The new far-right government in Brazil

Jair Messias Bolsonaro, the veteran army captain who was the victor in the Brazilian presidential elections second round (run on September 28th 2018), has indicated ever more clearly how Brazil’s future government starting in January 1st 2019 will be like. By announcing the names of his cabinet ministers-to-be and through their statements, along with his own, he has been pointing to intentions and to the type of attitude we will be seeing in the Bolsonaro administration.

The socio-political coalition that supports this project gather military servicemembers, evangelicals, ruralists, entrepreneurs, former financial market professionals. The main minister in the future government, the Minister of Economy, is the financier Paulo Guedes, an ultraliberal with a University of Chicago doctorate. Social security reform, less worker rights (the future government has already announced an end to the octogenarian Ministry of Work), privatizations and fiscal adjustments coupled with the minimization of the State will probably be emphasized in the steering of the economy, a continuation to the Temer government. A core of state companies (the oil company Petrobras, the power company Eletrobras, the federal public banks) may be maintained by the president’s choice and by the influence of the military wing of government, which is made up of seven ministers, even more than in governments during the military dictatorship period (1964-1985).

The Minister of Foreign Affairs, Ernesto Araujo, has been detaching himself from traditional Brazilian diplomacy, which, being more liberal or statist depending on the government, has always been grounded in pragmatism. The future chancellor has been championing a strict alignment with the United States in defense of what he considers to be “Western values”. The left and the liberal right would be “globalists”, anti-nationals. Multilateral agreements would be the expression of this globalism, and the Bolsonaro government has already stated that bilateral agreements will be prioritized. The adherence to the USA and to the Trump government in this sense (the son of the president-elect, the house representative Eduardo Bolsonaro, in a trip to the USA bore a cap reading “Trump 2020”, in clear allusion to the re-election campaign of the Republican president), and the signaling of a transference of the Brazilian embassy in Israel from Tel Aviv to Jerusalem, as well as the criticism to the future leader to China (the main trade partner for Brazil) may prove problematic to the country in its relations with the Asian giant and also Arab countries. Regarding environmental issues, in which Brazil had come to act with aplomb, especially from the 2000’s onwards, and to be an important international agent, the new government has already been imposing setbacks. The Temer government, taking the request coming from the new government, communicated the Brazilian withdrawal from the talks to host the UN’s climate change summit in 2019.

The environment, relations with indigenous themes (the new president is against demarcating indigenous territories), issues related to the rights of minorities point to other setbacks. The environmental take in the new government seems to refer back to the dictatorhip, which looked at the Amazon forest, for example, as an obstacle to be removed as to benefit the development of the country. The new Minister for the “Woman, Family and Human Rights” affairs, an evangelical pastor, has already positioned herself against abortion and defends that women should go back to domestic chores, taking care of the kids, considering work outside the home as a nuisance. In educational matters, an ultraconservative academic appointed Minister of Education intends to advance the guidelines in “Nonpartisan School”, an authoritarian agenda that aims at destituting teachers of their constitutional right to expose their political views in defense of a supposed ideological “neutrality” in the classroom. Actually, the goal is to mute teachers with a critical outlook to inequalities and injustices, a behavioral trait of the left. The president-elect himself recorded a video encouraging students to report “ideological” teachers by filming them with cellphones. This McCarthyism of sorts will be a test to Brazilian institutions, especially the Supreme Federal Court, the guardian of the Constitution. The Judiciary and the Public Prosecutor’s Office will be tested in the next government, which has authoritarian inclinations, starting with the president. Both, in association with the big press, contributed to the political destabilization in Brazil in the last few years, with the selectiveness of its actions towards the then party in power, the Worker’s Party, and in the execution of a vengeful “spectacle-justice” with ample press coverage, generally sensationalist, and leaks of confidential investigations to the media. The way the corruption investigations were led, often disrespecting the law and the defendants’ rights, aflicted damage to the whole political system – all the traditional political parties have left the last election smaller than they were before. The far-right party of Bolsonaro was the one that most grew in the lower chamber in parliament, springboarding on this dissatisfaction.

We will witness whether the institutions will resist eventual authoritarian moves. The choosing of the main icon of the anti-corruption operation called “Operation Car Wash” to the office of the Ministry of Justice indicates that the standard for action in investigative institutions will probably remain the same. In the economic area the new government and the Brazilian bourgeoisie seem to be bent on enforcing the liberal shift (which has already been very harmful since 2015, still under the Dilma Rousseff administration, resulting in low economic growth and setbacks in social indexes), and roll over that which was erected during the developmentalist period (1930-1980), the historical period with the most Brazilian economic growth, with a new process of privatization.

Brazil is not on its own in the emergence of radicalism coming from the right. The German sociologist Wolfgang Streeck defends that capitalism is in need of more authoritarian institutions to impose order in face of increasing inequality. However, the country, as is the case with other countries in development, had been reducing inequality, even with its surge in the capitalist center, which could be seen in the 2000’s. With Bolsonaro what is expected is more neoliberalism. At what cost? The future will tell.

Argentina: economic crisis and development history

Mauricio Macri won the Argentinian presidential elections at the end of 2015 promising to change Argentina’s course, which in Cristina Kirchnner’s second mandate did not show the same levels of growth it did on the first time nor in the previous government, her husband’s, Nestor Kirchnner’s, besides the political atrition she faced with corruption charges and conflicts with many internally important sectors as the media and farming. Macri made a liberal turn in economic policy: reduced subsidies, adjusted tariffs, allowed for exchange rate fluctuation. Prices went up significantly starting in 2016 with pushes by adjustments and currency depreciation, but the government argued there was a strategy for gradual fall in inflation. Public deficit is not big and many provinces are in surplus. However, and here lies the biggest issue, the country has expressively grown its debt and external deficit. Following the rise in interest rates in the USA and the attraction of world capital to the treasuries, this vulnerability in the Argentinian economy has left the country very much exposed to speculative moves. The huge depreciation of the peso this year propelled inflation and eroded the population’s purchase power, which took the economy to a recessive state. The elevation of interest rates to the highest level in the world with the intent of stopping national currency depreciation made credit more expensive and disencouraged growth even more. The IMF opened a line of credit of 50 billion dollars to secure the country’s solvency. That being the case, as it is typical in loans from the fund, Argentina has commited to deepening and speeding up fiscal adjustments.

It is a very different scenario from the 2000’s. when Nestor Kirchnner in 2006 paid the 9,8 billion dollars of debt to the International Monetary Fund, following the move just recently done by Brazil. The commodity boom made possible by the strong expansion of the Chinese economy benefitted the Argentinian economy enormously in this period, as well as raw material exporters around the world and allowed for reserve currency accumulation. The international scenario, not as favorable in the 2010’s, did not position Argentina for that same performance.

But what else was there that, besides considerations of economic nature, made a country not be able to consolidate as a developed economy, even if between the end of the 19th century and the 1930’s it was at the top seven richest countries in the world? As pointed out by the social scientist and Professor of International Economic Policy, Jose Luis Fiori in História, Estratégia e Desenvolvimento (in English: History, Strategy and Development) “As it happened in the United States, in Germany and in Japan, Argentina also went through an extraordinary economic and social transformation between 1870 and 1920. (…) its territory more than tripled; its population multiplied by five; its railroad network went from 500 to 31.100 kilometers; and its GDP grew to an average annual rate of 6% (maybe the biggest in the world in the period), while its per capita income was four times bigger than the Brazilians’ and double that of the North Americans’.” (FIORI, p.101, 2014) The same author, when searching for the answer for that question, underlines, in regards to heteredox and orthodox economists’ positions, that “After 1930, however, its growth gradually came to be more unstable, going through increasingly shorter and more intense cycles. Raul Prebisch attributed this inflexion to international changes and to the way operations were run in the new cyclical center of the world economy, the United States, in addition to the endogenous industrial frailty of the primary exporter economies. Later on, the orthodox and neoliberal economists attributed the blame for the Argentinian change of direction to the populist economic policies of the Juan Domingo Peron government, in spite of Peron only having governed between 1945 and 1955 and between 1973 and 1974.” (FIORI, p. 102, 2014)

Fiori proposes a new thesis to explain the Argentinian failure in consolidating in the 20th century as a world power. It is not centered around the adoption of an orthodox or heterodox economic policy, or populist, as in the conventional explanations, but in the absence or impossibility of an expansive strategy for the accumulation of power. According to the author “(…) The military conquest of the Argentinian west allowed for the continuous economic expansion/occupation of new territories until the end of the 1920’s. That is why one can say that the Argentinian liberal State was born out of a civil war that lasted for half a century and was financed by the success of its primary exporter model. And it was exactly at the end of this expansion that the political crisis responsible for the periodical disorganization of the State and the definitive polarization of the Argentinian society clicked. During the “infamous decade” [the 1930’s] its many governments launched Keynesian economic policies and got to the point of initiating an ambitious program for industrialization, designed by Raul Prebisch himself. That which was lacking, however, was a new expansive strategy and one in the long-term for that matter, and a group capable of transforming the Argentinian economy in an instrument of its own international power accumulation.” (FIORI, p. 102-103, 2014). Fiori also wonders whether outside the Eurasian and North Atlantic space it would be possible for Argentina to insert itself in interstate competition with the main global political players, and states that dependentists and neoliberals think not. Still, even though it doesn’t answer the question, the author suggests that economic policy wasn’t responsible for the peripheric position Argentina was left to in the world after the 1930’s, but the absence of a project of power, of a long-term strategy for international projection to the country. And then, there are two problems: the internal coalition necessary to sustain, throughout time, this project, a political project that often cannot balance an international system structure itself and the “vetoes” of leading powers in the system to the countries that bring about challenges to its rules and hierarchy.

Reference:

FIORI, José Luis. História, Estratégia e Desenvolvimento. São Paulo: Boitempo, 2014.

 

 

Venezuela: what has taken the country to the severe economic crisis?

Recently the president Nicolas Maduro announced an initiative to promote monetary reform and an attempt to overcome the hyperinflationary process (forecasts indicate over 1 million percent inflation in 2018 and 10 million percent in 2019) and make it possible for the economy to recover. Two new currencies were created: the bolivar soberano, that replaces the  bolivar forte, with the cutting of five zeros, and the petros, a cryptocurrency (therefore, one that only exists virtually) whose basic unit of currency will be defined with reference to the country’s oil reserves. There will be an exchange rate between currencies defined by the market. However, there’s still very much skepticism regarding this reform. The problem is essentially political – the government faces stark domestic and international opposition, and its legitimacy has been contested (which has gained momentum after the dissolution of the opposition-controlled parliament and the convening of a constituent assembly); and it is very hard to implement a successful stabilizing plan without sufficient support internally and externally. Besides that, it is necessary to deal with fiscal problems and provide conditions for the recovery of domestic consumption and domestic product. Analysts report that inflation is very likely to go down at first but then return later on.

What has taken Venezuela to said scenario? Runaway inflation, chronic lack of goods in the supermarkets and expressive growth in poverty with a huge influx of migrants to neighboring countries (especially Colombia and Brazil) present a Venezuela very different from the one in the 2000’s, in which Hugo Chavez made use of the rising petrol earnings due to high oil barrel prices for the goal of income distribution and granting social benefits to the population. The reasons are many and go from problems in macroeconomic and oil resources management by chavism to a chronic political instability promoted by an antipopular elite associated with foreign interests, especially from the USA. In the last few years, the sanctions promoted by the United States have been one more obstacle for the obtention of credit and the Venezuelan debt rollover.

The economist Rafael Bianchini Paiva gave a good summary of the Venezuelan economic trajectory in the following passage published on the Brazilian magazine Carta Capital’s website in referring to the time previous to and during the Hugo Chavez government: “According to data from the World Bank, in between 1961 and 1979, the Venezuelan GDP per capita went up 1,1% a year on average, level considered to be very modest when considering that the country takes part in the Organization of the Petroleum Exporting Countries (OPEC) and the 70’s were marked by the petroleum shocks. As the majority of Latin American countries, the external debt crisis hit Venezuela’s economy, whose GDP per capita has fallen 22,2% between 1980 and 1985. In 1998, GDP per capita was only 1,8% bigger than in 1960. In the late 90’s, while most countries in South America presented one-digit levels, inflation to consumers was at 35,8% in 1998, after peaking at almost 100% in 1996. Levels of unequality and poverty were typical Latin American stats: in 1998 the Gini index of the country was at 0,489 and 43,9% of households lived below the poverty line, being 17,1% below extreme poverty. In other words, contrary to a narrative that has become very common recently, Hugo Chavez became president in a stagnated country, with high inflation, very unequal society and with high levels of poverty. Under Chavez’s presidency, between 1999 and 2012, GDP per capita rose 1% a year on average, indicator similar to the one reached during the oil boom in the 60’s and 70’s. Between 1999 and 2006 inflation was around 20% a year, relatively low for Venezuelan standards. During this period the depreciation of the bolivar kept the real exchange rate relatively stable. The frustrated coup d’etat attempt in 2002 resulted in a deep recession. Between 2002 and 2003, GDP per capita fell 18,9%. At the end of 2003, poverty extended over 55,1% of the population, of which one quarter was in conditions of extreme poverty. Politically, chavism’s way out was to radicalize policies aimed at reducing poverty and improving income distribution. Due to these policies, in 2012 poverty was cut down to 21,1% of households, being 6,0% below the extreme poverty line. Unequality indexes are even better to express the consequences of the radicalization of chavism. The Gini index, which had a slight increase between 1998 and 2002, fell to 0,404 in 2012, level of countries like the USA. The portion of income earned by the richest 20% fell from 54,1% in 2002 to 44,8% in 2012, whereas the other four fifths had their portions increased. The change in income distribution is the economic index best suited to synthesize the growth in political polarization.”

However, going in the last few years of the Chavez period, the exchange rate was used to brake inflation in a booming economy, what brought on exchange rate overvaluation and aggravated the oil economic dependency, as much as the government had tried to diversify the economy. Venezuela suffered what is called “Dutch disease”, that is the coming in of a considerable volume of a strong currency (dollar) which then causes a steep currency appreciation and undermines production in other sectors. Maduro did not promote the necessary adjustments, especially in the fiscal front, what then fed inflation. The adoption in 2014 of a complicated multiple exchange rate, making it harder to set references to prices and the coming in effect of a fair-price law, which turned profit superior do 30% a crime, disencouraged the production and commerce, and made the supply problem lasting. Subsequent attempts to control prices in addition to the plummeting of oil prices made the Venezuelan economic situation even worse – currently with less than 10 billion dollars in exchange reserves, a figure nearing 10% of its external debt. Exchange manipulation and the controls that were implemented, but have not shown to be effective, made inflation reach the hyperinflationary stage it is in right now.

The passage in bold in the paragraph above shows that for almost a decade, between 2003 and 2012, chavism was able to pull off an extraordinary feat of reducing unequalities always existent in the country. That explains to a great extent the opposition to chavism in the more well-off classes. Mistakes in economic policy starting at the end of the Chavez government but mainly during Maduro’s mandate deepened the crisis. Another factor that has harmed the country’s economy is the persistent decrease in oil production, which has dropped from over 3 million barrels/day in 1999 to less than 1,5 million/day currently. Several problems that go from inadequate management, judicial disputes with foreign oil companies, debt payments (50 billion dollars) to China with oil, and subsidy to domestic consumption (Venezuelan gas is the world’s cheapest), among others, undermined the investment capacity of the oil company and resulted in less production.

 Still, there can’t be an omission regarding the sanctions adopted against Venezuela during the Trump administration in 2017, which resulted in a financial strangling to the country, adding up to an even more dramatic situation. It seems clear that the USA acts to take down the Maduro government and does so by financing opposition and sanctions. These make it difficult for Venezuela to acquire the resources in dollar to comply with international obligations and be able to import essential products. According to Deutsche Welle’s website on the sanctions: “The United States announced (…) new economic sanctions against Venezuela amidst escalating tension between the two countries. The decree signed by president Donald Trump forbids new deals with the government in Caracas or with the state oil company PDVSA. With this measure – that represents one more step in the imposition of tougher sanctions promised by Trump –, financial institutions are barred from providing capital to the Venezuelan government and to the oil company. Purchasing new debt securities or other financial assets from either one is forbidden, as well as the payment of dividends to Caracas, and transactions with securities that are property of Venezuela’s public sector. Even the PDVSA US subsidiary, Citgo, will not be allowed to send dividends back to the South American country. Although involving deals with the state oil company, the decree does not impose sanctions against the importation of oil from Venezuela, fundamental to the country’s economy and also to US refineries – the USA are a relevant importer of the product”.

As banks of the whole world make business with the North American market, Venezuela has found it difficult to work its finances. Venezuela, since Chavez, has sought to get closer to others players like China, Russia and Iran. It has signed partnerships in the oil sector with the Chinese and Russian for sale and exploration of oil, and has gathered billions of dollars in resources, but China and Russia do not seem willing to move more resources and increase its exposition to risks in the country. The biggest oil market for Venezuela is still the United States.

 Another factor that has not helped Venezuela is the ascension of hostile right-wing governments in South America, including Brazil and Argentina. Brazil, which for many years played an important role acting for distension in the negotiations between government and opposition, starting with the Michel Temer administration, adopted a position of support to the Venezuelan opposition and against the Maduro government in international forums, including Mercosul. Macri’s Argentina, in an attitude totally divergent from the collaboration existing in the Kirchnner period, has become another antagonist in a market perspective. The practical result of these stances has been an unwillingness in offering any kind of assistance to mediate and find alternatives to the polarized political dispute in Venezuela. The Maduro administration is currently with insufficient political support, internally and externally, which makes it much harder to overcome the grave economic and social crisis in which the country finds itself.

References:

PAIVA, Rafael Bianchini. A tragédia econômica venezuelana. Published in 30/08/17 on the Carta Capital website: https://www.cartacapital.com.br/blogs/conjunturando/a-tragedia-economica-venezuelana

DEUTSCHE WELLE. EUA aplicam novas sanções à Venezuela. Published in 25.08.17 on the Deutsche Welle Brasil website: https://www.dw.com/pt-br/eua-aplicam-novas-san%C3%A7%C3%B5es-%C3%A0-venezuela/a-40246608

The USMCA agreement and the USA foreign policy

In Donald Trump’s presidency the United States has taken a turn in its foreign policy, changing the prevailing paradigm after World War II. Having taken the position of one of the winners in the conflict and a position of world power, the US sponsored the creation of the Bretton Woods institutions: the World Bank, the International Monetary Fund, the gold-dollar exchange rate, and the GATT (General Agreement on Tariffs and Trade). In his speech at the UN General Assembly, Trump was explicit in saying that the US is not “globalist” anymore (a strand of liberal thought in international relations), but actually centered in its national interests. The USA took on a stance never seen since the end of World War II. It leaves behind its role as conflict mediator and as a “stabilizer” in international relations (as we see in the case of deciding to support the transference of the Israeli capital to Jerusalem by setting the US embassy in the city) to act in sole benefit of its national interests and the preservation and expansion of its power around the world. Such a stance is the result not only of the ascension to power of a leadership with said purpose, but mainly of an intense internal dispute in the American bureaucratic establishment after the thesis defended by the Pentagon is favored in opposition to the perspective held by the US Department of State. All of the alliances are open to questioning and changes to maximize the advantages given to the USA are on the table. And the USA is likely to interfere with every chess board to secure its supremacy.

Having such alignment in mind it is possible to understand the US leaving the Trans-Pacific Partnership, the Paris Climate Agreement and the Iran Nuclear Deal, and also the trade war with China, the protectionism in the steel and aluminum indutries (which has affected many countries, including close allies, as the Europeans and Canada), and the revision of Nafta, recently concluded with the adhesion of Canada to the initial USA-Mexico deal. The trade bloc was renamed USMCA (United States-Mexico-Canada). Differently from Nafta, that had undetermined validity date, USMCA is going to be in effect for 16 years (the USA vowed for five, but Mexico and Canada did not accept it) and there will be a revision in 6 years to decide if there will be an extension. The automobile industry will be the most affected with a gradual increase from 62,5% to 75% of parts having to be made within the bloc. At 16 dollars an hour of work at minimum (value above what is paid in Mexico) to part of the production, factories will have to be transferred from Mexico to the USA and Canada, measure which conforms to Trump’s discourse on reindustrializing the USA (since it has lost many factories in the last few decades because of the chase for lower costs) benefitting the country’s workers and economy in place of Mexico’s workers and economy. The agreement has also established more protection to intellectual property, of interest to the US, and in a concession of Washington accepted the Canadian demand to maintain the dispute resolution board, something with which Ottawa has been able to overcome potential blocks to its timber exports to the USA.

The USA automobile industry was against the alteration moved to the sector. The sector argues that it will be burdened by higher costs and that it will be less competitive. Many North American economic sectors have been organizing in lobbies to defend free trade with similar argumentation, that of protectionism as hamrful to the economy and to the country as a whole. However, the US federal administration has been putting the country’s long-term interests above the demands coming from industries, even if they cause potential losses to certain sectors. Given the USA market size and power to push for its interests, Mexico and Canada made efforts to reduce damages. And Trump, in the speech announcing USMCA, criticized the supposed difficulties of North American companies to operate in Brazil, something that may point to protectionist measures.

 The United States is for a fact not a defender of the world liberal economic order anymore. All countries will be affected to greater or lesser degree by this and will have to think of their insertion strategies in the international economy, but this time not with lens from the 90’s and its “unstoppable globalization” that promised benefits to all that joined it. The ones that joined by following Washington’s liberalizing intents lost, as was Latin America’s case, which has shown in the last thirty years low rates of growth. In the Far East there are examples of countries that decided to follow a different path and had more success, grew more and modernized their economies and societies. And among these, there rises China as an economy that presents itself to overcome the North American economy in the next few decades. The USA, therefore, acts aggressively in all of its fronts and abandons international agreements in the name of preserving its position in relation to the world. And the USMCA, as highlighted, is one more pawn in this game of global powers.