Loading ...Article - Brazil: Another emerging economy to watch
In previous articles I have talked about the top two emerging economies in the world, China and India. I want to focus today on Brazil, Latin America’s largest economy and population, and the world’s 11th largest economy. What we see is a country that newly aspires to be the power broker of its region since the United States has been preoccupied with the Middle East and South Asia. Brazil is also included in “BRIC,” the new shorthand designation coined by a Goldman Sachs analyst for the four emerging world economies who have been meeting independently - Brazil, Russia, India and China.
Brazil believes its new economic clout warrants a permanent seat on the UN Security Council. And it most certainly desires a dialogue more among equals when it talks to the United States and the European Union about trade, international finances, development, energy and security.
Indeed, Brazil’s President Luiz Inacio Lula da Silva, popularly known as Lula, is credited with organizing the bloc of developing nations called the Group of 20 (G-20) to be a counterweight to the US and Europe in global talks. In addition, he is actively promoting the organization of South American countries into an increasingly integrated economic bloc to deal with the rest of the world.
Brazil is, like India, a functioning democracy. It has a government structure much like that of the US. Its centrist policies are a fortunate counterweight to Venezuela whose radical leader, Hugo Chavez, also aspires to speak for Latin America.
Lula is in his second and last term as Brazil’s highly popular president. Leaving school at age 14 to become a metal worker, he is the first president of Brazil from the working class. He was expected to swing the country hard to the left when he came to power, but he has pleasantly surprised us with his prudent policies to stabilize the economy, promote economic growth, cut poverty rates and produce a budget surplus.
After decades of being the largest debtor in the emerging market area, Brazil became a creditor nation in early 2008. And until the world economic recession hit, Brazil had anticipated 5 percent growth in 2008.
Brazil is remarkably well endowed with minerals. It has the “caviar” of the world’s iron ores with a high iron content of 40 percent, plus many other minerals. A further blessing was the recent discovery of two gigantic oil fields off the coast of Rio de Janeiro which could make Brazil a significant oil exporter by 2015. The oil discovery is ironic because Brazil has been the global pioneer in biofuels in the wake of the oil crisis of 1973-74.
Today, 90 percent of car sales in Brazil are of “flex” cars that can take any combination of petroleum and ethanol, with use of ethanol overtaking the former in 2008. Brazil’s ethanol is made from sugar cane.
It is an agricultural power house as the world’s largest producer of sugar cane, coffee, tropical fruits, frozen concentrated orange juice, and it has the world’s largest commercial cattle herd. It grows many other crops as well, such as soybeans and corn, using agricultural technology adapting crops native to colder climates to tropical conditions.
It boasts an advanced industrial sector - car production included - accounting for one third of its GDP and a sophisticated services industry as well.
Brazil is not without its problems: official corruption, skewed land distribution, a remaining huge gap between rich and poor, a struggling education system, infrastructure needs and issues about Amazon deforestation. It took a strong hit in the current global recession, particularly in its commodities exports.
But its economic diversity, large domestic consumer base and plentiful foreign exchange reserves are cushioning the effects of the global economic crisis. China is buying its commodities again; and in March, it reportedly passed the US as Brazil’s biggest trade partner. Forecasts differ but the most optimistic are for an economic rebound in Brazil in late 2009.
Of particular note is how Brazil has turned to China for cash to development its new oil fields. This is viewed by the Wall Street Journal “as the latest sign of how Beijing’s clout is growing amid the global economic downturn.” China is among the few international capital market sources of cash and Brazil needs $174 billion for that development. A credit agreement was signed when Lula visited China in March. Brazil will guarantee oil shipments to Chinese companies in return for the credit, and it will consider increasing its use of China’s oil field service company.
All this is competition to international oil companies who still hope Brazil will need their technology to tap their geologically complicated oil reserves.
What a different scenario from the days when Brazil lurched from one economic and political crisis to another. It is certainly a change from the days of the Monroe Doctrine when Latin America was a backyard for the US to achieve its goals more or less as it wanted. Those days seem over. Even the idea of a US-centric hemispheric free trade area to compete in the future with the European Union and China seems a lost dream.
Instead, a Brazil/South America-centric trade zone is fast developing, reaching out to other emerging economies such as China, India and South Africa - and less to the US.
Source: East Oregonian
Popularity: 4%
No comments yet.