A Good Yankee Conquered Latin America

The judgement of the first hundred days of the Obama administration might have had all the attention in the US, it is, as a matter of fact, a global affaire. The foreign policy of the Bush/Cheney administration was ruinous in its approach to and contacts with Latin America. Bush’ few visits to Latin American countries were always characterized with massive, sometimes even violent protests and demonstrations. Neither the Latin American leaders nor the people expected anything positive from Bush/Cheney, and as a consequence any American initiative, commercial or charitable, was met with mistrust and suspicion. Exponents of this disastrous foreign policy were the dubious American interventions in local affairs in Venezuela, Bolivia and Paraguay and the re-instalment of the 5th US Navy Fleet in the Caribbean. The US, personified by George Bush, was “el diablo” as Hugo Chávez stated openly and with which statement many a Latin American government leader silently agreed.

Although the 5th Summit of the Americas, sarcastically called the G-34 (the number of countries attending the meeting of three days in Trinidad and Tobago) as part of a soup of letters and numbers in which leaders dive, was distinguishably unimportant, it was, however, the perfect event for the new president of the USA to meet efficiently with all government leaders of Latin America, notably the Left-Wing leaders with anti-American feelings, among them Hugo Chávez (Venezuela), Evo Morales (Bolivia), Fernando Lugo (Paraguay) and Daniel Ortega (Nicaragua). But it was also crystal clear that the meeting in a country once a haunt for pirates and smugglers had to offer some thrilling bids and a bit of suspense.

The Summit was created in 1994 by the then US President Bill Clinton. The initial objective was to create a single trading system, the FTAA (Free Trade Area of the Americas) for the whole region. After several dead ends, especially between the United States and Mercosur, the initiative was buried after the last meeting in Mar del Plata.

But this time, it was the Latin American and Caribbean debutante ball for prince Barack Obama, and you never could know whether Hugo Chávez would try to spoil the party and steal the show (he anticipated that he might veto the final declaration) and the absence of Cuba was remarkable since the island of the Castro brothers was the predominant theme of this picnic.

Several Latin American leaders agitated as usual against the financial shenanigans perpetrated by Big Brother America, albeit knowing they need to work with Obama. You just had to observe the body language and juggling rhetoric of Lula in relation to Obama. Again, as in the G-20 summit in London, we had the flawless performance of the US president stating that he was here to listen, to recognize flaws and trimming edges, but let's remember the obvious: the US is still the indispensable superpower, maybe weaker, more limited and less arrogant, but still the No. 1 Superpower.

There were also limits to achieve necessary change. Before the trip to Trinidad and Tobago, Washington broke some ice in relations with Havana, allowing more travel and financial remittances from Cuban-Americans to the island. But not enough to make an immediate reversal of the economic embargo, in force for 47 years, the age of the President. This will depend on tortuous negotiations with the anti-Castro lobby in Congress, and positive gestures of the Castro brothers.

Who was to know, that Chavez, supported by his vassals, might lay an ambush, but what fun could there be with "el diablo" George W. Bush not present? It should have been difficult to repeat the waves of protests and bullshit targeting Bush during the 2005 summit in Mar del Plata.
Before the Summit started Itamaraty, the Brazilian Ministry of Foreign Affairs, released a statement: “President Obama is new in office and it makes no sense to create a "negative" situation during the summit”, and continued to say that the Cuban government itself would have no interest in a confrontation with the Obama government, because of its willingness to a "dialogue."
"President Lula goes to Trinidad, aware that neither Obama, nor Cuba are interested in transforming the embargo in a big controversy during the summit.”
For many, the US remains an imperialistic country, but Obama is a good Yankee.

Before the summit started The New York Times published a sombre toned article, emphasising the erosion of the US influence in Latin America and the deeper engagement of China in the hemisphere, but it is ridiculous to imagine that one day the “Emerging Asian Superpower“ will have a hegemonic role in American’s backyard.

The veteran "Brazilian-expert" Abraham Lowenthal, professor of international relations at the University of Southern California, said that Obama’s trip to Latin America during its first 100 days of government is prove of the importance he gives to the region, given the alarming economic crisis and geopolitical challenges in other parts which consume all attention of his administration. Latin America, however, is not a priority of this government. The urgent national issues, like the economic crisis, drugs and immigration, dominate his domestic agenda.

What is the importance of the summit for Brazil? And can somebody tell me how many summits President Lula has already participated in during the four months of this year? Since the summit in Mar del Plata, Brazil is more prominent and influential. For Lula, it is great to be charmed by Obama. But in the words of Rubens Barbosa, former Brazilian ambassador to Washington, the summit is a "non event" because it was originally initiated to stimulate a dead FTAA (Free Trade Area of the Americas), against which Brazil resisted. FTAA is not any longer, but there is Hugo Chávez’ Alba. Leaders can always find a reason for another summit.

Although heavily criticized in the US, Chavez friendly handshake and gesture to present the new US president with the book “Las venas abiertas de América Latina” (or in English: “Open Veins of Latin America”), written by the Uruguayan Eduardo Galeano in the seventies of the last century, was one of the most remarkable public expressions of seeking a rapprochement with the US and at the same a signal to the ‘imperialist’ that the future had to be laid out with mutual respect. Remember, the book - which is arguably Galeano's best-known work, analyzes the history of Latin America as a whole from the time period of European contact with the New World to contemporary Latin America, revealing what he views as European and later US economic exploitation and political dominance over the region - is clearly a signal of the Latin American leaders to Obama, that continuation of this loathed policy can not and will not be accepted any longer.

Whether US policy to Latin America will change dramatically in a positive direction requiring mutual respect, we have to see. But for the time being “A Good Yankee Conquered Latin America”.

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Wrong Choices

This is a (translated and edited) text of the blog of Miriam Leitão, economist and columnist for O Globo
The response of Lula’s government to the financial crisis has serious defects: some market sectors are benefiting but not the entire economy, and incentives are given without something in return. The car, a product for the middle class and the rich got a tax waiver, the employees of the automakers received an employment guarantee, but the sugar-alcohol sector has neither, not even a guarantee of the labour laws.

In the United States, aid to the automakers was given under the condition of environmental improvements. Here, nothing was requested from the automakers, except to keep labour employed, which creates a distortion in the economy: all Brazilians can be dismissed, except employees of the automotive sector and public officials.

March 30 was the “Day of Cars”, here and in the US. There, the president of General Motors fell in disgrace because the government refused his plan for the adjustment and adaptation to the requirements. I do not want to compare the aid of billions of direct tax-dollars to the coffers of the auto-industry in the US, to the tax waiver here, but insist that this was a great opportunity to induce changes upon the Brazilian auto-manufacturers.

The new president of GM will have 60 days to submit a new plan, but already started to say that the new cars will be different. Frederick Henderson said that the automaker is one or two generations behind in green technology for cars and that the company will have to learn to make money on light cars, and not just SUVs. Another requirement is that of a fiscal adjustment in the company, which will separate good assets and problematic liabilities difficult to digest, such as the employees’ pension fund.

Over in the U.S. it is entirely different, but it is important to see the attitude of governments, in helping the industry. The Obama administration has asked something in return. The Lula government extended the reduction of the IPI-tax for cars and trucks requiring only keeping employment at the same level. It is worth remembering that the manufacturers of trucks did not meet the requirement, from the beginning of 2009, to manufacture only trucks with clean diesel engines. After seven years of delay, they said they were not prepared and needed three more years to deliver here in Brazil, what they deliver in other countries already for years. This, for example, could have been a consideration, a quid pro quo.

The complete absence of concern of the Lula government for the environment is shocking. Yesterday the government reduced the IPI-tax to zero for electric showers, high consumers of energy, and a product which has been abandoned in other countries. Electric showers have had a reduction of the IPI before and have now been set to zero along with other conventional building materials such as cement and brick. The Ministry of the Environment had asked to equalize the tax for the electric shower (which was 5%) with solar panels (which pay 18%). The decision "has not yet been taken” and is still in consideration by the Treasury.

End of March Banco do Brasil got authorized to extend the credit line of the FAT Giro Rural for two years. The credit line is BRL 4 billion (USD 1,8 billion) and the first trance will be paid from April 1. The agribusiness is getting an aid package for the sugar-alcohol sector and the production of meat, two flagrant champions of slave labour. Livestock breeding is directly related to the deforestation of the Amazon. The BNDES (Development Bank) will make a classic rescue operation, supplying BRL 200 million (USD 87 million) for a bankrupt slaughterhouse, which operates in a deforested area. In none of the aid programmes any change in conduct was negotiated, neither in relation to the workers, nor in regard to the environment. This all happens as if the Brazilian government is not of this world.

The vehicle per capita in Brazil, according to Anfavea (Automobile Manufacturers Association), is one vehicle for every eight inhabitants. This is the overall average, taking into account the population and the fleet of 25.5 million cars. Just to compare, the same density in the US. is one vehicle for every 1.2 inhabitants, in Japan it is one vehicle for every 1.7 inhabitants, in Mexico it is one for 4.7 inhabitants, in Argentina it is a car for every 5.2 inhabitants, all data from Anfavea.

The 2000 census said that 54.4 million Brazilians lived in households that had one or more cars, which then represented 32% of the population. Imagining that this percentage has grown a bit, as the sales of vehicles increased - though most new cars have been bought by the same families who had cars before, but some new entered the market - who owns a car belongs to the middle class and from there upwards. The two figures show that the motorized do not reach 40% of the population. The ones who buy a new car are exactly the ones who have a higher income.

The government did something that will benefit only the middle class and the rich, protected only employees of automakers and support the agribusiness without requiring any change of conduct.

Lula is losing the chance to change opened up by the crisis.

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Latin America celebrated the collapse of neo-liberalism

Latin American Presidents with a left-wing signature participating in the World Social Forum 2009 in Belém, celebrated the collapse of neo-liberalism.

Characterized as the block of the real left-wing Latin American social movements, Presidents Hugo Chávez (Venezuela), Evo Morales (Bolivia), Rafael Correa (Ecuador) and Fernando Lugo (Paraguay) celebrated the collapse of neo-liberalism in ‘Davos’, a reference to the meeting running at the same time as the Social Forum, and collecting the crème de la crème of capitalism in the Swiss Alps. The assembled Latin American presidents gave a clear message to the participants of the World Social Forum (WSF), that was held in Belém from January 27 to Feb. 1: "We need to unite Latin America to cope with the economic crisis", they claimed, while they also called on the ‘left’ world to support their governments.

The Presidents took part in a debate organized by the Movimento dos Trabalhadores Rurais Sem Terra (MST = Movement of landless farmers) and the umbrella organization of small farmers, Via Campesina. President Luiz Inácio Lula da Silva of Brazil was not invited to this meeting.

In the debate with the MST, Rafael Correa set the tone at an early stage, when he said that "neo-liberalism is a perverse system that now crumbles." The Ecuadorian president also said that the Social Forum is part of the solution the world needs and proposed enthusiastically: "The WSF is part of the solution to the crisis. Hopefully, the alternative emerges now from this Forum in Latin America.”

Hugo Chavez argued that the Forum has to leave the trenches of the fight and launch the attack. "The WSF must change its strategy because we are in the phase of attacks and no longer in the period of trench warfare."

During the debate, called "Prospects for the Integration of Latin America”, the Presidents launched numerous attacks on the "North American imperialism.” Chavez proposed an international trial of the former U.S. president George W. Bush for his alleged crimes against humanity. In the same debate, the freedom fighter Che Guevara was honoured. His daughter was present during the session.

With the new American president Chavez was cautious: "We are still waiting for the performance of the new American government, which faces itself a very serious problem within its borders: the economic crisis." But he stated that he was not blinded by the promised changes: "The empire is still intact and the president [Obama] has said that Chavez is an obstacle."

Fernando Lugo, Paraguay’s last year elected President, new in this ‘left’ presidential bloc, welcomed the participation of farmers and indigenous movements as agents of change in the WSF: "Thanks to the social movements in Latin America, we experience a time of change."

Evo Morales expressed his solidarity with the landless and indigenous people and admitted that he can make mistakes, but promised never to abandon “the struggle against North American imperialism."

The Brazilian Minister of Agrarian Development, Guilherme Cassel, said that the MST made a serious “political mistake” by refusing, Lula to taking part in the debate with the Latin American presidents. And concluded with the words: "He, who takes part in a WSF debate is open to dialogue and criticism."
It is clear that the MST is very dissatisfied with the agrarian reforms (or lack there of) during the reign of the Lula administration. And it is also clear that what Cassel said is a farce, because Lula has never been able to handle criticism in a positive way.

Lula will participate in some activities during the last days of the WSF, but none of the MST and Via Campesina, the international organization to which the MST is connected.

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The Flying Brazilian - A Busy Bee

It is a public secret that President Lula, from the very beginning of his first term in office, indicated his intention to see the world before his second term in 2010 will end. That’s why he bought, immediately after his inauguration as president, a new plane (an Airbus A319CJ ).


In 2008, the President made 33 international trips, almost the same number as in 2007 (36). It is for sure that in 2009 the ‘AeroLula ', as his plane popularly is called, will make many international flight hours.
In the year before the presidential elections and the penultimate year of his second term, president Luiz Inácio Lula da Silva packs his bags for many an international flight, to activate his strategy for Brazil as an active participant in the discussions on the measures to be taken to get the world economy off the ground. 2009 will be a year of intensive international discussions regarding the global economic crisis and Lula wants to use this situation to try to fortify his international prestige.
We made a photo-reportage of his most important trips in 2008.
......... continue reading and enjoy the photo reportage of Lula's travels

“Passamos A Ser Donos Do Nosso Nariz”

At last we are masters of our own nose

The international rating agency Standard & Poor's announced on 30 April the upgrading of Brazil from BB to BBB- (BBB-(minus): is the lowest rating above non-investment grade BB) with which the country joins the group of "reasonably secure countries for investments". On the stock market in São Paulo (Bovespa) the value of shares rose dramatically after the news broke, while the shares of Brazilian companies listed on the stock exchange in New York joined the euphoria.

President Luiz Inácio Lula da Silva commemorated the promotion to "investment grade" with the words:
"I don’t know how to pronounce the word, nor what it means, but if it is translated into a language Brazilians understand, then it seems, that Brazil is classified as a serious country … .. It is a victory for the Brazilian people, which waited for this moment for years. With this new classification, there is no doubt that Brazil is now a serious country." Clearly alluding to the infamous words of Charles de Gaulle.
According to Lula, the upgrading is of great importance. "It is the guarantee that we are now master of our own nose, and can decide on a policy which we deem suitable for Brazil."

Of course the national press was full of praise and positive analysis and even the international press could not remain at the sideline to extol Brazil to the skies.

The British "The Independent" suggested that the Brazilian economy undergoes a "carnivalesque experience.”
The "Financial Times", meanwhile, put Brazil “among the first countries on the investment list", although it warned that the prevailing high interest rates could impede economic growth.
The French newspaper "Les Echos" wrote that the country "is bathing in sweet euphoria" referring to the absurd stock market rise of 6% in São Paulo within one day.
The Spanish "El País" pointed out that the addition of Brazil to the list of "secure countries" will encourage investors to switch from the speculative markets to a secure investment in this country."
Economists expect that some 1,000 billion USdollar will enter the country.

The essential advantage of the change to investment grade is that large institutional investors, who according to their statutes only can invest in low risk assets, are now allowed to invest in Brazil, as the classification is an instrument that reflects the risk of a country being capable of complying with its obligations. The higher the classification, the lower the risk, and with it the likelihood that investment capital will enter the country.

The president of the Central Bank, Henrique Meirelles (see photo), called the S&P decision "very significant." For him, it shows that Brazil has sufficient immunity against external shocks.

But if everything is so positively judged by everyone, why do I feel so worried about it.
Fortunately I am not the only one as a few critical comments appear on various blogs. Just let’s take one. A résumé of the blog of Jose Paulo Kupfer, a renowned Brazilian journalist.

Résumé: By upgrading Brazil, S&P has completely ignored its own fundamental parameters. Where are the tax reforms, the redesign of the labour legislation and the reconstruction of the social security? And what about the correlation between government debt and GDP, which should be 30%, but actually is more than 40%. And Jose ends by saying: "It looks like, that Brazil has given some "grant" to the "dilapidated" reputation of S&P."

I conclude with my own vision.
Across the board the new classification by S&P has induced euphoria. However, it is questionable whether that is based on real grounds. I admit that the elevated standards for Brazil - to investment grade - will cause an influx of foreign capital. As a consequence, many Brazilian companies can negotiate loans against better conditions abroad, but at the same time, many smaller and medium-sized Brazilian production companies will be pushed even harder to keep up their export due to the USdollar falling further against the real. Although the volume of Brazilian exports measured in USdollars will not diminish, as the overwhelming part consists of commodities (not enriched raw materials and agricultural products), which prices are determined by the market in Chicago, many companies with manufactured products are forced to discontinue their exports. It is obvious, that it will not be beneficial to the country as all manufacturing companies have to concentrate exclusively on the home market. Without doubt the home market will grow, but never to the extent that it will benefit from the S&P classification. Exports of manufactured products will decrease, while the imports increase, both due to the declining value of the USdollar. The trade balance will, as a consequence, entirely rely on the export of commodities whose price is determined by Chicago in which Brazil merely is the direct object. No significant exports in manufactured products with added value almost always lead to a fatal blow to a country.

But there is yet another side to the new upgrading of S&P, which is much more dangerous and could even be disastrous. With the crisis in the U.S. housing market, S&P (and other financial graduators) demonstrated its absolute ignorance, or its involvement in the manipulation of the banking system. It would not be the first time that S & P and its peers manipulate an economy of a country, after firstly praising it into the sky, and then opening the door to hell for the mere benefit of the big money guys.
What is more, we live in a special time cycle. The valuation of the real is only partly due to the performance of Brazil itself and for the other part to the fact that the U.S. is ruled by the worst president of all time and that in an election year the economic cycle of a free fall of the currency always can be observed. That means that after the U.S. presidential elections have given certainty about the successor, the dollar will rise worldwide, as the financial institutions "suddenly" discover new confidence in the economy of the country. This will certainly happen if Barack Obama is elected as president. In the unlikely event that John McCain will be president, I believe, the dollar will probably continue its free fall.

This means that in 2009 another ratio will be seen between the dollar and the real. But beginning in 2009 Brazil seriously starts thinking about the succession of Lula. Herewith we enter the next time cycle of elections, which will have a negative impact on the position of (in this case) the real. We have also seen this during the presidential election to replace the predecessor of Lula, during which the real grossly was manipulated (not to use the word speculated) by the financial institutions with the ABN / AMRO as the frontrunner. If we run in a situation that the U.S. economy shows an improvement, as a result of the appointment of a new president and the period before the Brazilian presidential elections shows no absolute clarity about Lula's successor, the value of the real against the dollar will deteriorate.
That is also the moment the international financial world will withdraw its investments from Brazil to profit in the short term.

I shall illustrate this danger. I read in ValorOnLine, the following:
"The private sector has been hopeful about reducing the financial costs due to the upgrading.
For Renato Vale, president of CCR, one of the largest transport companies in the country, Labor Day was one big party. The CCR, which in March won a concession for a piece of the Rodoanel in São Paulo, is currently negotiating abroad a loan of 1.6 billion reais to be paid to the government of São Paulo. The upgrading of Brazil means a savings of several million USdollars in drawing expenditures on foreign funds."

Ok, let’s assume that CCR indeed attracts BRR 1.6 billion (the rate is now USD = 1.60 BRR, thus USD 1 billion) with an interest rate of 5% from the international market. The investor pays in USdollars and both interest and principal have to be paid back in USdollars. 5% interest means an annual interest charge of USD 50 million or 80 million BRR. Suppose he has a payback period of 10 years. That represents is an annual redemption of 100 million USD or 160 million BRR. Total = 150 million USD = 240 million BRR.
I believe the USdollar will return at a rate of around 2.25 BRR, as a result of two presidential elections, restoration of the US economy, the future expectations of the Chicago commodities market, rising imports and the lack of Brazilian exports of products with added value.
This leads for CCR in a rise in annual payments of 240 million to 337 million BRR. It is of no importance whether the dollar changes +5% +10% or in any other different value. The fact remains that a Brazilian company suddenly is facing much higher operating costs and a much higher debt.

We have seen this before. In Pará during the government of Fernando Henrique Cardoso, shipping companies in the Amazônia region could arrange loans from the BNDES (National Development Bank) to build ships for the expansion of the transport capacity in the region. The loans were in USdollars (rate 1:1), although the revenues of the companies were in BRR. We do not have to detail here (see above) what happened during the election year of FHC/Lula (picture right). Suddenly, but insurmountably, the companies faced payments, which were 2 to 3 times higher, than they were accustomed to. It took many on the verge of bankruptcy.
Brazil is not (yet) in a position to withstand foreign manipulation or speculation as the country’s economic cushion is (still) too fragile.
History repeats itself. Always.

I'm afraid that's Lula’s: “Passamos a ser donos do nosso nariz”, will end up with people getting their nose pinched.

80469 - cartoons courtesy of J. Bosco/O Liberal

"Bush, meu filho, resolve tua crise" - "Bush, my son, solve your crisis”

During an encounter in Recife(PE) between Brazilian and Mexican businessmen, president Luiz Inácio Lula da Silva said, that an economic crisis in the USA and the preservation of the self-esteem of the Brazilian entrepreneurs are the only two matters of his concern in relation to the Brazilian economy.

Lula confirmed that he had called the president of North-America George W. Bush twice to tell him to get hold of the crisis, consequently his colleague, as Lula had learned, had been a bit irritated by the comments the Brazilian president made.
“I called him and said, Bush, my son, the problem is as follows, we have been 26 years without [economic] grow. Now as we start to grow, you disturb it. Solve your crisis.”

He continued to state that Brazil has the knowledge to solve the bank crisis, referring to Proer, a programme created to recuperate the financial institutions which faced bankruptcy in the nineties of the last century. “When they need it, we will send them [USA] this technology.” Lula said.

Lula concluded his speech speaking about the expansion of the Brazilian-Mexico trade with an explanation of the PAC (Programa de Aceleração do Crescimento = Program to Accelerate the Economic Grow), which stimulates the home market and compared the Bolsa Família (program for financial support to the poor) with the miraculous multiplication of bread, one of the miracles attributed to Jesus Christ.
“The multiplication of the breads, of which Christ spoke, is exactly that.” he confirmed.

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