Faustian Bargain: Lula Sacrifices Developing World’s Dreams for a Few Votes at Home

Lula greets Hu Jintao Last June, the heads of government of the Group of Twenty Finance Ministers and Central Bank Governors (G-20) met in Toronto, for the fourth G-20 summit to discuss global finance reform, and problems and prospects facing the world economy.

The G-20’s past accomplishments, including financial reforms and recovery after the global financial crisis in 2008, arguably have mainly benefited the world’s most industrialized and developed nations, while producing relatively few results for the developing countries.

For the next G-20 summit, the Latin American representatives – Brazil, Argentina, and Mexico – should learn vital lessons from Toronto and must not allow themselves to be bullied by more developed countries into giving up some of the financial reforms the region requires to achieve economic growth.

In response to the financial crises of the late 1990s, the G-20 was created with the intention of integrating rising economies with existing industrialized powers to foster sustainable economic growth worldwide.

The G-20 is made up of the finance ministers and central bank governors of nineteen countries: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, Republic of Korea, Turkey, United Kingdom, and the United States. The European Union is the twentieth member of the G-20.

In addition, the Managing Director of the International Monetary Fund (IMF) and the President of the World Bank also meet with the G-20 to ensure that their global institutions operate in unison with G-20 resolutions.

The G-20 represents ninety percent of the world’s economic output, involving seventy-five percent of all world trade, and accounting for approximately two-thirds of the world’s population. Many had hoped that the G-20 would be prepared to give more global emphasis to the voices of important emerging-market economies such as Brazil.

Until 2008, when former President George W. Bush called the first summit for the G-20 into session to address the ongoing financial crisis, the leaders of the G-20 nations had never before gathered to discuss pertinent global economic issues.

Before that meeting, the G-20 was seen as a second-tier multilateral institution compared to the G-8 or the United Nations. At the height of the global recession, the members of the G-20 agreed on the root causes of the crisis, the actions needed to address the crisis immediately, common principles for financial market reform, and made a commitment to an open economy.

Much to the disappointment of developing countries, the G-20 decided that the most important reforms would be finalized at a future summit. The promised reforms included “emerging and developing economies should have greater voice and representation in [the IMF and the World Bank].”

After two subsequent summits in 2009, the promise to developing nations to institute international financial institutions (IFI) reforms is at the bottom of the agenda.


The single most important challenge that Argentina, a country heavily dependent on exports, faced coming into the G-20 Toronto Summit was the slow recovery of global demand. Buenos Aires leadership welcomed the renewed discussion regarding the IMF’s role, due to Argentina’s unfortunate recent history with the organization.

Argentina believed that following its 2006 debt crisis the IMF imposed unduly harsh austerity measures that further debilitated the economy. Buenos Aires wanted more flexible IMF lending policies in place and a change in the IMF’s governance structure.

For instance, Argentina believed the inequitable voting system at the IMF has not been sufficiently revised, despite the agreements made at past G-20 summits. Although no formal alliances have been established with other G-20 members, Argentina has common interests with the BRIC countries (Brazil, Russia, India, and China), which have resulted in discussions aimed at creating several bilateral agreements relating to trade and financial issues.


There were two central issues for Mexico at the recently completed G-20 Toronto Summit. The first was to have the developed nations confront the current global economic and financial crisis in a coordinated fashion. The second was to commence the restructuring of the international financial order.

Mexico planned to push for structural reforms within the IFI, including easier access to IMF credit lines for countries in financial distress. Furthermore, Mexico City joined Canada, Australia, and Brazil in opposing the global bank levy, which would be a universal bank tax to help pay for any future bank bailouts.

Finally, President Felipe Calderón laid out a plan to start thinking ahead of Mexico hosting the UN Climate Change Summit beginning next November 29 on climate change issues at Toronto.


Brazil’s major goal coming into the Toronto Summit was to give a greater voice to developing countries within multilateral institutions such as the IMF. Brazil, along with the other BRIC countries, wanted to push for IMF governance reform and give more voting rights to developing countries.

Brasília has only a 1.38% bloc of the vote in the IMF despite having the eighth largest economy by nominal GDP. As opposed to past reforms which have been merely symbolic of the rise of developing countries, completing a true IMF governance reform would give developing countries more control over their own economic advancement.

More important than its specific agenda, Brazil’s primary focus has been on its global role, which is founded principally on its integration into global trade and financial markets.

Following the global economic crisis, Brazilian President Luiz Inácio Lula da Silva became a leading voice for the developing world and a staunch critic of the developed nations.

“Brazil, Russia, India and China have a fundamental role in creating a new international order that is more just, representative, and safe,” Lula told his BRIC counterparts at the April 2010 summit held in Brasilia.

Brazil has a unique amount of clout because it is simultaneously a member of the G-20; a leader in UNASUR, an organization made up of emerging South American countries; and an advocate for the global South.

Lula, in the final year of his presidency, hoped to leave behind a legacy as the towering figure of the developing world.

“Balancing Budgets on the Backs of the World’s Poorest”

The G-20 Toronto Summit accomplished little in terms of Brazil’s goal of reforming the IMF’s governance structure, Mexico’s desire for easier access to the IMF’s flexible credit lines, or Argentina’s calls for international monetary system’s reform.

Instead, the G-20 resolved to have all of its members halve their deficits by 2013 and to stabilize overall debt by 2016. Brazil – along with fellow BRIC members India and China – was strongly against cutting back spending at this point in the global economic recovery.

It was Brazil’s Finance Minister Guido Mantega who warned the G-20 that “we must not balance budgets on the backs of the world’s poorest people.”

Brazilian leadership rightfully believed that by cutting spending at this point in the recovery, the developing world can expect to end up paying for European and American austerity. Mantega pointed out that Brazil could easily meet the goals set by the G-20, but was concerned for others, calling the proposed measures “draconian.”

Emerging economies such as Argentina and Brazil have worried that budget cuts in rich countries would hurt their export-dependent economies. Meanwhile, German Chancellor Angela Merkel found it “amazing” that all the G-20 states involved were able to come to a consensus.

President Barack Obama was less enthusiastic, fearing that slashing spending precipitously may result in a setback to global economic recovery. Once again, the G-20 left emerging countries in the dust, while Europe got what it wanted – a move towards financial austerity.

The final communiqué from the G-20 gathering needed to accomplish more for Latin America’s developing countries, especially those in Latin America. Part of the blame falls on Lula’s decision to skip the Toronto Summit, because on that occasion, his leadership was more sorely missed than he could have possibly imagined.

Lula: Missing In Action

Instead of being present in Toronto, Lula opted to stay at home after Brazil’s deadly flooding took over his agenda. The flooding in northeastern Brazil, which Lula has described as “shocking,” killed at least fifty-one people and displaced many more.

Lula’s home state of Pernambuco was one of those most affected by the disaster. The northeastern area of Brazil is the political base for Lula’s Worker’s Party; support from this region will be critical if Lula’s handpicked successor, his former chief of staff, Dilma Rousseff, is to win the October presidential elections.

On this occasion, Lula decided to strike a Faustian bargain in which he sacrificed the most important issues of the world’s developing countries to bolster domestic political support for his party so that it could retain power.

As a result of Lula’s absence, the remaining BRIC countries canceled their scheduled meeting. The BRIC countries were scheduled to have a brief meeting immediately before the G-20 met to formulate a united stance on global governance reforms.

“It was a bad call for Brazil,” says John Kirton, co-director of the G-20 Research Group at the Munk School of Global Affairs. “Lula is not just another leader, he’s a star of the G-20 show and he’s been an important leader on a number of issues. Western leaders will listen to Lula more than they will to [China’s] Hu Jintao.”

By not attending the Toronto gathering, Lula may have missed his last chance to press the EU to not drag its heels on reforms that would award developing nations with a bigger say in the international arena.

Without the BRIC meeting, the affiliated countries were unable to provide a united front on reforming international financial institutions, which was partially responsible for IFI reforms being left off the agenda.

Lula’s absence marked the first time in thirty years that the leader of a member country did not attend a G-7, G-8, or G-20 conference. Due to Lula’s political decision to stay home, Brazil was nearly invisible at this G-20 Summit, which could come to signify a major setback for a rising power with aspirations for a greater say in global affairs.

Without Lula, the developed nations of the West were less interested in the developing world’s problems; instead, they were more inclined to focus on their own economic woes. Lula’s important issues, including IFI reform, might have been included in the final communiqué had he appeared at the summit.

Brazil’s Mantega stepped in to represent his country at Toronto, but he lacked Lula’s charisma and political clout, both of which would have been necessary to accomplish the paramount social and economic reforms that Latin America seeks.

As the Toronto Summit closed with a whimper in terms of the G-20’s message, Latin America is still waiting for its vital needs to be realized. The region’s agendas for Toronto cited earlier were ignored by the developing countries.

Brazil is still waiting for its greater say in the IMF, Argentina is still pursuing a reduction of protectionist measures, and Mexico is still seeking easier access to IMF credit lines. The leaders of Argentina, Brazil, and Mexico would be wise to present a united front for the next summit in Korea this November.

Brazil’s new president, regardless of who that is, needs to play a pivotal role in representing not only Brazil but the developing world as well.

The Toronto Summit proved the developed world is perfectly willing to leave the developing countries behind if the emerging nations do not step up to the plate and be prepared to play hardball.

John Garcia is a research associate at the Council on Hemispheric Affairs (COHA) – www.coha.org. The organization is a think tank established in 1975 to discuss and promote inter-American relationship. Email: coha@coha.org.


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