The Challenges Lula Left
Brazil’s new president will have to enact economic reforms at home and tread carefully abroad.
Brazil is one of the fastest growing economies in the world and emerging on the world stage as a major power. Its next president will have a formidable task at reforming the country in order to meet the challenges of the decades ahead nonetheless.
Brazilians headed to the polls last week to elect a new president. Neither of the major party candidates, Workers’ Party nominee Dilma Rousseff nor Social Democrat José Serra, managed to win an overall majority of the votes in the first round. A second round of voting, pitting the two candidates against one another, is scheduled for October 31.
Whichever candidate wins owes much to his or her predecessor, Brazilian president Lula da Silva. This former labor leader was one of the founders of the Workers’ Party and managed to combine, during his eight in office, Third Way economic policies at home with an ability to foster alliances with former Third World countries abroad. Under his administration, some twenty million Brazilians were able to escape from desolate poverty while income disparities and regional inequalities narrowed considerably. His likely successor and protégé, former energy secretary Rousseff, has announced that, if elected, she will continue Lula’s popular domestic policies, including his huge welfare programs.
In the very year that he assumed office, President Lula professed that Brazil was prepared to “assume its greatness” and he worked diligently ever since to make that promise come true.
Brazil’s rapid ascendancy to great power status was made possible to a considerable extent by the American postwar international order. The liberalization of global finance and trade as well as the extension of America’s defense umbrella over the whole of Latin America helped Brazil develop during the last half century. Despite all of Brazil’s complaints about the International Monetary Fund and the World Bank, the country has profited immensely from both institutions, relying on their willingness to borrow and lend assistance when times were tough.
Now that Brazil has matured and is showing some willingness to assert leadership in South America, it is starting to pick up the tab. Brazil’s defense spending has increased from $9 to almost $24 billion during Lula’s presidency, permitting the purchase of advanced weapons systems and allowing the military to sophisticate tactics. The focus of Brazil’s armed forces has shifted in recent years from conventional warfare to urban guerrilla and protecting the hazardous border regions in the Amazon. The country is also setting up a navy in order to guard its offshore hydrocarbon resources.
With dreams of South American hegemony, Brazil has promoted the growth of interregional cooperation councils, including Mercosur, which is a free-trade region composed of Argentina, Brazil, Paraguay and Uruguay, as well as the Union of South American Nations, or UNASUR, which aims to imitate the European Union model. Despite these efforts, something of an unease continues to pervade Brazil’s relations with its many neighbors.
Boxed in between the leftish Bolivarian Alliance, which is led by Venezuela, and more conservative regional power brokers Colombia and Argentina, moderate, centrist Brazil hasn’t managed to stir much enthusiasm with either side. Its diplomats like to talk in terms of the common good but in truth, Brazil, like any state, pursues its own interest before anything else. If it intends to assert leadership in South America, it will have to give something in return to allow the rest of the continent to accept such a proposition.
Brazil has also exploited international platforms as the World Trade Organization to make its voice heard. It is largely responsible for stalling the Doha Round of trade negotiation, having rallied much of the developing world to oppose Western agricultural subsidies.
Lula also worked hard to win support for his effort to gain permanent membership to the United Nations Security Council for Brazil. Germany, India and Japan have pledged to back one another in their quest for permanent Security Council membership; Brazil has shrewdly framed this attempt as part of a broader, altruistic campaign to make the international framework more consensual.
On the bilateral front, President Lula has been more attentive to the benefits to be derived from a closer relationship with China than any of his predecessors. Trade with East Asia increased tremendously during Lula’s tenure. China is now Brazil’s largest commercial partner and an important ally as well.
More controversial has been Lula’s outspoken support for the Islamic regime in Iran. His administration affirmed Tehran’s right to pursue a peaceful atomic energy capacity — which Brazil also enjoys — and negotiated a nuclear fuel exchange agreement with the country in May; one that was immediately rejected by the Americans. President Lula appears to have regarded relations with Iran as a way to simultaneously establish Brazil as an interest power in the Middle East and assert independence from the United States. His successor may well have to tread more carefully here. From Washington’s perspective, it looks like Brazil is granting Iran’s ambitions legitimacy at an extremely inopportune time.
President Lula has occasionally admonished the United States in order to placate the more radical elements of his Workers’ Party coalition and led in opposition against unilateral American tariffs and warmongering. His posture was characteristic of a more confident Brazil that is no longer willing to abide by American foreign policy objectives. At the same time, it was understood that the bilateral relationship as such was never in peril. Rousseff, who fought Brazil’s military dictatorship as a Marxist revolutionary in her youth and is typically regarded as more of an outspoken leftist than Lula, should assure America than she understands that it is still Brazil’s most important friend and ally.
There is a lot of work to be done at home in oder to perpetuate Brazil’s impressive growth rates. As Rousseff’s foremost contender in the election, São Paulo governor José Serra, liked to point out, Brazil holds three negative world records: it maintains the highest interest rates in the world (the central bank’s benchmark rate is 10.25 percent), it has the highest tax burden of any developing country and it has among the lowest rates of public investment. Innovation has indeed been stifled by a maze of regulation and red tape. Payroll taxes are high at 60 percent, forcing small businesses into the black market. Infrastructure is underdeveloped, particularly in the north and northeast, while corruption remains rampant, even in the more urbanized regions.
Whether Rousseff will dare to challenge her own party and part of Lula’s legacy remains to be seen. What is certain is that Brazil’s regulatory and welfare regimes are in dire need of reform and that the country’s likely next president hasn’t shown much willingness to take on the task yet.