have always been.

Is it a radical change? Or is it a change for the region’s vocations?

If on one hand we are afraid of a more “nationalistic” tendency, we hope for greater economic freedom, induced by a “chicago boy”, opening the country to the competition. These contradictions can be good or bad, the art now is to correctly interpret the new course based on the polls. After all the people spoke …

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