Friday, February 14, 2014

Dictators II: Controllers and Collaborators

In my posting on 13 December 2013 [http://latamperspectives.blogspot.com/2013/12/latin-american-dictators.html], I commented on the execution of North Korean elder statesman and dictatorial uncle Jang Song Thaek. I related the dictatorship of Kim Jong Un to many similar egocentric and/or totalitarian regimes in history, making special mention of the numerous dictators who have subjugated regions of Latin America over the last couple of centuries, with special emphasis on the “desaparecidos” as an example of the utmost in dictatorial cowardice. Parallels also can be drawn between Kim Jong Un and leaders such as Mao Zedong, Joseph Stalin, Adolf Hitler, Fidel Castro, Idi Amin, “Papa Doc” Duvalier, and others. A commonality within this group is the role of a few individuals who helped enable the rise to power of the eventual dictator, and the much larger groups that actively or passively collaborated with oppressive regimes.

In the current case of North Korea, Jang Song Thaek presumably shored up his nephew’s bid for power under the assumption that he could control the frivolous, pampered dilettante and exercise true power behind the throne. In the tradition of Cardinal Wolsley’s fate, the puppet protégé eventually turned on his mentor and eliminated him. More often, however, dictators seize control of a country with the support of special interest groups who embrace the leader as a means to realize their own desires for control.  Frequently this elite sees the strong-arm practices of the totalitarian regime as a means to their own specific ends, usually a way of preserving their source of power. In some cases, once the supposed figurehead consolidates his authority, he moves to neutralize anyone who may pose a challenge to his administration.  In pre-Nazi Germany, Hitler rose to prominence through the support of the Brown Shirts (Sturmabteilung or “SA”). Once he procured the Chancellorship in 1933, Hitler began questioning the role of the SA and finally disempowered them through the “Blood Purge” of 1934. Stalin eliminated Trotsky and other old-school Bolsheviks in the “Great Purge.” Mao decimated the senior ranks of his Communist Party with the “Cultural Revolution.” By 1965, a Soviet-supported Castro freed himself of the ever-revolutionary Ernesto “Che” Guevara.

In post-colonial Latin America, some totalitarian or corporativist governments have been backed by oligarchies comprised of large land owners and/or industrialists, while others emerged as populist. Among the 19th-Century “caudillos,” Juan Manuel de Rosas of Argentina, Dr. José Gaspar Rodríguez de Francia of Paraguay, and the numerous Brazilian “coronéis” derived their power from an almost feudal socio-political structure based on immense tracts of land and the cooperation among those who owned them. In the 20th Century, Juan Domingo Perón and Getúlio Vargas defined modern populist dictatorships in Argentina and Brazil, respectively. These two leaders managed to appeal to the masses while still serving the interests of a select group of business, industry, and land owners. The general populous who supported them did not directly endorse secret police, torture, and the other trappings of a (quasi)dictatorial regime. Rather, they the sought to ensure an overall livelihood and economic standard that they felt would be well served by these particular leaders. In this they are quite distinct from the cynical and blatantly self-serving supporters who lined their own pockets at the expense of this very citizenry.

In situations resulting from a revolutionary rise to power, several kinds of collaborators stand out, as defined by the nature of their participation in or support of the new regime. Some are actual ideologues or members of the revolutionary body that activity participated in over-throwing the previous government and who benefit directly from the new order. Others are petty technocrats and bureaucrats without ideology or moral compass who readily embrace the “brave new world” as an automatic response to the presence of power. They seek power for power’s sake, and are prepared to “drink the Cool-Aid” if necessary in order to feed their addiction. Yet another group sins through omission by avoiding taking any position and thus winds up empowering the atrocities that extreme regimes commit. The Southern Cone countries of the 1960s and 1970s housed actual majorities that turned a blind eye to disappearances and torture, much like the German people under the Nazis who chose not to think about what fate befell their Jewish neighbors, albeit to a lesser degree in terms of the number of victims.

There is also a special group of unwitting collaborators: the “inocentes úteis” in Portuguese, or most often “useful idiots” in English. These are individuals who can be manipulated by the regime but are too naïve to realize what role they have been acquired. Frequently these people can believe that they are endorsing a noble goal, incapable of critically analyzing the political and ideological rhetoric that the regime spoon-feeds them. They often are self-righteous about the purpose of their actions, be it the implementation of a truly egalitarian socialist state, the consolidation of economic prosperity and industrial competitiveness for the nation, or the grand panacea of change and progress as in the 19th Century’s positivist movements or the case of nationalist modernization under Vargas.


What is common to all of these groups is their capacity to ignore atrocities either by commission or omission. If confronted by the facts of abuses effectuated by the state or the specific leader, they chose not to believe them. Ultimately, no dictatorial regime could endure to make a mark in history without the tacit or explicit support of the majority.

Saturday, February 8, 2014

Brazil Outlook 2014: Positive Opportunity for Foreign Direct Investment

As we enter 2014, there are a few givens regarding Brazil’s outlook for the new year. Partying across the nation will ramp up leading into Carnaval. The country will go crazy hosting the World Cup in June & July. The construction and remodeling of numerous soccer stadiums will be completed just barely in time, provoking much negative commentary from FIFA and other “soccer countries.” The renovations of infrastructure will not be fully completed. Airline ticket prices, hotel rates, restaurant costs and a plethora of other service areas will gouge every Dollar, Euro, Yen, etc. out of the multitude of tourists attending both events. There will be increased protests leading up to and during the international competition provoking much uneasiness among travelers and investors.

In my post from 15 August 2013 (“Brazilian Protests and Foreign Direct Investment”),1 I looked at economic data from the first two quarters of the year and suggested a positive investment environment moving forward into 2014.  Last month (21 Jan 2014), Frederico Rosas and Carla Jiménez reported in the Spanish newspaper El País that Brazil remains one of the ten countries most attractive for foreign direct investment based on year-end economic indicators. They emphasized that Brazil’s situation remains strong in spite of the perhaps exaggerated pessimism surrounding the Brazilian economy due to concerns about a fall in its investment ranking.2 On June 6, 2013, Standard & Poor’s revised its risk analysis for Brazil from “stable” to “negative” indicating: “Slow GDP growth and continued expansionary fiscal policy (including off-budget measures) risk weakening Brazil's financial profile and could, absent corrective measures, result in weaker fiscal performance and an increase in the government's debt burden.”3  The company’s press release indicated:
The credit ratings on Brazil reflect its well-established political institutions, diversified economy, manageable levels of net external debt, and political commitment to policies that maintain economic stability," said Standard & Poor's credit analyst Sebastian Briozzo. "The ratings also incorporate its relatively large government debt and refinancing needs." Moreover, they reflect the country's substantial demand for investment to improve its physical infrastructure, as well as structural impediments that contribute to low overall investment as a share of GDP (just above 18% in 2012) and constrain GDP growth potential.4

Nevertheless, Standard & Poor’s analysis affirmed Brazil’s investment ratings based on counterparty risk, political risk, monetary stability, and the country’s overall debt burden:
Local Currency: A-
Foreign Currency: BBB
Transfer and convertibility (T&C) assessments: A-


This affirmation probably reflects Brazil’s relatively steady albeit low GDP growth rates and its fairly stable inflation over the past two years, among other factors. Moreover, during the last two years, the exchange rate for the US dollar has remained strong, ranging from 1.8676-to-1 in January 2012, to 2.2118 in December 2013.


Table 1: Brazilian quarterly GDP growth, core inflation & US$ exchange rate, 2012-2013. Data source: Banco Central do Brasil, and http://www.tradingeconomics.com based on reports from the Instituto Brasileiro de Geografia e Estatística (IBGE).


In their mapping of global risk, Marsh consultants in conjunction with Maplecroft Global Risk Analytics ranked Brazil as “medium”; among the BRICS group, the Marsh-Maplecroft study ranked only South Africa at the same level. It ranked China and India as “high” risk, and Russia as “extreme.” Their website explains: “The Political Risk (Dynamic) Index assesses risks that have the potential to undergo change and in particular to deteriorate rapidly. It is comprised of 30 political risk indices under the four themes of governance framework, political violence, business and macroeconomic risk and societal forced regime change risk.”5 The completeness of this analysis underscores the potential for positive returns in the Brazilian economic sphere. In spite of the still present fall-out from the Mensalão and other political scandals, Brazil’s national political arena remains relatively stable with President Dilma Rousseff’s approval ratings climbing slightly to 41% towards the end of 2013, after plummeting during the protests mid-year, according to Datafolha.6 There is no significant political violence or threat of popular uprisings that could threaten national security, and the economy remains relatively strong. While the Brazilian stock market BOVESPA is performing poorly, the US dollar’s consistently firm buying power favors foreign direct investment in the country.