30 INTERVIEW

Caution: Pitfalls ahead for the Brazilian economy

Foto Biorn Maybury-Lewis The Brazilian Economy — Earlier this year you wrote that “good luck is as important as good policies.” What trends do you see as being lucky for Rousseff? What about unlucky? Riordan Roett — The situation is very different from what it was under Lula. During the global crisis Lula’s stimulus Riordan Roett to the economy was appropriate, but The Sarita and Don Johnson Professor of Political Science and Director of the Western Hemisphere Program, Paul H. Nitze School then it was continued and used for pre- of Advanced International Studies, election spending. Dilma now has to deal Anne R. Grant, Washington, DC with the fiscal consequences. Currency appreciation is severe, and there’s a lot Riordan Roett is a political scientist specializing in and former national president of of action from the carry trade — specula- the Latin American Studies Association. Fluent in tors borrowing elsewhere at lower rates Portuguese and Spanish, he is a recognized specialist so they can make a quick buck from on Brazilian, , and Mexican issues. In 2001 higher rates in . Right now, Dilma the president of Brazil named Dr. Roett to the Order is looking unlucky. of Rio Branco. His most recent book is The New Brazil (Brookings Institution: 2010). In this interview Dr. In what ways do you think Rousseff is Roett deals briskly with the differences between the creating a presidency that is different Lula and Roussef administrations, concerns about from Lula’s? Brazilian de-industrialization, Brazil’s relationships Dilma is not powerful in her own party, with India, China’s relations with other developing the PT [Workers Party]; Lula is the PT. regions, the Belo Monte project, and the interplay That makes a big difference. She has of politics and economics in Brazil. He points out, to learn how to manage Congress, too, for instance, that no matter what the administration decides, “there are so many veto players in Congress” which is hungry for jobs. Meanwhile, that making either political or economic changes is she is taking a stronger stand in favor of very difficult. human rights and against corruption.

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Fernando Henrique Cardoso recently Brazil seems to be stuck with coalition said that “the old protectionist mindset governments. Is that a recipe for political is not easy to change.” He also said that instability? “the average Brazilian still believes that Commentators and politicians have been without state involvement, the economy talking for decades about what can be can’t move ahead.” What do you think done to organize politics differently in of these points? Brazil. What model might work best? Keep in mind that there’s considerable Should it follow a more German model, animosity between Cardoso’s PSDB [the for instance? Brazilian Social Democratic Party] and The big barrier preventing any change the PT, so what Cardoso says has to be is that there are so many veto players taken with a grain of salt. Neverthe- in Congress. How likely is it that many less, the PT approach is certainly more of them would sacrifice their own and interventionist than is Cardoso’s party. It their party’s interests for the good of the seems to be following the China’s model, whole? I expect there will continue to be with a larger state role in the economy. coalition governments for the foreseeable future. There is regular concern in Brazil about de-industrialization. Yet India, whose Why do you think that, in spite of its own economic progress is in some ways chal- and the G-20 proclamations about a larger lenging China’s and is ahead of Brazil’s, voice for emerging economies, Brazil seems to be surging because, as an Indian voted for a European to run the IMF economist puts it, its manufactures are rather than the Mexican candidate? “brain-intensive, not labor-intensive.” The relationship between Brazil and France Do you agree? has been very close. Take, for instance, Brazil definitely has to learn how to the matter of jet fighters. And Sarkozy has add value to its exports. Certainly, it made several visits to Brazil. has been slower to promote increases in But, unquestionably, the rivalry of important skill sets than India. This may Brazil and Mexico for dominance in the have something to do with the differ- hemisphere was a factor. The rivalry is ences in colonial history between India usually friendly, but it’s still a rivalry — and Brazil — differences in British vs. to the point that Brazil emphasizes that Portuguese domination. Whatever the reason, Brazil’s educational system Brazil’s educational system has major has major deficiencies. The quality of public education is particularly deficiencies. The quality of public troublesome. It needs attention education is particularly troublesome. desperately. It needs attention desperately.

September 2011 Ÿ The Brazilian Economy 32 INTERVIEW

it’s in the southern hemi- The Lula Brazil has a lot of sphere, putting Mexico administration in political and financial firmly in the northern. general had street capital invested in the Mexico hasn’t been Belo Monte hydroelec- particularly supportive smarts. The Rousseff tric project. It’s been of Brazil getting a seat administration seems compared to the Three on the U.N. Security Gorges dam in China — reluctant to get Council, either. but Three Gorges right down and dirty. But now is having some major How do you think the problems. Do you think recent U.S. Congress Brazil is not run by that will have repercus- vote doing away with technicians and the sions for Belo Monte? ethanol subsidies will politics have to be The situation of Belo affect Brazil? Monte is quite different It probably won’t have dealt with. from Three Gorges, but it much effect right away, has raised major concerns, especially with the projections of a poor mainly related to the environment and to sugar harvest, but it could have a major indigenous rights. Brazil does not have a effect over the medium term. For one good track record for protecting either. thing, Brazil’s sugar-based ethanol is of a The situation is complicated by the fact much better quality than that of the U.S., that the industrial south of Brazil really which is made from corn. needs dependable sources of power, and With regard to the Bolsa Familia program, Brazil’s economy has a continuing need one theory is that it was successful for growth. Finding the right balance will because it bypassed states and is managed not be easy. by municipalities, so it also bypasses The complex relationships of South corruption, which everybody recognizes American countries with China are to be a major political problem. Do you regularly rehashed. But what about see any hope that Brazil can clean up India? In the next few decades both our corruption? democracies will benefit from having a Corruption is endemic not only in Brazil much younger population than China, but throughout the developing world. among other things. How do you think However, it seems that Bolsa Familia this will play out? is indeed relatively corruption-free, and Brazil and India have good relations, it does seem to be beginning to change as is true to a considerable extent of federal-municipal relations. The program all the BRICS. But the relationship is is relatively cheap, too. not as complex as the relationship with

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China. It’s true that the complemen- with China that they do not want to tarities between Brazil and India may jeopardize. In effect, they are dependent be stronger, and there are not as many but suspicious. In a sense, Brazil may be tensions as in Brazil’s relationships with learning what to avoid as well as what China. But right now there are also not as might be useful. many opportunities for a more productive relationship. There’s a lot of concern about the Brazilian economy overheating. What’s Speaking of China, is there anything we your take? can learn — a question you raised in the There’s no question it’s overheating. book you co-edited about China and the Dilma is clearly worried. But 80% of the Western Hemisphere — from China’s budget is earmarked, and it all has to go relationships with other developing through Congress, so there’s not much regions like Southeast Asia and Africa? room for her to maneuver. In a sense the answer is both yes and I’m also not sure what weapons Finance no. For instance, Brazil is aware of the Minister Mantega has left to protect the asymmetries in China’s relationships Brazilian economy. It’s nice to be popular with African countries. China has found with investors up to a point, but the new willing partners in African countries, 6% tax has had absolutely no effect on many of which are still run by dicta- the carry trade. And the administration tors, but Brazil would certainly not, promised fiscal cuts, but as yet there’s no for instance, sit still and allow tens of sign of them. The next few months and thousands of Chinese to “invade” as years are going to be very complicated subcontractors and workers on Chinese from the point of view of the economy. investment projects. It’s a different time and a different Brazil also recognizes the hugely crew. The old central bank crew seemed complicated situation China confronts in more politically savvy. The Lula adminis- the South China Sea and the competing tration in general had street smarts. The claims to various areas, and happily does Rousseff administration seems reluctant not have to deal with anything like that. to get down and dirty. But Brazil is not Yet other countries in that area, Vietnam run by technicians and the politics have for instance, have trade dependencies to be dealt with.

September 2011 Ÿ The Brazilian Economy