For most of the past two decades Brazil has moved in the direction of free trade, but the global economic slowdown has the average Brazilian asking for less competition and a more socially friendly government.
For the president-elect of Brazil social reform will be the order of the day. The type of social change desired by the average Brazilian can only be sustained by a viable economy; today Brazil’s economy is anything but healthy. In short, the Brazilian economy is one step away from financial disaster.
The Asian Financial Crisis, which started in 1997, was followed in 1999 by Brazil’s currency devaluation, and, now in 2002, Brazil’s currency has again fallen and interest rates and unemployment are up.
These events are extremely problematic for the American farmer. Brazil simply has not managed their financial resources, and now their economy is paying the price. Because of the financial mismanagement within the country, Brazilian farmers will further gain an export advantage over their American competition.
What is going right? Where is the opportunity?
The Economist, a global magazine, made the following points before the election: a Lula victory would do much to demolish the idea that Latin America democracy is still just a game rigged for the benefit of the better-off and a Lula presidency will stand or fall on its management of the economy.
Peter Heap Chairman, Brazil Chamber of Commerce listed a few points in the Financial Times in response to the global financial communities concerns:
First: his victory is a healthy sign of democracy at work. As recently as the 1980’s, Brazil was a military dictatorship. It is to Brazil’s and the world’s benefit that democracy, in a country of nearly 200 million people, should grow deep roots.
Second: in democracies, the poor tend to vote for left-of-center parties. Brazil is no different. That their views are reflected in the choice of government is healthy.
Third: Mr. Da Silva has changed, both in style and policy. He has pledged support for fiscally responsible policies, in some respects going further than those of his predecessor.
Fourth: his party, PT, does not have enough seats to pass legislation in Congress. For this, he will need support from parties of the center and right. He cannot go on a spree of left-wing extremist legislation.
Fifth: although this is PT’s first presidential election victory, it has had governors and mayors in big states and cities for some time. Nothing disastrous has happened in them. Of course, they have pursued policies more to the taste of some than of others but that too is democracy.
Sixth: Brazil’s economy has a huge industrial, agricultural and mineral base. The engine of every BMW Mini is made in Brazil. Brazil exports aircraft to Europe and North America. More Fiat cars are made in Brazil than in Italy. Half the world’s iron ore comes from Brazil. All of this will not be blown away.
Who is the most important person in Latin America? The answer is President-Elect Lula.
He must do the impossible. Brazilians do not want Socialism they want social reform, so Lula must embrace globalization to generate the monies required to achieve mandated social reforms. Lula must neutralize his country’s financial crisis. This will have the desired result of reducing interest rates and unemployment with the additional benefit of being a catalyst for positive change in Latin America.
For the American farmer the competition Brazil brings to the international marketplace can be viewed in a number of ways. These are difficult times for American agriculture so we tend to point out the inequities and hunker down in a protectionist mode. American farmers must be focused on gains in productivity, maintaining optimal firm size, specializing or diversifying depending on the farm’s objective and/or resource base to list a few.
I hope Lula is one in a billion, because a viable Brazilian economy is mandatory to a healthy Latin America economy and a healthy Latin American is essential to a healthy Western Hemisphere.
If Lula achieves economic and financial success we all win; if he fails, we all pay a short run price. But we, America, will move on with or without Lula.
For the intermediate time period U.S. policymakers must guard against sacrificing sectors of American agriculture while others rebuild their economies.
Dr. Bobby Coats is an Extension agricultural economist and farm policy specialist with the University of Arkansas. E-mail: [email protected].