South America is being shaken economically. Argentina’s banking system has all but collapsed: money has become a scarce item, indeed, even after devaluating to three-quarters of its previous worth. Venezuela, having survived a coup d’etat in April, braces for the permanence of its democratic institutions–notwithstanding its leader. After years of Fugimori’s hard line rule, Peru is now bursting at the seams as a president actually seems committed to righting social ills, though with State coffers empty. Uruguay attempts to keep afloat with its sinking currency. And Ecuador has already been dollarized; Chile, a special case since ’73; Colombia, the banality of a 35-year-long war…
And in the middle of it all stands South America’s largest economy, Brazil. With its currency now hovering at 3-3.4 for a dollar, the Brazilian real–now more appropriately called the ‘irreal’– has lost a third of its value in the last year, an increase only slightly below the 1999 devaluation that bade farewell to any illusions behind the experiment of pegging local currencies to the dollar.
Still, the rabid speculation on the currency and vacillating financial vulnerability has more of a political reason than an economic one. This is because presidential elections in Brazil are set for October 6, and leftwing candidate, Luiz Ignacio Lula da Silva of the Partida dos trabalhadores (PT) is ahead. Correction: he is still ahead. Steve Cobble, a political analyst and Associate Fellow at the Institute for Policy Studies has contributed a thoughtful and lucid article on the subject to The Nation magazine (dated August 5).
To be sure, the article is timely. Despite all its exoticism, Brazil still remains little known in North America. It is Latin America’s largest nation and has been by far its largest economy (though its gross GDP has now been surpassed by Mexico). While the elections are three months away, the international press is observing the build-up to the elections most attentively. With the currency crisis becoming ever more acute, it is still unclear whether Lula and the PT can keep sheltering themselves from its public fallout. To top things off, Treasury Secretary O’Neill arrives in South America on Sunday August 4 to visit Argentina, Uruguay and Brazil.
Cobble has addressed his stirring plea to the American progressive community on ways to support the PT, though Brazilian law prohibits all candidates and parties from receiving foreign funding. The reasons for which the PT should be worthy of such help are clear enough. Through its fifteen some years of existence, the PT has remarkably kept the reputation of an honest party. Some critics boast that it is the luxury only a party remaining perpetually in the opposition can afford. Others would counter that in a political system carpeted with thieves, white-collar crime only mildly declines with partial power.
Cobble’s piece is relatively short, which means there remain important issues necessarily left unattended. Notwithstanding its concision, I would add that the predominantly “ideological” angle of the article somewhat skews the stakes of these elections and Brazil’s role as a major continental player.
Cobble first provides a brief description of the geopolitical history of Brazil, particularly highlighting U.S. positions on preceding elections. This sprightly introduction, in which he expresses hopes for a Democrat victory in the US this fall, is followed by a three-point action plan for the American progressive community to take regarding the Brazilian elections. His observations and analyses converge into one key phrase: “our goal is not to intervene in Brazilian elections; it is to keep powerful corporate actors and their allies from intervening to subvert Brazilian democracy”.
The criticism I hold of Cobble’s piece deals especially with the dominance of the ideological tone over the economic one. By ideological, I mean that Cobble solely focuses on the objective of the political posture of the PT. It most certainly is a leftwing party, headed by the former head of the Metalworkers’ Union, Lula himself. The party actually developed concurrently to Solidarisnosk (Solidarity) in Poland in the late seventies. At that time, Brazil was ruled by a military junta, and had been by a series of them after democracy was overthrown in 1964. A putsch by the Air Force had been in the plans for a considerable amount of time. In 1954, it was deferred in extremis by the dramatic suicide of President Getulio Vargas. But in 1964 as then-president Joao Goulart prepared to press through Congress with a series of major land reform laws, the military seized the country’s democratic institutions.
Since folding to public demonstrations for the return to democracy in 1985, Brazil is now moving into its fourth consecutive presidential elections. Much has been written about Chile’s democratic tradition, but Brazil has proved by far to be the Cone’s most durable democracy.
After surviving the debt crisis, Brazil’s most discomforting economic woe in the early nineties was spiraling inflation. In 1994 when current President Fernando Henrique Cardoso of the Brazilian Social-Democratic party, passed the “Plano real”, he replaced the existing “cruzero” by basically pegging the “real” to the dollar. Such moves to stabilize inflation were particularly encouraged by the IMF and Bill Clinton’s staff of economic planners. The aims of this policy, despite how they may now appear in hindsight, were in fact oriented at increasing an emerging market’s capacity at modernizing its industrial sectors by increasing its ability of importing costly foreign technology.
The downside to such flexibility is that the export market suddenly changes qualitatively. From an emerging market, a country like Brazil was propelled to first-world status through the cost of its products on the international market. A readjustment of the real was thus impending if only to counterbalance the relative weakness of Brazilian industry faced with the big players. That’s because a country does not bridge the gap between ’emerging market’ to ‘first world power’ as easily as doctrinarian advocates of neo-liberal globalization contend. Yet for the sake of re-election, President Cardoso overstretched the real’s critical mass by holding firm on its peg to the dollar. Only weeks after his re-election, won precisely on the grounds of Brazil’s sparkling economy, this resulted in the real being devaluated to counter a massive stock market collapse and capital flight.
That was only the early sign of the failure of the “Washington Consensus”. The term refers, of course, to the apparent shift in U.S. policy toward Latin America as heralded by Bill Clinton. Under its terms, the U.S. adopted a purely business relationship–with the exception of Colombia and, to a lesser extent, Bolivia–with Latin America.
Brazil’s current vulnerability lies in its isolated position with respect to the powerful economic community blocks of the world. Once conceptualized as a “pivotal” country, it has been and remains the driving force of the South American free trade zone, the Mercosul (in Portuguese). What remains of the free zone as the other members (Argentina, Uruguay, Paraguay) suffer the collapse of their economies is really an open question. The immediate backlash of their crises is on Brazil’s trade deficit. Its economy barely grew in 2001 at 2%, a depressing level for a trade zone containing an estimated 50 million middle class consumers, whose purchasing power nonetheless remains under stress.
Within this international scenario, Brazil remains committed to a democratic system. And such a system, and its promises of social reform, holds a powerful place in the heart of the Brazilian people. That reform has been slow is largely an internal factor. President Cardoso’s team, however, has succeeded in driving a wedge into corruption where others have only secured it. Still, to keep power Cardoso was forced to seek alliance with unsavory parties, which has ultimately held his reformist dreams in check.
Internationally, ever since assuming power the Republican government in the U.S. has continually stirred up tensions with Brazil, if only through mishaps. In the early weeks of Bush’s presidency, though, President Cardoso demonstrated his diplomatic flair by maneuvering a deal between China and the U.S. on the fallen spy plane the Chinese refused to release from their territory. A swift thank you followed, but the Bush proposal for the Free Trade Agreement of the Americas did not reflect Brazil’s vision for economic partnership. And the recurrence of American protectionism on steel and its massive agricultural subsidies has not sat well with Brazilian parties across the board.
This is because with its population of 173 million, Brazil is very close to being a big league player. Still, it can only fall short in trying to make it on its own. Earlier this year, a possible rapprochement between Brazil and France had lain on the horizon as opinion polls were citing Lionel Jospin as successor to Chirac and the country’s second Socialist president.
That was not to be. Brazil’s leftwing party is now quite alone on a terrain if not populated by wolves then at least deeply lacking in possible alliances.
This is the context in which the PT is calling for the Brazilian people’s vote. Internally there is a strong desire and need for change. Unfortunately, there is no candidate as much of a leader as Lula in the fray. I say “unfortunately” not because Lula would not be “prepared” to lead the country, as many professedly astute voters believe. It is unfortunate because if Lula is not elected, then chances of profound reform will be postponed yet again. And with the growing attack on the currency, a chance might be lost for another generation. In a country chocked with urban violence, this may well prove to be catastrophic.
The current presidential elections have 19 official candidates. They have been filtered down to four, soon to be squeezed again to three. As in other presidential systems of this kind, lying somewhere between the French and American parliamentary democracies, by the time the candidates get ground down to two for the second round many political alliances formed will have formed.
The questions facing the PT are delicate. In a desire to reassure Brazilians that its purpose is first and foremost to create consumer incentives to boost local industries, its commitment is to create jobs and growth. Its most popular promise is to massively raise the minimum wage and place priorities on education. Yet faced with international pressure, the PT has moderated a number of its promises. This has had an ironic though not surprising effect, given that its strongest supporters are Brazil’s 70 million impoverished “under-class”. When the PT appeals to a larger audience, its standing in opinion polls decreases. Judging by recent polls if they are at all reliable–and like polls in any country they are open to skeptical interpretation–, the PT seems to lose the votes it gains by fine-tuning its discourse to a more “moderate” pitch. As the PT is renown for gathering more of the nation’s brains than any other party, party strategists must be wondering at what political cost election is still worth if the party folds to international pressure on its economic policies.
The progressive community in the U.S., Canada and Europe admire the PT for good reason. They are essentially the only party left from a generation ago who have not watered down their social commitment to the point of libeling the term “progressive”. Neither Blair, nor Clinton, nor McDonough, Shroeder, or Jospin for that matter were comfortable with the heritage they increasingly came to misrepresent — which is assuming the first two ever embodied it at all.
The PT rank and file emerges from the industrial ABC region of Sao Paulo State. In the southern regions of the country it appeals to the populations descending from Northern European immigrants. The real enemies of the party, though, are the large landowners of the northeastern states, who maintain disproportionately large representational power for their meager numbers.
Moreover, criticism of American policy toward Latin America is not the monopoly of the PT. In a strange twist of fate, after solidly supporting the 1964 coup d’etat, the U.S. later saw itself sidelined as an economic player. Though rightwing, the military was no less nationalist. And let there be no mistaking the meaning of this: populism is free of political stripes. Pleading to nationalism is the populist’s strongest card. But populism rarely amounts to reform. The project to which the PT is committed is all but populist. Its reform platform is squarely equal to a progressive vision.
Under the military dictatorship, political populism translated economically into a closed country and sealed market. The country became a quasi-autonomous unit on many fronts, until president Cardoso’s liberalist policies, coinciding with Clinton’s ‘soft imperial’ Washington doctrine, opened up the country to foreign imports and investment. That the Brazilian political class had no choice over this matter should be borne in mind. Brazil had reached double-digit growth rates throughout the seventies with the ISI system (Import-substituting industrialization). But with mounting debt, ISI showed signs of exhaustion. To continue such spectacular growth, industrialists had to export more broadly, which meant opening the country in turn to imports. Since then, debt has only increased. Though Brazil’s economy grew by 4.2% in 2000, its debt servicing costs Brazil $ 25 billion yearly, calculated on a real trading at 2.5 for $1 US.
And then there are Brazil’s banks. The PT intends fully to move toward restructuring banks, though gradually. Brazil’s banks are among the most profitable in Latin America. Due to IMF policy, they have also some of the highest lending rates in the world, which is basically an impediment to the development of small and medium local businesses. Under the gentlemanly mood reigning between the semi-independent Central Bank, the IMF and private banks, the PT must move carefully and transparently to assure their creditors of the fruits gained by reducing the prime lending rate–even at the risk of causing inflation so long as inflation in turn stimulates productivity and increases salaries. As things stand now, inflation is low but persistent, without any substantial increase in salaries, let alone any residual power of the currency internationally. Nonetheless, Brazilian banks have been agitated at the PT’s stances. In the end, they may turn out to have been the main instigators behind the present currency speculation.
These economic indicators make up the knowledge without which it is impossible to cheer for a PT victory. A PT government will be a full player, like Cobble indicated, in a fair global trade system. Yet it cannot do so alone. And at this point the American progressive community–and for the record, Canada’s — is simply too weak and profoundly lacking in power to be of any help to the PT.
The result is that Cobble’s prescriptions are merely promissory notes. The North-American progressive community should have already had a strong position on economic partnership with Brazil. But as union workers in the steel, sugar and tobacco sectors have shown, and as workers in the fruit, especially orange juice, and beef sectors have felt, Brazil often appears more threatening to middle and lower class Americans and their jobs than to the upper classes, for whom Brazil’s bond market is a sure source of income.
It is unclear how America’s progressive community can deal with this situation as predominantly critical voices on globalized free trade seem to prevent enough research and press exposure to cover the powerful sides of Brazilian life. Moreover, Paul O’Neill’s statements on American television on July 28 are completely out of line. Since Mr O’Neill has proved useless on saying anything about American plutocratic trends as the background to the market’s downward turn, it is obviously easier to prod Brazil’s oligarchy. The human costs, however, may not be the same.
It is in light of the economic instability into which a PT victory may throw the country that American progressives should be putting the questions of business involvement first. Unlike Venezuela, Brazil has a striving and vibrant economy, and large consumer base. Destabilizing its leadership has nothing to do with private profiteers trying to get their hands on the oil booty. On the other hand, undue social instability could disturb the country’s democratic institutions. If that’s the case, the American progressive community will have to avow that boisterously raising voices is not enough.
If it’s a matter of legitimating the PT according to its socialist ideals no matter the cost of necessary alliances and compromises, North American progressives may in fact have to face the fact that they have much work to do at home before adequately representing situations abroad.
So how to go about an informed and insightful strategy regarding the Brazilian elections? As a prescription to the powerful, it is easy: Mr O’Neill had best mark his words during his current visit to the region if the Administration does not want to wind up with a region profoundly hostile to U.S. foreign economic policy.
But how about to those North Americans who do not hold power? How can we prevent uttering and/or muttering statements about the southern countries that ultimately only serve the business interests at home we are so determined to expose as the exploitative and self-serving interest of shareholder monopoly capitalism?
For one thing, trying to forge foreign policy for Latin America by speaking in the name of the progressive community, while still remaining tied to the Democratic party, requires facing a moment of truth. Does Steve Cobble favor eliminating trade barriers, for one? If so, that’s counter to the Democrat’s overall position (and to Canada’s Liberal party), which is why splitting ties from it should be stimulated even further.
Clinton’s Washington Consensus now appears as quite unreal in its expectations. One cannot expect a local currency to be pegged to the dollar while still defending the sovereignty of local businesses that are continually under pressure to comply with the game rules set by northern countries. Moreover, the wealth of America’s consumer market and its productive power are daunting for any individual country to confront on its own when based in the trade principles set out by the OECD and WTO.
In the past, even the US economy would have been at the mercy of other powerful currencies were it not for the Federal government massively funding its industrial sector–identical to the way China is now doing. Maintaining American hegemony over continental trade, at the cost of stifling the growth of southern countries is an agenda on which the Democratic Party differs little from the Republicans.
On the other hand, if the North American middle class’s commitment to globalization is not merely blind faced and hypocritical, it must seek out analyses from other points of view on how to apply the principles of free trade on internationalist grounds. If the middle class is not satisfied in upholding the imperialist aims of the North America upper-classes, then we must be able to usher in a cohesive and collaborative team of politicians, economists, entrepreneurs, investors and intellectuals to spread the purpose of novel ties and innovative policies toward the continental economy. The people in the south are expecting nothing else from our privileges.
In the end, despite the philosophical glamour of watching a leftwing party elected to govern Brazil, North-American spokespersons for the progressive community will have to move much further left and cut its ties with the Democrats and Liberals if they ever hope to be convincing to southern nations as to the effectiveness of their long-term commitment to help pull the region out from economic slumber and into a more affluent partnership.
Norman Madarasz is a Canadian philosopher currently living and working in Rio de Janeiro. He welcomes comments at normanmadarasz@hotmail.com.
