Brazil should continue to insist on the continuation of negotiations for liberalization of agricultural exports, urges Rubens Ricupero.
BY JOHN FITZPATRICK
The old days when developed countries could set the economic agenda are over and the G20 which includes Brazil is here to stay. The global financial crisis has turned things upside down to such an extent that Brazil is now in a position to be a lender to, rather than a borrower from, the IMF. However, as former finance minister, Rubens Ricupero, points out in this interview, Brazil may still need to tap the IMF if the crisis drags out and foreign trade continues to shrink. Ricupero also discusses Brazil´s new position at the top table, the recent G20 summit and whether Brazil should join the OECD.
The G20 summit in London last April has been considered a landmark in international relations, where the proper status of emerging countries like Brazil was recognized. Is it conceivable that once the current crisis is over, everything will go back to the way it was before and the “new economic world order” will be postponed once again?
Rubens Ricupero: The G20 is here to stay. It is the result of the combination of two ideas. Institutionally, it is a commission created in 1999 in the framework of the Bretton Woods organizations to discuss updating the governance of the IMF and the World Bank, and to try to minimize the turbulence caused by financial crises. Furthermore, the G20 stands for the search for an informal, non-institutionalized forum where the world’s major problems — not just economic but also political, environmental, and humanitarian issues — may be discussed in a wider framework than that provided by the G7 or the G8.
Nonetheless, one should neither overestimate the scope of the G20 nor misinterpret its nature. The group does not enjoy the legitimacy that can only come from an all-inclusive, universal consensus, conceived in a text resulting from negotiations with consent gathered from the totality of the members of the international community, like the UN Charter or the Articles of Agreement instituting the IMF and the World Bank. Because it is not an institutionalized body like the UN Security Council and the Bretton Woods institutions, G20 recommendations, including those formulated at the London summit, will have to be converted into decisions by the competent institutions.
The very idea that the “new economic order” could be postponed once the crisis has been managed assumes a high dose of optimism. In a way, it is based on the belief that after a short period of turbulence, things will be as they were before. Few people share that view.
Why does Brazil not apply for OECD membership, following Mexico’s example?
Ricupero: Brazil does not need full membership to enjoy the benefits generated by the research and debates promoted by the organization. In fact, Brazil has for years participated fully in those OECD groups that are most relevant for us, such as the one dealing with the steel industry. To go beyond that would bring about disadvantages that would more than offset the limited benefits of membership. Indeed, the OECD, a product of the old Marshall Plan Secretariat, is a kind of “club of the rich,” congregating about 40 of the most advanced economies. As an organization it has been highly focused on defending market economy theses that are aligned with an orthodoxy that has dominated over a long period of time — a stance that comes out of this current crisis quite scratched.
Joining the OECD normally means that a country must leave the Group of 77 and China, a circle of over 130 developing countries in all international forums, that initially only covered economic issues but today embraces almost all areas, including environmental issues. For Brazil — a country nurturing an active multilateral diplomacy, aspiring to play an independent first-line role in world debates, a leader of initiatives such as the creation of the Group of 20 in the World Trade Organization (WTO) for agricultural negotiations, defending critical and demanding positions regarding the internal distribution of power at the IMF and the World Bank, and a country with frequent applications to elective posts at the international level — relinquishing the G77 and China group to acquire OECD membership would be the equivalent of political suicide. Most of the time, on all those issues, the positions assumed by Brazil are not only different from but often opposed to those of OECD member countries. Mexico opted to join the OECD in the euphoria following the celebration of the Free Trade Agreement with the USA and Canada (NAFTA); today, the country is quite isolated and unremarkable in multilateral diplomacy forums.
President Lula has recently said that Brazil will only lend the IMF money to help poor countries. Is this possible, i.e. is Brazil in a situation to exert such influence on the Fund?
Ricupero: Brazil’s influence is very limited and would not be sufficient to affect the Fund’s decisions. Lula’s declarations have to be interpreted in the context of a rhetoric in defense of the poor, somewhat in line with his original initiative, after his inauguration, to create a campaign to eradicate world hunger. Here a couple of comments are appropriate. The first is that, according to the current rules, the SDRs must be distributed in accordance with established quotas. This means that most of the funds will be necessarily directed to the richer countries. It is therefore indispensable that those countries agree to relinquish their right regarding the SDRs. The second observation is that if in fact the IMF insists on imposing on more needy countries the usual diet, which reinforces the trend of the cycle, it will further aggravate their situation. In times of severe economic contraction, the last thing needed are conditions that deepen recession.
According to the World Bank, 66 countries have already taken protective measures. If protectionism is unavoidable in the current crisis, what should Brazil do in such a situation?
Ricupero: There is a certain degree of exaggeration in what is reported, the reason possibly being good intentions to say such things out loud and in public as a preventive measure to discourage possible offenders. In practice, however, what has been seen so far cannot be even slightly compared with the terrible protectionist wave of the 1930s. Today’s Buy American measures, for example, are no more than intentions so far, nothing has been approved, and the idea has since been softened by the suggestion that, once approved, the measures will be enforced in accordance with U.S. international obligations. As far as Brazil is concerned, the country should continue to do what it has been doing: insist on continuation of the negotiations for liberalization of agricultural exports, and systematically explore export opportunities in markets that still have the capacity to import and pay. In the beginning of the year, it is worth noting, while our exports to the United States and the European Union contracted, exports to China, India, Venezuela, and other buyers expanded.
Brazil has reserves in excess of US$200 billion, and a deficit in current transactions of US$5.020 billion in the first quarter of 2009 — 51 percent less than the same period last year (US$10.260 billion). Is the country safe from a foreign exchange crisis?
Ricupero: Brazil will only be spared if the economic crisis and the contraction of the world trade do not persist for too long. If in the future there are signals that start to inspire caution, the best would be to follow Mexico and as a preventive measure access the IMF flexible funds, assuming that they continue to be available.
This is an edited version of an interview which appears in the current issue of The Brazilian Economy, a publication of the Getulio Vargas Foundation and George Washington University. Republished with permission from the author.
© John Fitzpatrick/FGV 2009