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Brazil Gets a Chance in London to Show Its Credentials as Global Leader PDF Print E-mail
2009 - January 2009
Written by Lilly Briger   
Thursday, 02 April 2009 15:37

London summit World leaders convened in London for the highly anticipated G20 summit. Without a doubt, the current global economic crisis has transformed the geopolitical landscape and is heralding profound shifts in the international distribution of power. No longer are such momentous gatherings restricted solely to the G8 industrialized nations.

The debilitating ramifications of the crisis are not geographically localized, and therefore, any solution requires a global response that includes not only the most developed nations, but also the emerging market economies of the world. In this respect, Latin America is an integral part of the equation.

Brazil, Argentina, and Mexico represent the region's interests, as President Obama initiates his study of Latin American realities. Although not dubbed as such, the area nations could play a pivotal role in London and the gathering could be looked back upon as an economic summit dominated by the developing world, with Latin America being an important constituent.

Country Overview

Argentina

As a result of its precarious financial situation as well as its fractious political atmosphere, Argentina's influence at the summit will be limited in comparison to Brazil and Mexico. Buenos Aires' immediate concern is that it is strapped for cash and unable to tap traditional lines of credit following the dreadful economic crisis of 2001 and its subsequent debt default.

Consequently, Argentina is more apt to continue petitioning for greater flexibility on the terms of loans granted by the IMF to recipient countries. Furthermore, Argentine President Cristina Fernández de Kirchner recently met with Brazilian President Luiz Inácio Lula da Silva to coordinate their positions. In conjunction with Brazil, Argentina is likely to denounce protectionist measures and greater restrictions on trade with developed countries.

However, given the country's lackluster track record in recent years - Argentina has twice raised tariffs on imported goods from neighboring countries in the past six months - it is unlikely that such recommendations will gain much traction coming from Fernández alone. It was thus a wise decision to collaborate with Brazil prior to the summit.

Brazil

The G20 summit is yet another opportunity for President Lula to enhance his country's position as an up-and-coming global leader. Julia Sweig, a highly regarded political analyst at the Council on Foreign Relations, captured the great irony of how the economic crisis relates to the circumstances in Brazil, when she noted, "the crisis paradoxically, while hurting [the country] domestically, may well enhance Brazil's standing as a leader in and voice for the emerging world."

This, in fact, is precisely Lula's intention in London. Over the course of his presidency, he has vociferously argued for his country, as well as other developing nations to have a more equitable role in multilateral international organizations. Lula will assuredly continue to press for greater voting rights in the IMF and join his Latin American counterparts in calling for the recapitalization of the fund.

Furthermore, the Brazilian president will join Mexican President Felipe Calderón in pushing for increased trade financing and export credits to bolster the precipitously declining figures for world trade. Lula has advocated that the world's largest economies, including Brazil, should contribute up to US$ 100 billion to boost global trade through financing and export credits that has all but evaporated over the past year, especially for less credit worthy borrowers from Latin America and the Caribbean.

Averting protectionist measures from developed countries will also be a major concern for Brazil. In an interview with CNN over last weekend, Lula dubbed anti-trade measures a "drug" threatening to poison the system and strangle any hope of an economic recovery in the near future.

Mexico

Mexico will join Brazil in its denunciation of protectionism, as it has been on the receiving end of such measures from the United States. In an interview with The Financial Times, Calderón castigated the Obama administration for its decision to restrict Mexican trucks from using U.S. highways.

He declared it a blatant violation of the 1994 NAFTA agreement, and thus a breach of international law. Mexico responded to these measures by imposing countervailing duties ranging up to 10 percent on 90 U.S. products entering the country.

As the malevolent violence of the drug conflict begins to spread north over the border, the U.S. and Mexico are in no position to be engaging in what some would call factitious trade disputes. The danger is that such commercial quarrels will quickly turn into political debates, deteriorating the goodwill between the two nations and preventing collaboration on more germane matters like national security.

Similar to Brazil, Mexico will also be concerned with greater global financial regulation and increased funding for the IMF. Both countries are reportedly dickering with the IMF, and earlier this week, Calderón stated that Mexico would be ready to accept between the odd US$ 30 and US$ 40 billion from the IMF's new flexible credit line to fund infrastructure projects in the country.

This new credit line was set up earlier this month to replace the short-term liquidity facility that failed to attract any borrowers due to its rigid repayment schedules. Recipients can now use the modified fund as a type of collateral and draw upon the cash only if their economic conditions further decline.

The fund targets functioning emerging market economies for its generosity, precisely like that of Mexico, that have maintained sound fiscal policies during the boom years but have since found themselves particularly vulnerable after the downturn. Calderón's recent insistence that Mexico, along with other major developing countries, must assume a responsibility to limit their own carbon emissions will not be lost upon the world's rich nations.

Common Agenda

In the weeks leading up to the summit, the developed world has addressed the crisis in a particularly jagged manner- Europe has called for tighter global financial regulation, while the U.S. has pushed for increased spending. Latin America, on the other hand, has sought to forge a consensus with its counterparts in the developing world in an effort to form a united front.

On Tuesday, leaders from the 22-member Arab League and the 12 South American nations gathered in Doha, Qatar for their second summit. It is not a coincidence that the leaders decided to convene in Qatar. It lays at the center of the latest Word Trade Organization (WTO) negotiations, in which the European Union and the U.S. have joined forces in a ferocious debate with developing countries over the level of agricultural tariffs in the developing world.

Brazil was one of the leaders of the opposing fronts and has been pushing for the resumption and completion of the talks, which Lula will likely argue at the G20 summit. The location of the gathering sends a message to the developed world that the emerging market economies will be unified in their position against protectionism. While the G20 is indeed an important summit, any agreements brokered concerning trade will most likely be mainly political in nature and do not carry the force of law. Completing the Doha rounds would institutionalize through international law anti-protectionist measures.

To further convey this sentiment, the Arab and South American nations made strong commitments to push for reforms to the system of international organizations now in effect and increase trade between the two blocs, which has tripled to $18 billion since their initial commercial bilateral exchanges inception in 2005.

In this respect, Latin America has taken audacious steps to protect itself from anti-trade restriction by diversifying its trading partners. Brazil's Lula stridently noted that, "the wealth of the Arab world is now becoming an important factor in development...and you have to protect it."

With the World Bank estimating a steep decline in world trade of up to 6.1 percent, and the WTO predicting the figure to be as high as 9 percent, diversification in terms of links with non-traditional trade partners is beyond dispute. Only this tack can be counted on to limit the severity of the present economic blows now being visited upon the developing world.

Deterring Protectionism

Despite these poignant commitments to combat anti-trade restriction, it is unlikely that Argentina, Brazil, and Mexico and their Latin American neighbors will be able to secure much more than empty promises from the developed world despite the fact that they most likely will be demanding much more.

At a time when unemployment is on the rise, wages are stagnant, and the strong contraction in growth is strangling the markets, there are intense domestic pressures pushing protectionist measures in the U.S. and E.U, even though the experience during the Great Depression suggests that such tactics will only exacerbate already straitened conditions. At the same time, there will be those who will presumably argue that some form of protectionism is called for due to the economic discrepancies recorded among rich and poor nations.

To rectify the problems confronting global trade, the leaders at the G20 summit will be faced with the conflict that has troubled statesmen for the centuries: the incommensurability between a nation's domestic and its international experience and obligations.

Ultimately, a nation will judge a policy based on its domestic relevance as well as its legitimacy. By this standard, many American citizens and their European peers have been more concerned with protecting jobs at home, as well as their agriculture and manufacturing sectors, at the expense of trade relations abroad.

Thus far, however, the decline in trade is largely the result of falling demand and limited financing and credits rather than protectionist measures. In an effort to increase trade financing and offset further declines, Brazil, Argentina, and Mexico have supported proposals by Gordon Brown to secure a $100 billion fund and another from World Bank President, Robert Zoellick for $50 billion.

This fund would be largely reserved for the poorer nations in which the governments of the world's largest economies would provide most of the financing and assume most of the risk. Orchestrating an agreement at the G20 to introduce these liquid funds into the system would send a positive message in support of world trade.

Lending a Helping Hand

One of the most prudent issues needing to be addressed at the G20 and of major concern for Latin American and Caribbean nations is the recapitalization of the world's international lending facilities. Of these, the most relevant during these times of financial upheaval, is the IMF, which traditionally has assumed the role of lender of last resort.

At a time when credit has only been available to the highest quality borrowers and even then it is very expensive and in relatively short supply because of the high interest payments demanded by investors. These multilateral institutions have become an important source of funds for emerging market economies. As the crisis continues to spread, the World Bank has identified a US$ 700 billion financing gap for countries of the developing world.

Moreover, the forecasts for a sharp contraction in growth make these lending institutions more important now than ever. The World Bank has estimated a zero percent growth rate for Latin America in 2009. Additionally, the once booming capital flows that poured into the region are down 57 percent in 2009 from a year ago, to a dwindling figure of US$ 34 billion.

This will significantly hurt large parts of the region, especially the small countries of the Caribbean that lack the foreign currency reserves of countries like Chile and Brazil to spend their way out of the crisis. Accordingly, these malignant economic conditions are now taking a human toll.

In a poignant speech expressing the dire necessity to institutionalize support for the poorer countries of the world, Zoellick, using a rhetoric that was not his style during his USTR days, professed that, "in London, Washington and Paris people talk of bonuses or no bonuses. In parts of Africa, South Asia, and Latin America, the struggle is for food or no food."

He predicted that an additional 53 million people will be pushed into poverty this year as a result of the crisis. This figure is heaped on top of the 155 million people who were forced to live below the poverty line last year as a result of sharp spikes in the price of food and fuel. For their part, and out of a diversity of motivations, Argentina, Brazil, and Mexico have all pledged to be a voice for the world's most vulnerable nations.

For these reasons, recapitalizing the IMF and regional lending facilities such as the Inter-American Development Bank (IADB) has become a central concern for the cadre of developing county leaders of the G20. The aforementioned restructuring of the IMF flexible credit line has been a step in the right direction.

To supplement these efforts the G20 should conform to the demands of the IMF to increase its funds from US$ 250 billion to US$ 500 billion. Also, China, Saudi Arabia and Brazil are being called upon to make greater contributions. In return for this much needed liquidity, however, they should be given a greater voice in this international forum. With the IMF voting rights set for renegotiation in January 2011, the summit seems like an opportune time to introduce the subject.

President Michelle Bachelet of Chile recently expressed such a perspective when she stated, "we must call on the IMF for more democratic governing and to give more funds to the developing banks to be more effective in the countries [that need the funds] the most." As the crisis continues to wreak havoc across the globe, it is becoming increasingly clear that the developing world must be further integrated into the existing system.

Aside from the IMF, the IADB is making a move to present itself as an important regional lending facility for Latin America and the Caribbean. In 2008, the IADB made 131 loans totaling US$ 11.2 billion, which is a far jump from the 89 loans worth US$ 7.7 billion allocated in 2007.

Assuredly, the IADB is scheduled to become a major part of the solution for the developing countries of the Western Hemisphere. The bank, however, has not escaped the crisis unscathed. It has posted an estimated loss of $1.6 billion for the 2008 fiscal year.

As a result, IADB executives and member countries petitioned earlier this week to raise the bank's capital from US$ 101 billion to $280 billion. Increased loan requests for the 2009 fiscal year could be as high as US$ 120 billion, up from last year's requests of US$ 7 billion, making fresh capital a necessity if the bank's lending facilities are to meet new aggregate demand.

To this end, the United States, the bank's largest shareholder, has been cooperative. Treasury Secretary, Timothy Geithner, told the IADB that the U.S. was prepared to start a review of permanent IADB capital increases after the existing resources are exhausted. China and Brazil also have indicated that they are prepared to contribute to this fund. Sustaining the IADB's liquidity is crucial to the economic health of the Latin American and Caribbean region during what deserves to be seen as a uniquely perilous time.

Multi-Polar World Order

Hopes are high for the outcome of the G20 summit, but it may turn out to be just another parading of world leaders forging empty promises and failing to deliver on their sputtering pledges. Nevertheless, the marked differences in the exchanges between representatives of the developed and developing world cannot be underscored.

A decade ago, it would have been unheard of that Britain would be taking economic council from Chile. In a recent summit with U.K. Prime Minister Gordon Brown, Bachelet condemned Britain's frivolous economic behavior during the boom years. She cited that while Britain was out spending and overly leveraging itself, Chile saved revenue from exports, allowing it to implement a stimulus amounting to 2.8 percent of the country's GDP. Britain, on the other hand, was unable to afford such a comparable package.

It is truly a testament to these new times when Latin America, a region notorious for economic crisis, is giving the U.S. and Europe veritable schoolroom lectures on sound public finances. When the current crisis subsides, it could very well be that a new world system will emerge.

The reverberations of the downturn may turn out to have leveled the playing field and now the Latin American representatives of the G20 will be coming to the negotiating table with an exceedingly stronger voice.

This analysis was prepared by COHA Research Associate Lilly Briger. 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.



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Comments (22)Add Comment
What is this article anyway?
written by JACK DANIELS, April 02, 2009
"The reverberations of the downturn may turn out to have leveled the playing field and now the Latin American representatives of the G20 will be coming to the negotiating table with an exceedingly stronger voice."

When you deal with Predator nations like the US, a stronger voice or a lecture is not in the cards. Extreme caution is more to the point. Trying to make sense with an alligator or vampire is kind of what you are doing.
Predator nations
written by Ric, April 03, 2009
Also include Turkey, Italy, and the RAF, even though the USA has lots more Predators than the others.
...
written by João da Silva, April 03, 2009
RAF


Royal Air Force, Red Army Faction,Road Accident Fund, etc;

Please clarify ASAP

Sorry
written by Ric, April 03, 2009
The Royal Air Force, my bad, not a country but part of GB. Also I forgot the Phillipine Islands.
...
written by João da Silva, April 03, 2009
Also I forgot the Phillipine Islands.


How cruel of you to have forgotten your allies. Unpardonable sin.May be you are under the influence of JD.
No
written by Ric, April 03, 2009
But it is true that Jack Daniels (No.7) is a proud sponsor of the Professional Bull Riders. Which you will understand if you are a rodeo fan.
Ric
written by João da Silva, April 03, 2009
But it is true that Jack Daniels (No.7) is a proud sponsor of the Professional Bull Riders. Which you will understand if you are a rodeo fan.


Thanks for the info, Ric. Even though I am not a rodeo fan, I still appreciate the No 7 proud sponsor once in a while.
MQ-1 Predator
written by qed, April 03, 2009
When you deal with Predator nations like the US, a stronger voice or a lecture is not in the cards. Extreme caution is more to the point.

Good advice.
Ric...Senor da Silva
written by JACK DANIELS, April 03, 2009
Ric ever had any of that fine No. 7?
before you post, take a shot and call a doctor in the morning.
By the way, I didn't understand your inclusion of the Phillipine Islands?

Senor da Silva

Do you live in Lynchburg, Tennessee?
and the verdict is...
written by Shelly1, April 03, 2009
Is about time South American countries start owning for their own issues and blame less on others. South America is a dictator infested region. Give me one single country in SA that is doing very well on education, export, equal rights to everyone, and creation of jobs?

I can't think of one!
Jack Daniels
written by João da Silva, April 04, 2009
Senor da Silva

Do you live in Lynchburg, Tennessee?


No Mr.Daniels, though a long time ago I had a girlfriend from there. No 7 is good if consumed moderately, just like any other liquor. It is much better than Scotch, but not as good as the Canuck Rye. IMHO, the Scotch whiskey is quite overrated. These days, I prefer wine or good cold ones.
RIC...
written by ...., April 05, 2009
Your ignorance has been exposed. To insist on it, will make you look even dumber!

Costa
Of course... Shelly Kirka!
written by ...., April 05, 2009
You have one obsession… it’s called Israel.

Shelly Kirka… you personify the pejorative term “jew.” The stereotype that actually is very counterproductive to your people, but your too slow to realize it.

Shelly Kirka, the conscious of none!


Costinha
JOAO - What about the "Naïveté" of bloggers who insist upon the use of Spanish words?
written by Augustus, April 06, 2009
Joao
As a long time resident (now citizen) of the United States, I have spent my entire life struggling to explain to my naïve compatriots that throughout Brazil, with the possible exception of a few border cities and tows in the three states (and perhaps also a flurry of border sites in M.Grosso do Sul and Acre) the PORTUGUESE language is has always been not only the official but also the widely spoken language of Brazil. Granted that some words are the same, but the vast majority are either distinct of bear significant difference in spelling - not the mention that (mercifully) immense distinction in pronunciation!!!

For some reason, my fellow Americans have proclivity to generalize most things into the “same overall group”, an unfortunate trait, I daresay, their originating civilization – my beloved British Empire. Taking my best friend, as an example (a lawyer, imagine that!), who tends to see little or no difference between Portugal, Spain, Italy and France (they are ALL out there in Europe – in essence, “all the same”). Naturally for him there is absolutely no distinction whatsoever between any of “whatever” nations exist in the south beyond Mexico… After all, they are “all the same”… What is the difference between Nicaragua and Argentina?... Between Guatemala and Surinam?... Or between Honduras and Brazil? Virtually none, for “them”

Consequently, despite having grown exceedingly tired of such (apparently) futile task (of explaining, clarifying, and/or enlightening the “Irrelevant” to those whose individuals whose native language is English) I decided to take the liberty to intercede, on your behalf and clarify to others that, if / when they wish to address you, with some reference (which you undoubtedly deserve) - Mr. Dasilva - using OUR language (that is – PORTUGUESE), they should endeavor to utilize (or recognize) the appropriate language for such address (or correct Portuguese spelling) – unless, of course, the individual addressing you happens to be national/native of a country whose spoken language is Spanish…

In view of the above consideration, my esteemed SENHOR(s-e-n-H-o-r) dasilva, I bid farewell...
but...but.....
written by ch.c., April 06, 2009
COHA is part of the Brazilian Disinformation & Propaganda dept,having their office next to Robbing Hook office at the Planalto Palacio.

And funded by Caïxa 2,3 and 4 of the Brazilian government !

Short memory ?
Augustus
written by João da Silva, April 06, 2009
What about the "Naïveté" of bloggers who insist upon the use of Spanish words?


Hi Augustus,

After carefully reading your comments, I came to the conclusion that you gave a thorough "Minjada" to our new blogger Comrade Jack Daniels, who btw, shares (or used to) for our passion for Shakespeare. Who knows, he may even have read our other favorite books. I did not want to correct his "Portuguese" ( smilies/cool.gif), as I am too polite to do so.Besides that, I (as well as ASP) was more interested in hearing his Revisionist/Conspiracy theories. He sounds more like our other friend, DnB minus the quotes from the scripture. As you are fully aware, I like to listen to such theories. No doubt, Comrade Daniels is a refreshing addition to this blog and I welcome your contributions in contesting/concurring with his views.

You and I seem to attract strange "bed fellows". Bolsheviks, Leninists, Stalinists, Mãoists, Zionists, Islamo-Fascists, KKK, Blue or Brown eyed Nazis, etc; We have to learn to live with these anarchists.

In hind sight, we should have joined Itamaraty, but it is a bit too late.

Cheers

JOAO - My CORRECTION was for the "possible" incorrect assumption that the Language spoken in Brazil were not be Portuguese...
written by Augustus, April 07, 2009
My intention was NOT to correct anybody’s knowledge of Portuguese, for our language is not widely known, thus, I could not presume one should know its proper spelling...
Rather, what I was making SURE I would correct – an issue I had to DEAL with nearly every day in the United States (when my social life was very hectic) is the possible (not uncommon) PRESUMPTION that Spanish was the language of Brazil RATHER than Portuguese!

Do not also assume that I’m turning a minor issue into something gigantic!!! Because you live in Brazil, you may have any IDEA of the type of stigma which the Spanish Language generally presents to people who live here…
Have you hard of the term “Spik” (coming from “Spik & Span” – a cleaning device) Well, please not that such term is generally given to those who speak Spanish… Bearing in mind that I never dismiss the term “Latin” for it involves all groups, BUT BUT BUT our culture is not “Spanish” nor have we ever been a colony of Spain (except for the period between 1580 & 1640 when the Portuguese throne was vacant). In addition, the Spanish language one hears spoke in New York City is FAR from the lovely language of spoken in Madrid or Buenos Aires… Surely NOT the same language of Cervantes…
Anyhow, I just wanted to MAKE SURE one knew that Portuguese is the official language of Brazil!
Augustus
written by Forrest Allen Brown, April 07, 2009
no what you have in NY is porticain spanish , not a very clear form of it at best they even have there own dictionary , then you mix in all the spanglish on top of it and the ebuniocs spanish from the blacks
well you here it all the time .

as brasil does not speak clear portuguese eather , along with several countries in africa to here it in its true form you have to travel to portugal

and i beleive lula pased a law saying brasilira was the language of brasil last year , did he not Joao ?????
HERE YOU GO Costinha OR COSTA
written by Forrest Allen Brown, April 07, 2009
.
written by mustafafa, April 07, 2009
augustus, you would have laughed very hard at the bbc....
written by asp, April 07, 2009
in there interveiw with lula, they played "salsa music" over the introduction shots of brazil...

that is equaly painful for me, hearing people do a sountrack for a brazilian thing and use "clave" from cuba...

the nerve...(when i hear the argentinians on the beaches hear, it sounds like someone speaking a crude ugly messed up portugues)
Forrest
written by João da Silva, April 08, 2009
and i beleive lula pased a law saying brasilira was the language of brasil last year , did he not Joao ?????


I don't recall this, Forrest. I bet you had a private meeting with him and convinced him to do it. smilies/wink.gif

BTW, he lacks our sense of humor. smilies/sad.gif He should spend at lest 3 months in TX to match with ours!!!!!!!!

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