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Brazil: Navigating the Straits of Globalization

How is Brazil seeking to achieve its development goals?

March 17, 2005

How is Brazil seeking to achieve its development goals?

This emerging global leader is trading its way to economic development. And along the way, it strives to export its own version of equitable democratic development throughout the world.

It has not always been smooth sailing for Brazil. Despite enjoying one of the fastest growing economies of the past century, national development has shipwrecked on occasion.

The country's former over-reliance on two agricultural commodity exports — coffee and sugar — subjected national development to boom and bust markets, political violence and military dictatorship.

Since 1985, Brazil has managed to develop a representative democracy, but has failed so far to incorporate its majority of poor people into the global economy.

World-renowned sociologist Fernando Henrique Cardoso is a scholar of Dependency Theory — which holds that development is dependent upon the investment, technology transfer and market access provided by the most advanced nations to the developing world, including Brazil.

In 1994, he teamed up with the country's conservatives to win election to the presidency and tame inflation.

Cardoso's subsequent currency stabilization project, the "Plano Real," succeeded in stopping chronic hyperinflation, but also swelled debt and unemployment levels. Brazilians expected more from their democracy — better jobs and less inequality.

Cardoso's second term was headed toward shipwreck and Brazilians were eager to embark on a new era of growth and development, one less dependent upon decisions in Washington or Wall Street.

Back in 1520, the explorer Magellan had faced mutiny as he prepared his crew for the voyage through Tierra del Fuego — or as locals call it — the "end of the world."

In 2002, nearly 53 million Brazilians turned port and elected a former shoeshine boy and leader of the combative New Unionism movement to chart an unknown course through the straits of globalization.

President Luiz Inácio "Lula" da Silva of the Workers' Party set his tack toward an outward-oriented development strategy to grow the economy, combat social exclusion and prepare the country for global leadership.

Lula rigged Brazil's sails to catch the gusts of international trade by expanding exports of mineral, agricultural, semi-industrialized and high value added manufactured goods.

He had his sights set on both the traditional markets of the developed world, principally the United States and the European Union (EU) — as well as new markets in Latin America, Southern Africa, China, India and the Middle East.

Building on the success of the Cardoso presidency, Brazil's export earnings grew from $43.5 billion in 1994 to an estimated $90 billion by the end of 2004.

However, Brazil's Workers' Party government has set its sights on more than the continuous expansion of the country's status as a world trader.

President Lula's diverse government — composed of fiscal conservatives, economic nationalists and democratic socialists — seeks to institutionalize equitable democratic development throughout the world.

Toward this end, Lula has denounced U.S. and EU agricultural subsidies and protection as unfair and a cause of poverty in the developing world.

The Brazilian foreign ministry lodged formal complaints against U.S. tobacco and cotton and EU sugar subsidies at the World Trade Organization (WTO) — and won all cases.

In 2003, Brazil's Minister of Foreign Affairs, Celso Amorim, organized a group of developing countries, including Argentina, China and India, at the WTO negotiations in Cancun, Mexico.

The group, known as the G-20, advocated for the abolition of unfair trade practices which jeopardized the development of poor nations.

Under Brazil's leadership, the G-20 successfully confronted the United States and the EU and placed agricultural subsidies at center stage of the WTO's Doha Round negotiations.

Just months later in Miami, Minister Amorim defeated the U.S. plan for a NAFTA-styled Free Trade in the Americas Agreement (FTAA) that could have limited the development policy options of Brazil and its Latin American neighbors.

As Amorim put it, "Are we going to continue to negotiate intellectual property rights and investment at the same time the U.S. refuses to negotiate subsidies? There will be a permanent impasse with such a position. We cannot accept such rules without negotiating subsidies."

To be sure, the United States plays a key role in Brazilian development as its largest commercial partner and source of foreign direct investment.

Yet, this promising bilateral relationship and the FTAA negotiations are soured by damaging practices on the part of the United States, which unfortunately are endorsed by both Democrats and Republicans alike.

For example, Brazil is the world's largest and most efficient producer of sugar, ethanol (a byproduct of sugar processing and a low-cost fuel additive) and orange juice concentrate.

Brazil's agricultural land is much cheaper, approximately a third of the cost of comparable land in the United States.

Moreover, Brazilian orange juice producers, such as Citrosuco Paulista, have developed cutting-edge technologies for growing, packing and distribution that amplify the productivity of its lower-wage workforce and its comparative advantages in the international marketplace.

Given greater access to U.S. markets, Brazilian sugar and orange juice imports would cost 25% less than domestic products.

Companies such as the U.S. Sugar Corporation and Flo-Sun, both Florida-based, have repeatedly galvanized bipartisan congressional coalitions to subsidize U.S. sugar production and erect a protectionist tariff bulwark against a tide of cheaper Brazilian imports.

U.S. sugar and corn sweetener producers also work in concert to preserve the 54 cent per gallon tariff on Brazilian ethanol. This effectively curbs imports and preserves high domestic prices in the United States for this important and relatively safe fuel additive.

Lastly, Florida orange growers freeze expanded trade between the two countries by advancing their interests through the U.S. International Trade Commission.

Florida growers have successfully renewed the nearly 30 cent a pound punitive "anti-dumping" duty on Brazilian orange juice concentrate since 1987, while also adding on the 2.9 cent a pound Florida Department of Citrus Equalization Tax.

Free trade in just these three low value added commodities suggest that Brazil would earn an additional $163 million in sugar exports and even more for orange juice concentrate each year, if its exports to the United States weren't hampered.

Such export revenues would help Brazil finance further debt reduction and poverty alleviation programs. Hence, Brazil's quest for development through global trade depends on less protection and greater economic integration, challenging the private roots of U.S. trade policy.

Despite these U.S. protection schemes, the Lula government's combination of fierce budget discipline and new outward-oriented "world trader" development path are making a difference.

His administration has generated successive budget surpluses over 4% in order to lessen the debt burden. In 2004, Brazil managed to lower its debt-to-GDP ratio from 45.6 to 31.2% by growing the economy and paying down the external debt by almost $25 billion.

Economic growth was equally impressive, spurting from a negative 0.2% in 2003 to 5.1% in 2004, with further expansion on the horizon.

Lula's Workers' Party government has returned the country to sustainable growth and set the cornerstone to a policy framework to address hunger and divisive inequality level.

Brazil's remarkable increase in exports and budget discipline are only the means to the real development goals of the Workers' Party.

President Lula's "Fome Zero" — or Zero Hunger campaign — is effectively addressing the country's torturous social debt that haunts its urban slums and rural backlands.

Also, the administration is preparing the political and institutional terrain for a sweeping land reform to address rural poverty and incorporate millions of family farmers into the market economy.

Despite the temptation to please his critics and risk another shipwreck, with little political maneuvering space in the Brazilian congress, Lula has steadfastly held onto his masthead of fiscal conservatism, outward-oriented economic development and the Workers' Party's vision of equitable democratic development.

What makes this especially significant is that Brazil's global horizon goes beyond the marketplace. President Lula's foreign policy includes an ambitious agenda to democratize international governmental organizations (IGOs), such as the IMF and the United Nation's Security Council.

According to Lula, "It is essential to reform the hierarchy of the multilateral institutions. If poor countries are to be able to make the fight for development a priority of the global agenda, democracy must be deepened at the center of power."

Towards this end, Brazil has taken the lead in reviving efforts to expand the number of permanent seats on the UN Security Council, including a seat of its own.

Brazil has buttressed its emerging global leadership by playing an important role in the United Nations' relationship with U.S.-occupied Iraq, even losing one of its premiere diplomats, U.N. Chief Envoy Sergio Vieira de Mello, killed by the bombing of the U.N. compound in August of 2003.

Also, President Lula dispatched the Brazilian Armed Forces to lead UN Peacekeeping troops in Haiti to restore security and help build democratic institutions after insurgents toppled President Jean-Bertrand Aristide.

These actions demonstrate the Brazilian government's willingness to pay the costs of its emerging global leadership.
Aside from his efforts to democratize the "center of power," President Lula is spearheading an international effort to fight hunger and poverty.

On September 21, 2004 Lula addressed the United Nations and formally declared a war on global poverty with the document "Innovative Mechanisms to Finance the Fight Against Poverty and Hunger."

The Brazilian government's plan seeks to increase and guarantee funding for UN agencies, such as UNICEF, and international relief and development-based, non-governmental organizations.

The plan outlines policy alternatives, such as modest taxes on large international financial transfers and arms sales, voluntary contributions through special credit cards, targeted drawing rights from the IMF for nations implementing aggressive anti-poverty programs, and possibly the implementation of a special tax on carbon use.

Lula has set his nation on a course toward building a global society based on equitable democratic development and an inclusive global economy capable of ending hunger and misery.

Bracing for the passage through these straits of globalization, Brazil is doing everything it can so that the poor majority of the world can also make the voyage.

Let us hope that Lula can stay the course.