New Winds in South America

By Ingo Plöger, Brazilian entrepreneur, President, CEAL, Conselho Empresarial da America Latina – Brazil

Brazil, since January 2019, has a new administration. It is a country of continental dimensions that borders on more than 10 countries in South America. Its economy is the largest in Latin America, followed by Mexico and Argentina. The direction that Brazil takes makes a big difference in the region and being the 10th the world, makes weight in the G20.
Brazil, from 2014 to 2017, had a moderate left-wing political bias, with a strong social insertion and international alliances more linked to social democracy and socialism. Between 2017 and 2019 there was a transitional government that shifted the direction towards a more conservative and reformist government. Brazil’s political agenda was focused on managing its profoundly changing issues, especially on the institutional side of corruption and mismanagement. All three government powers were heavily involved in this process, placing institutions under a strong stress test. The recession was brutal because, contrary to Argentina, Temer’s transitional administration brought inflation from 10 to 3 percent a year in less than two years. This is only possible by having stratospheric interest rates and holding the public accounts to the maximum. The brake was extremely abrupt. It resulted in reducing inflation, but the public expenditures with the GDP were very high (mainly by the reduction of the receivables, even if there were less expenses). The market understood this upset, so much that the exchange variation remained in civilized bands and FDI (Foreign Direct Investments) continued to beat records.
The election came, and brought great surprises in the choice of its politicians with a huge change.
More than 50 percent of the federal deputies are new and more than two thirds of the Senate has been renewed, leaving old politicians unelected, like former president Dilma Rousseff, rebutting the PT’s theory of the “coup”. The voter chose to change.
Jair Bolsonaro was elected, a deputy with 27 years of experience in the Brazilian Congress, who uses a direct, non-diplomatic language, shocking the ears of the “politically correct”. The people chose someone who, they believe, could change what many people always said but were never able to accomplish. Someone had to come, who spoke their language, and had the courage to put the sensitive subjects in motion. He began by choosing Sergio Moro, now a national hero for his tireless fight against corruption, to be his super-minister of Justice, including the issues of the federal police, prison system, financial rimes and others that give him the power to put “order in the house”. Then, Bolsonaro chose an Agribusiness Minister, a very courageous parliamentarian who led the agribusiness parliamentary front, including in its attribution’s the former Ministry of Agrarian Development, Agrarian Reform and the definition of indigenous demarcations with strong influence on environmental issues. He also chose a former Brazilian astronaut to lead the Science and Technology Ministry. He merged the Ministry of Industry and Commerce and the Ministry of Planning into one Ministry of Economy and appointed super-minister Paulo Guedes for this function.

Jair Bolsonaro concentrated efforts and cut down the number of ministries to 22. For Foreign Affairs, he surprised everyone by nominating a young diplomat, ambassador Ernesto Araujo, an intellectual, with a vast culture, who wants to promote Brazilian issues more than global issues. He approached Trump’s U.S.A, Israel, and other countries that are more nationalistic than globalist. What will these measures bring to Brazilian foreign policy?
Jair Bolsonaro and his team want Brazil to return to the international scene, more for its qualities than for its defects. It places Brazil as an agribusiness power, as an energy power, strong consumer market, and opening markets to the allies that give it this attention. The U.S. (like China and Russia) are economies that have long production chains, from the grain to the consumer table, from the tree to the book, from the ore to the airplane, etc. More than 40 percent of the U.S. and Brazil’s GDP are linked to the long productive chains, hence the low ratio between exports-imports and GDP is not higher than 25 percent. It is an economist’s old mistake to argue that it is an index of market opening. The comparison has to be made between countries of long and short productive chains.
What could be the unfolding of this vision?
Brazil should strongly align itself with the U.S., reopen discussions with Mercosur and the Pacific Alliance and finalize an agreement with Mexico that would bring Brazil closer to USMCA (formerly NAFTA). This process may take some time, but seeing Trump’s willingness to negotiate with Mexico (while maintaining the controversy of the wall) and Canada, it would not be surprising if an agreement were concluded, of no more than 5 to 6 strategic sectors, that would involve the logic above. The rest is for later. Latin America would have a renewed FTAA.
The European Union would continue to negotiate, for another 20 years, the Mercosur agreement and the European Union.
The alliances in South America could be much stronger and more objective, starting from an inductive market. China would maintain its relationship with Brazil in the commercial areas, but with a bias of more American norms, and investments in areas not considered strategic for Brazil, such as in energy, oil and gas, and some IT areas, the others would be as they have always been.
Is it a radical change? Or is it a change for the region’s vocations?
If on one hand we are afraid of a more “nationalistic” tendency, we hope for greater economic freedom, induced by a “Chicago boy,” opening the country to competition. These contradictions can be good or bad, the art now is to correctly interpret the new course based on the polls. After all the people have spoken…

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