Brazilian Protests and Foreign Direct Investment

During the first two quarters of 2013, increasing, persistent social unrest in Brazil has negatively impacted retail sales as indicated by data from the Brazilian Institute of Geography and Statistics (IBGE), the official organ for economic statistical data (Table 1). 

Table 1. Source: http://www.ibge.gov.br/home/

According to the Jornal do Brasil, the Central Bank’s Index of Economic Activity (IBC-Br) grew 1.13% in June compared to May.¹ However, overall the second quarter closed with a grow rate of 0.89% as compared to the previous period. This is a slowing trend in relation to the last quarter of 2012, which registered a growth rate of 1.1%. The IBC-Br index is considered a prime indicator of the Gross Domestic Product (GDP), which has steadily declined since reaching a high of 9.3% YOY in March 2010 (Table 2).

Table 2. Source: http://www.tradingeconomics.com/brazil/gdp-growth-annual

Not surprisingly, the US dollar has strengthened over the same period, with a noticeable acceleration in June. By the end of the second quarter, the dollar reached R$ 2.25 (Table 3), with the trend continuing into August. By 15 Aug 2013, the dollar surpassed R$2.35, marking the greatest gain since March 2009.  The increased buying power of the dollar could benefit foreign direct investments in the Brazilian economy in areas that present the potential for stable growth, such as agriculture which grew 17 percent in the first quarter of 2013, supported by a strong harvest of soy (+23%), corn (+9.1%), tobacco (+5.7%) and rice (+5.1%).²

Table 3. Source: Banco Central do Brasil 

http://www4.bcb.gov.br/pec/taxas/port/ptaxnpesq.asp?id=txcotacao

It is important to note that the social and political instability in Brazil does not necessarily indicate a troubled economy in the long term. As Evodio Kaltenecker correctly points out, this is not a parallel to the Arab spring, but rather the manifestation of a series of unresolved issues: “Lack of trust in government institutions, high levels of corruption, low quality of state-provided services, high living & transportation costs, increase of inflation, runaway costs of 2014 World Cup.”³ These underlying frustrations have brought individuals out into the streets in a rather amorphous mass lacking any over-arching organization or leadership. The cost of public transportation was a flash-point, and the recent Confederations Cup hosted by Brazil fueled criticism of the massive spending of public funds on World Cup preparation,⁴ but the demands call for reformation rather than revolution. These stem from what James Hunter deems moral and practical dissatisfaction.⁵ The former reflects the outrage fired by such things as the “Mensalão” corruption trials that seemed to allow most of the guilty parties to escape punishment. The latter stems from such things as disproportionately high prices, high taxes, and faulty services including health care, education and transportation.

While the Brazilian unrest coupled with the slowing economic growth certainly will taint foreign direct investment over the short term, the current situation should not significantly destabilize Brazil’s economy assuming the government avoids exacerbating the circumstances. So far, President Dilma Rousseff has responded to the protests in an innocuous if confusing manner by calling for a plebiscite not demanded by protesters, pushing to repeal the hike in municipal bus fees that set off much of the agitation, and promoting a polemic program to recruit foreign physicians to work in under-served communities.  The 2014 World Cup will likely stir further contention, but in true “panen et circenses” fashion it will also generate significant revenue as well as popular excitement and goodwill, especially if Brazil wins the competition.

1. http://www.jb.com.br/economia/noticias/2013/08/15/previa-do-pib-fecha-2o-trimestre-com-alta-de-089-diz-banco-central/

2. http://www.tradingeconomics.com/brazil/gdp-growth-annual

3. http://www.canalyt.com/impact-of-protests-in-latin-america-on-investments-the-economy-and-political-stability/

4. http://latamperspectives.blogspot.com/2013/06/brazilian-protests-and-confederations.html

5. http://brazilthoughts.wordpress.com/2013/06/25/whither-the-protests-in-brazil/

Snowden, Espionage, Human Rights, and U.S.-Latin American Relations

In the July 12 edition of the Los Angeles Times, Tracy Wilkinson begins with an extremely apropos reference to an iconographic scene from “Casablanca”: “Mexicans are shocked — shocked! — to learn that their American neighbors have been spying on them. What’s more, the Americans have been helping the Mexican government become better at spying!” (http://www.latimes.com/news/world/worldnow/la-fg-wn-mexico-snowden-20130712,0,5645423.story).  Politicians from throughout the hemisphere are expressing outrage over the alleged infringement of their sovereign nations. From Mexico’s Enrique Peña Nieto to Argentina’s Cristina Fernández de Kirchner, heads of state are concerned, distressed, insulted and demanding clarification. Americans themselves are disturbed and irate over news of widespread interception of personal communications; in Latin America Snowden’s revelations are a black eye in the face of Barack Obama’s efforts in U.S.-Latin American relations, evoking regional criticisms that echo the strained times of purported CIA-supported dictatorships, coups and assassinations. Of course, just as Captain Renault was shocked to find gambling going on, no one is genuinely surprised by eavesdropping, surveillance and spying being carried out by Americans and numerous others. Every major country in the world maintains intelligence agencies and almost all embassies and consulates include an intelligence officer.  The tacit understanding is that you are not supposed to be too overt or too aggressive with your allies, and by all means you should avoid being discovered. Allies spying on their friends is an international embarrassment for all parties and creates significant political problems for the politicians of the countries being watched as much as for those who ordered the watching. Nobody wants such incidents to come to light. Just ask Peña Nieto whose predecessor and political ally Felipe Calderón cozied up U.S. intelligence services.

What Edward Snowden has done spits in the face of the diplomatic niceties of the various foreign services around the world. In The United States prior to the 1960s and in many countries to this day, Snowden’s actions would constitute high treason punishable by death. But every traitor is a valuable asset to another party, and right now Snowden represents enough potential information that any foreign government would willingly stick its neck out to reap the benefits.  Bolivia’s Evo Morales and Venezuela’s Nicolás Madura would be overjoyed to parade Snowden down the streets of La Paz or Caracas as a massive black-eye in the face of their ideological enemy, the United States. For them the benefits would be both symbolic and real. Brazil’s Dilma Rousseff and even Argentina’s Cristina Fernández de Kirchner, on the other hand, would be equally pleased but significantly more wary of overt involvement with Snowden. While Snowden assuredly would like to escape from the transit area of Sheremetyevo International Airport and enjoy the hospitality of President Morales, for the time being he remains a man without a country in that he cannot return home, U.S. pressure prevents him from easily traveling to many countries, and many others cannot afford the consequences of aiding and abetting America’s de facto public enemy #1. This is the case for Rousseff who has pursued a global economic policy that can only benefit from positive relations with the United States. And while Morales might be preparing his guest suite, the Bolivian president himself could not fly home from a recent meeting in Russia without his plane being diverted to Vienna by countries not wanting to act against the interests of the United States. Léo Gerchmann of the Brazilian News agency RBS reports that Snowden acknowledged the current impossibility of traveling to Venezuela in a meeting with representatives from Human Rights Watch (http://www.clicrbs.com.br/anoticia/jsp/default2.jsp?uf=2&local=18&source=a4199059.xml&template=4187.dwt&edition=22344&section=1485).

Russia is attempting a delicate balancing act. Sergei Loiko of the Los Angeles Times reports, “The meeting with Snowden also put organizations that regularly accuse the Russian government of human rights abuses in the position of being asked to serve as intermediary to the Kremlin on his behalf.” At the same time, Putin understands the hand he has been dealt.  As Alexander Ryklin, editor of the online Daily Journal, points out, “Putin may dislike and even despise him for what he is, a traitor in his eyes, but he won't let Snowden out of his hands" (http://www.latimes.com/news/nationworld/world/la-fg-russia-snowden-asylum-20130713,0,6124806.story). As former head of the KGB, Putin knows as well as anyone the value of Snowden’s information, and he would know how to extract and use the intelligence. At the same time, he very publicly values strengthening U.S.-Russian bilateral relations and thus has stipulated that Snowden’s presence in Russia only can be granted if the former NSA contractor will guarantee no further leaks that could harm the United States. One assumes that Putin means no further public leaks, not that Russian intelligence agencies would not pick Snowden’s brains.

Denis Dyomkin and Alexei Anishchuk of Reuters state that “Putin has used the case of Snowden to accuse the United States of preaching to the world about rights and freedoms it does not uphold at home” (http://www.reuters.com/article/2013/07/17/us-usa-security-snowden-russia-idUSBRE96F0I020130717). Nevertheless, for Putin as for any leader, assuming the role of human rights supporter for Snowden could appear hypocritical: How can a country embrace a fugitive as a human rights activist when their own record in the area is being called into question? Maduro, Morales and company should also take note.

Disenchantment with Lula

In 1982, the late historian Robert Levine¹ gave an informal address to a group of American college students attending the University of São Paulo in Brazil. He made a statement that did not go over well with most of the politically engagé students assembled. In referring to the entrenched corruption of both civil and official societies, Levine commented that it didn't matter who was the president since the bureaucracies and practices of daily life would remain the same. He concluded that you could have Lula² or Maluf³ as president and nothing would change. The underlying issue as identified by Levine was the need for reform in the very fabric of society.

It is often said that in Brazil there are two ways to accomplish any task, the official way and the unofficial way or “jeitinho.” Some scholars have postulated that the (in)famous “jeitinho” developed as a necessity because of the immense, and at times contradictory, bureaucracies that can bring to a halt almost any interaction with official organs. The need for society to function leads to extra-official practices enacted by functionaries who deal directly with those seeking resolution.  Obviously, the very nature of these arrangements lead to corruption, sometimes softer – such as a donation to the “coffee fund” (pagar o cafezinho) or the “tip box” (caixinha dois) – and other times more blatant and abusive. A major problem is the wide-spread acceptance of the practice as a simple fact of life and cost of doing business in Brazil. This reality is so entrenched in Brazil that some U.S. businesses found themselves unable to do business in Brazil without violating the Foreign Corrupt Practices Act of 1977 (FCPA) and the International Anti-Bribery and Fair Competition Act of 1998, which prohibit the bribing of foreign officials.

Luis Inácio “Lula” da Silva was a founder of the Brazilian Workers’ Party or PT (Partido dos Trabalhadores) in 1980 when the last military president, João Figueiredo, abolished the prescriptive bipartisan political system and allowed for the organization of new parties under the “Political Opening” (Abertura Política). In addition to several elected offices, Lula ran for President of the Republic in 1989 and 1994, losing both times in the second round run-offs, first to Fernando Collor de Mello and later to Fernando Henrique Cardoso. Throughout his political career up to that point, Lula distinguished himself as a tireless union organizer and social reformer. The Workers’ Party, whose symbol is a red star, was the farthest left party legal in Brazil when it was formed, and its platform included policies of redistribution of wealth including agrarian reform. In the years prior to his eventual election as president, Lula was often portrayed even by his detractors as perhaps Brazil’s only “honest politician.” In preparing himself to run again in the 2002 elections, Lula adopted a significantly different public persona, opting for smartly tailored suits and trimmed beard in place of his signature casual shirt sleeves and bushier facial hair. One of his first moves was to meet with the powerful Federation of Industries of the State of São Paulo (FIESP), the most significant industrial organization in the country and a long-time opponent of a Lula presidency. Lula assured these economic leaders that he would not threaten their hegemony and would maintain the economic policies of his predecessor, Fernando Henrique Cardoso. Most of his hardcore supporters probably assumed that this was merely a ploy to get into office, the ends justifying the means. However, once elected Lula was good to his word largely left unmodified the policies that had led to the economic stability under Cardoso. This policy alienated some of his party’s staunchest vanguard and led to sharp criticism from within the political left. However, Lula’s overall popularity grew during his presidency, at one point achieving the highest ever approval ratings for a Brazilian president. In 2009, Barack Obama referred to Lula as "the most popular politician on Earth" during a G20 summit in London.

Nevertheless, in 2005 during Lula’s presidency a massive influence peddling scheme operated within the corridors of the National Congress. Known as the “mensalão”(more or less the big monthly allowance), suitcases full of money regularly were brought into congressional offices, somehow bypassing security stations. These were distributed across a broad spectrum of political offices under the supervision of Lula’s Chief of Staff, José Dirceu. Ultimately, after the scandal broke, numerous members of Lula’s cabinet and other office holders lost their jobs, some eventually being indicted. Reminiscent of the Watergate scandal in the U.S., the question that surfaced regarding the president was, “What did he know and when did he know it?” While Lula was never directly implicated in the corruption, with wry humor, the joke at the time was: The good news is that Lula knew nothing about the payoffs. The bad news is that Lula knew nothing about the payoffs.

Lula’s popularity remained high throughout his presidency, enough so to allow current president Dilma Rousseff to coat-tail into the presidency after filling Dirceu’s post at the end of Lula’s second term. In August 2007, 40 participants were indicted by Brazil’s Supreme Court, almost all political allies of Lula and the PT. The trial began five years later, and many of the defendants were convicted of various charges of corruption. José Dirceu and several others were convicted of bribery (corrupção ativa).  

Even though Lula has managed to maintain a certain distance from the proceedings, his legacy has been tainted by the detailed revelations that continue to surface stemming from the trials and their aftermath. The image that has gradually supplanted that of “the one honest politician” seems to be that of “just another politician.” Those who most ardently supported Lula, and in some cases the Workers’ Party itself, have grown steadily more disillusioned.

NOTES

1. Robert M. Levine (1941-2003) was a scholar of Latin American history with a special emphasis on Brazil. When he addressed the American students in 1982, he was visiting his long-time friend and fellow historian José Carlos Sebe Bom Meihy, then the Director of the Interuniversity Study Program (ISP-USP). Years later when I was at Florida International University and Bob was at the University of Miami, he was surprised to have made such a remark, being a strong supporter of Lula’s various political activities.

2. Luis Inácio “Lula” da Silva (b. 1945) was president of Brazil from 2003-2010.

3. Paulo Salim Maluf (b. 1931) is a Brazilian politician who has held multiple state and national offices since getting appointed Mayor of the city of São Paulo in 1969, due to his personal connections to General Artur da Costa e Silva, the second military president. His appointment was made possible by the fifth Institutional Act (AI-5) of 12/13/68, that suspended most political and civil rights, recessed the national congress, and instituted direct control of political processes by the president and governors.  In 1982, Maluf was finishing his term as Governor of the state of São Paulo and demonstrated clear aspirations to the presidency. He was a candidate for the chief executive office in 1985, supported by the out-going military régime and thus expected to become Brazil’s first civilian president since the 1964 coup. However, in a surprising upset, Tancredo Neves won the indirect election held through the Electoral College.