The Folly of Brazil's Exceptionalism

Brazil has achieved its status based more on potential than economic performance and while President Lula has earned his popularity in Brazil, on the global political stage, he has made a mess of things.
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Brazil has been referred to as a regional superpower and an emerging global power, and President Lula has been called the most popular politician in the world by President Obama. But is Brazil's and its President's status well deserved, and have they lived up to their reputation? This article will argue that the answer is 'no' to both questions.

Rather than having earned its much vaunted position among political and economic pundits, Brazil has achieved its status based more on potential than economic performance, and while President Lula has certainly earned his popularity in Brazil, on the global political stage, he has made a mess of things.

To BRIC, or not to BRIC - That is the Question

Goldman Sachs first coined the term "BRICs" in 2001, instantly catapulting Brazil into emerging regional superstar status, which was puzzling since Brazil was in the middle of a financial crisis at the time. Its $210 billion foreign debt equaled 38% of the country's GDP, per capita GDP was just $2,800, and its real GDP growth rate was just 2.7% that year. The value of its currency had plunged by 29% from the previous year, and in 2002 -- the year Lula da Silva was first elected President -- the country took out a $30 billion financial assistance package from the IMF.

Based on its economic performance, Brazil did not deserve to be placed on the same pedestal as China and India. Goldman undoubtedly threw Brazil in the pot because of its 'potential' as an emerging regional power. However, based on its economic performance, Brazil still does not deserve to be in the same company as the other BRIC countries. Consider this:

  • Brazil's average GDP growth rate from 1997 to 2001 was just 2.0 percent, and from 2002 to 2006, just 3.2 percent;
  • Its average GDP per capita actually fell from4,100 between 1997 and 2001 to4,000 from 2002 to 2006; and
  • Average annual foreign direct investment to Brazil also fell from27 billion between 1997 to 2001 to less than16 billion between 2002 to 2006 (Source: Political Risk Services).

The country's GDP growth rate actually only exceeded 4 percent once between 2001 and 2006, while Russia's, India's, and China's average growth rates for the period were approximately 7, 9, and 10 percent, respectively. Brazil's GDP growth in 2009 was -0.2%. Although Brazil is expected to reach 6 percent growth this year, through 2014 it is projected to revert back to its usual lackluster growth performance (by BRIC standards) of 3 to 4 percent (Source:Business Model International), while China and India are forecast to continue to try to tame double digit growth.

So it appears that Goldman erred by tossing Brazil into the BRIC pot and must have used different criteria for Brazil than it did for China or India. This raises question about the wisdom and validity of having created the term BRIC, and the aura that surrounds it.

A combination of government complacency, an inadequately developed regulatory framework, and a host of infrastructure bottlenecks prevent Brazil from achieving its full potential. Rigid labor laws, a byzantine tax system, and government domination of long-term credit markets conspire to prevent Brazil from breaking out of its well established pattern of below average economic performance. Having been lauded by investment banks for a decade, and having been rescued by the IMF - crisis after crisis -- for more than $40 billion since 1984, Brazil must feel it can do just about anything and retain its stature in the global arena.Too Big for Its Britches

Politically, Brazil has simply gotten too big for its britches. The country's obvious regional importance and special status among global policy makers gave President Lula the confidence to leap on to the global political stage. Lula naturally sought to project Brazil's power globally, but based more on his popularity as a friend of the global worker than as a skilled statesman. Although Brazil has admittedly been a pivotal player in forming the G20 and played a significant role in WTO and climate change talks, it appears to have bitten off more than it can chew.

Brazil's foreign policy since 1985 has been based on three pillars of achieving autonomy: through diversification of relations with other nations, by maintaining a distance from the liberalizing international order, and participation in international forums. For Brazil, independence is paramount, and in foreign policy, it wants to be all things to all people. As a result, a tendency to 'double deal' with its international partners in order to protect itself has become endemic in Brazilian foreign policy over the past 25 years (Source: Gabrial Capaluni and Tullo Vigevant, Brazilian Foreign Policy in Changing Times).

By embracing Iran and attempting to broker with Turkey the low-enriched uranium swap to France, he has chosen to give priority to Brazil and Iran's $2 billion trade relationship over Brazil's decades-long relationship with Washington. As a result, Lula has burned a lot of political capital with Brazil's second largest trading partner (the U.S.). The attempted exchange with Iran demonstrates clearly that Brazil will pursue its own path, even though it is clearly not yet ready to assume a leading role in superpower politics. As Brazilian foreign affairs analyst Matias Spekor has noted, "Foreign policy requires intellectual capital, and Brazil is ill prepared to engage in a globalized world."

Brazil's attempts to play a broker role in Honduras, when former Honduran President Zalaya was thrown out of power in 2009, and more recently between the Israelis and Palestinians, also both failed - the result of the Brazil overstepping its bounds and sticking its nose where it doesn't belong. In his desire to be all things to all people and maintain a diverse range of bilateral relationships, Lula has gotten himself caught on a rather slippery slope and is causing potentially long-term damage with some of its most important allies.

Pursuit of Autonomy vs. Adversarial Role

Brazil's desire to achieve autonomy in foreign affairs is not new, but a number of historical and current examples makes one wonder whether its pursuit of 'autonomy' in foreign affairs makes the country an ally or adversary of the West. For example, Brazil first embarked on a nuclear program in the 1930s and pursued a covert nuclear weapons program until the 1970s. It retains the ability to create nuclear weapons but agreed not to do so under the terms of the Nuclear Non-Proliferation Agreement, and as a signatory to the 1994 Treaty of Tlatelolco, which bans nuclear weapons in Latin America. But Brazil continues to have a program to produce enriched uranium for power plants, and opened its first uranium enrichment plant in 2006.

In its negotiations with the International Atomic Energy Agency (IAEA) at the time, Brazilian negotiators did not want to allow inspection of its centrifuges, arguing that doing so would reveal technological secrets. Following extensive negotiations, the IAEA relented and agreed not to directly inspect the centrifuges, but rather the composition of the gas entering and leaving the centrifuges. Brazil won a significant victory and the U.S. was forced to resort to merely stating that it was "sure" Brazil had no plans to develop nuclear weapons.

If Brazil decided to pursue a nuclear weapon today its centrifuges could be reconfigured to produce enough highly enriched uranium to produce nuclear weapons. In addition, Brazil has ambition to develop a nuclear submarine fleet, having authorized the construction of a prototype submarine propulsion reactor in 2007. So Brazil has similar proliferation capability as Pakistan and North Korea but is seen as a 'team player,' having gotten a green light as one of the good guys from the IAEA and the United States, while actually having manipulated and emasculated both for its own benefit.

Consistent with its strategy of strengthening ties with poorer countries, Brazil has either abstained or attempted to substantially dilute a number of human rights resolutions in the United Nations. In February 2010, Lula visited Fidel Castro, referred to Cuban human rights hunger strikers as common criminals, and defended Cuba's treatment of political opponents.

This is ironic, since Lula got into politics as a result of being a union leader, and led similar strikes against Brazil's military government in the 1970s. According to Jose Miguel Vivanco, Americas Director of Human Rights Watch, "outside of non-democratic countries like China, Brazil has become the biggest obstacle nation to advancing universal human rights and freedoms." Is this really the reputation Brazil means to forge for itself over the long-term? Aid Recipient and Provider

As developed countries have done for decades, Brazil is now using its new position in the world to attempt to influence poorer countries by dispensing aid. According to The Economist, Brazil now commits more than $4 billion per year in foreign assistance (including disbursements from Brazil's aid agency --the Brazilian Cooperation Agency--, contributions to individual countries and other aid organizations). That is more than China and about as much as 'generous' developed countries, such as Canada and Sweden. In that regard, Brazil is keeping good company.

Spending by the BCA has trebled over the past two years and recipient nations are quite happy to receive the aid, since Brazil does not impose western-style conditions. Unlike China, which focuses its aid on infrastructure and natural resource extraction, Brazil targets its assistance more on social programs and agriculture, which resonates well with local populations.

Since Brazil is also a recipient of aid, the country's new role as aid giver has helped blur the distinctions between aid recipients and donors. This is consistent with Brazil's tendency to want to shake up the ancient regime and redefine what is means to be a developing country. But it is entirely possible that, as was the case with China, Brazil's foray into development assistance could come back to bite it later.

Its Own Worst Enemy

In spite of all the hoopla over Brazil as one of the world's globalization poster boys, its worst enemy is itself. Brazil has yet to sustain mid-to-high single digit GDP growth rates as the other BRIC countries have done, and looks no better poised to do so in the second decade of the 21st century than it did in the first.

Brazil's inexperience on the global stage, combined with Lula's desire to project Brazilian power, has led to a series of mistakes that are perhaps best described as reckless. By trying to shape the world to reflect its own world view, Lula has succeeded in ringing alarm bells in Washington and the capitals of Europe. That cannot help its objective of gaining a permanent seat on the UN Security Council.

The Brazilian government would be well advised to steer clear of the established powers' neighborhood until such time as it is genuinely accepted as a member of the club, and can demonstrate that it has something meaningful to offer by becoming engaged in the most sensitive diplomatic issues of the day.Daniel Wagner is Managing Director of Country Risk Solutions, a political and economic risk consultancy based in Connecticut. Tyler Rouillard is a research analyst with CRS and provided research for this article.

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