At the beginning of this year we posted the following:
2013 Brazil Economic and Political Outlook – A Breakfast Seminar Panel in Manhattan for Thursday, January 24, 2013;
and Brazil, the EU at large, The old Bretton Woods – the World Economy ahead of us – will make appearances in New York City on Monday, February 25, 2013 – Tuesday, February 26, 2013. Posted on Saturday, February 23rd, 2013.
Brazil was at the center of things – was working on becoming a major supplier of oil, and won to be host to major sports competitions. Then came the tremors – a revolt of young people that basically said to the Brazilian government and the world – We Want More.
We posted Brazil and Protests on June 23, 2013,
Old Commodities and the Fate of Eike Batista on June 24, 2013;
and Bill Keller’s The Revolt of the Rising Class on July 1, 2013.
Then on July 7th we posted about the US spying “en-masse” in Brazil (the O’Globo-British Guardian article) and predicted that this was business espionage that will eventually come to hunt the US.
The New York City based Brazilian American Chamber of Commerce, Inc. organized a series of panels:
on Thursday July 11, 2013 on “CURRENT DEVELOPMENTS in BRAZIL” with Professor Albert Fishlow moderating a panel that included Peter Hakim of the Inter-American Dialogue, Vivianne Rodrigues of the Financial Times, and Marcos Troyjo of Columbia University’s BRICLAB.
And yesterday – July 17, 2013, the panel – “Brazil: Midyear Economic and Political Outlook.” The event was held at the Manhattan offices of Debevoise & Plimpton and had the media sponsorship of the Financial Times. The moderator was Paulo Vieira Da Cunha who was Deputy Governor of the Central Bank of Brazil. The main speaker was Paul Rudel of the host firm, and the other participants were – Maria Claudia Ribeiro of OppenheimerFunds, Christopher Garman of the Eurasia Group’s Latin America practice, and Paulo Miguel of Quest Investmentos.
On July 25th there will be a third event – a Discussion on the Expansion of Credit in Brazil. This as part of what Wall Street sees as the direction Brazil is taking.
I will thus digest the situation to the best of my understanding and will start by saying that all of his points rather to a US problem and not a Brazil problem.
Let us remember that the audience and membership of Chamber of Commerce are working mainly with American firms centered around Wall Street and the New York Stock Exchange. Nevertheless, we must give them credit for looking at the Financial Times as media of choice rather then the Wall Street Journal or The New York Times. So – this is about business and the main business principle they accept is DON’T Rock The Boat.
Marcio Garcia described the 1994 Real Plan and the 1999 inflation targeting that moved unemployment from 12.7% to 6.7% and to practically full employment today. This without denying crises during the way, but saying that if there is any problem today it is nothing worse then a first step in a cyclic situation.
It is China “rebalancing” that may be the first step in a depression that is not a Brazil creation.
What we have said before is that the situation in the US, that has decreased the US market for foreign products, is the real cause for this need for rebalancing and for China making efforts to increase its own internal market.
Brazil was never a true tiger, and its growth at 7,5% in 2010 was stimulated by the government, and led to increase in the upward mobile class.
We have learned now that when you unleash appetites you cannot hope that people will stop wanting to see it continue – so the issue is – how to pass the economy from the Lula stage to the Dilma stage – something that will be facilitated by the fact that Ms. Dilma Rousseff is an economist and can be expected to turn to rules of economy as played out by Wall Street. That does not mean the New York Wall Street audience is enthused by the Workers’ Party in Brazil, but they are ready to accept Dilma with the hope that she will turn to the private sector, and to a system that uses private-public partnerships.
So this is the way to study now investment in Brazil – this in anticipation that Brazil will invite such private investment.
Commodity prices, because of consumer frugality globally, will decline, so investments in Brazil will have to go into infrastructure building. There is expected an end to the political super-cycle of Lula and a return to economic constraints.
That is how Christopher Garman put it. He also looked at the politics and looking at the October 19, 2014 elections in Brazil, he wonders if these changes are possible before the elections.
2005-2013 was a time of a Rise of Quality of Life Agenda. How will needed changes reflect at the Polls? Are the protests just an issue of the Economy Stupid kind, or is it more to it. Here we get to the expectation that the rise has created and the need for follow up – this rather then a true rebellion that really has no justification. So the consensus is that Dilma continues to sit at the head of the table unless Lula decides to return – something nobody thinks that he will want to do.
Education, transportation etc. should have become issues earlier. That was a mistake – but now they will. People whose standard of living has improved want now health care for the family, education for the children, and if you buy a car you do not want to be stuck in the traffic.
Peter Hakim opened his presentation by saying that he thought he will start by talking on the protest movement but a lot else happened i.e. the spying – but then he refused to enlarge on this topic saying that everybody does it. On my question if it might not turn out that some in Brazil will not be upset at this because the amount of spying points at it not as a security issue, but as business snooping, he and Marcos Troyjo were not ready to step into this subject. This leaves me where I started from – the realization the US does not look into depth when creating an image – specially right here in its backyard – the Southern part of its Hemisphere. In the end – it will be hard to deal with the Far East, the Near East, and all the Asia in between, without having Latin America safely in its back.
Peter Hakim pointed out that upheavals in Turkey or Egypt have very specific issues but this is not the case in Brazil. Nevertheless, when they were called to protest – everybody showed up! Lula and Dilma are very popular, but watching other countries protest, got the Brazilians as well in the mood to go to the streets.
And they got their answer from Dilma who said “We will spend more on education, health, welfare” this without looking where the money will come from.”You want it now – we will give it to you.” The protest was not partisan or anti-government but a call for less government corruption he said. The political parties have not spoken up yet and the tassle before elections has not started yet – it might not start before the end of this year.
Troyjo put it so that Brazil’s new position in global affair has led to a feeling of super-power – but others say to Brazil that they may may be taking the risk of missing the train to the future. To repair this there is now a new look of instituting taxes in the State Capitals. In order to get back to a 5% growth Brazil will have to put at least 1% of GDP into R&D he said.
He further said that the protesters know what they want but the politicians have not figured out yet how to filter this into their response. He expects Brazil to become more market friendly and have more capitalism.
Professor Fishlow also said that economics has not entered yet the discussion and he wonders how after the growth of 14 years income could double by 2020 as Dilma promised. The regional differences – the North, the North-East and the South are growing and Dilma’s popularity is greater in the North then in the South.With 24 parties in Congress and a government of 40 cabinet ministries, the bureaucracy is bloated and there is no chance of changing this before the elections. It looks like Greece he said.At the same time, Petrobras is experiencing loses for the first time in its history. Congress can deal with distribution of profits if Petrobras provides the funds. In short – the future will have to provide the priorities for a restructured government and political system in general.
What above says is that Brazil is dependent on growth of its petroleum industry and that might be the wrong idea. Oil provided funds mainly to the few rather then as described to the government kitty. We assume that part of the US espionage in Brazil has to do with the seeking of information about the intent in Brazil of what to do in the energy sector. We doubt that Brazil is well advised if it were to push for growth via oil. Brazil has much more appropriate potential in the alternate energy sector that could help the country as a whole and though we agree that Brazil ought to open its doors to foreign investment, it better keep control on the sectors that open up – this because what is good for the gender may not be good for the goose.