Politics

According to the Congressional Research Service, Dilma Rousseff of the ruling center-left Workers’ Party (Partido dos Trabalhadores, PT) was inaugurated to a four-year presidential term on January 1, 2011. She is Brazil’s first female president. Rousseff inherits a country that has benefited from what many analysts consider 16 years of stable and capable governance under Presidents Cardoso (1995-2002) and Lula (2003- 2010). She has pledged continuity, maintaining generally orthodox economic policies while continuing to assert a role for the state in development. Her 10-party electoral coalition holds significant majorities in both houses of Brazil’s legislature. Although this legislative strength should enable Rousseff to pursue her agenda, keeping the unwieldy coalition together will likely prove challenging. Additional challenges for the Rousseff Administration include strengthening public security, improving the quality of government services, and addressing the country’s overburdened infrastructure.

Brazil’s Rise?

Posted on by Mark Langevin

A BrazilWorks Review of:

Brazil’s Rise: Seeking Influence on Global Governance

Harold Trinkunas

Latin American Initiative

Foreign Policy-Brookings Institution

April 2014

 

Harold Trinkunas, Senior Fellow and Director, Foreign Policy and Latin America Initiative at the Brookings Institution, offers up a relevant, lucid analysis of Brazil and its contemporary foreign policy options with respect to global governance issues. For Trinkunas,

“Brazil stands at the crossroads in its road to major power status. It can either continue its ascent, or can remain a middle power, albeit a critical one, within the existing international status quo.”

Brazil’s future has always attracted a lot of attention by scholars, journalists, and foreign policymakers; but is particularly relevant in 2014 when Brazil hosts the FIFA Men’s Soccer Championship (the largest sporting event on earth) and carries out its presidential elections. Trinkunas breaks down his analysis into distinct questions about Brazil’s intentions, its capabilities, and opportunities to rise toward major power status. He does not treat in any detail what the international status quo is and its impact on Brazilian development, nor does he integrate parallel arguments regarding Brazil as a global swing state or its role in the “rise of the rest” thesis. Trinkunas does recognize that the United States’ “post-Cold War unilateral moment” is on the wane, but does not clearly explain how the current global balance of power shapes Brazil’s foreign policy choices or challenges.

Few doubt that Brazil’s global political influence has increased during the past two decades-partially the consequence of domestic policies that achieved growth, income redistribution, and stability along with former President Luiz Inácio Lula da Silva’s pronounced presidential diplomacy. Brazilian foreign policymakers do seek to change the world, rebalance the global balance of power, and reform international intergovernmental institutions of global and regional governance, but it is unclear whether their intentions are to climb the last rungs of the global power ladder or work to help pull up the rest. Even if Brazilian political leaders chose the former, does the country have sufficient capabilities and would the Brazilian electorate support such a strategy at the ballot box?

We can learn a lot from Trinkunas’ analysis, but his perspective on Brazilian efforts to exert global power relies on too many historical assumptions about Brazil’s motivations and how they serve to shape the nation’s foreign policy. He makes the claim that Brazil “sought admittance to great power status through allying with the leading powers of the system” following World War II (pp.9). Trinkunas correctly reports that important U.S. foreign policymakers, including President Roosevelt, sought to incorporate Brazil within a global party of liberal internationalism following the conclusion of WWII. Yet there is little evidence that such policymakers wanted to raise Brazil to the righteous rungs of the global power ladder. Rather, they understood Brazil as a major producer of raw materials, a consumer of U.S. exports, and an anti-communist battleground. Despite these reasons, U.S. foreign policymaking after WWII, as Trinkunas reports, frustrated Brazil by its utter lack of sensibility and commitment to the national development priorities of Brazilian democratic populism.

Certainly Brazilians of many political persuasions were disappointed with bilateral relations following Brazil’s alliance with the U.S. and direct military collaboration during the latter stages of WWII, but this does not prove that Brazilian policymakers were eager to obtain the regalia of global leadership and pay its compulsory costs. Rather, most Brazilian leaders, from Getúlio Vargas to Lula, were deeply focused on national economic development and willing to strike alliances with those in a position to assist the most. Despite differences in political tone and policy preferences, Brazilian leaders and political parties share a fundamental consensus on the importance of economic development and the key role of the state in leading the way.   Trinkunas also recognizes this feature of twentieth century Brazilian public policymaking, reporting that,

“The military also supported rapid economic development and pursued a largely peaceful foreign policy during its time in power, policy preferences shared by diplomatic and economic elites (pp. 11).”

As Trinkunas concludes, everyone wanted to foment Brazil’s “rise” and take credit for it. Yet, most Brazilian policymakers and leaders understood “rise” in the twentieth century as economic development commensurate with Brazil’s geographical size and natural resources, not so much scaling the rungs of global governance unless it was a pragmatic requirement for advancing national development. Even former President Lula, regarded for his assertive foreign policies, called for a

“new global economic and trade order [that] mirrors the country’s renewed self-confidence as a non-conformist power. It [Brazil] doesn’t seek simply to take up a place at the top table. Rather, it is confident in its strength as a consensus-builder within the South and bridge-builder to the North.”

Trinkunas fittingly recounts that Brazil’s geopolitical position does not rely on the bomb or other traditional dimensions of hard power associated with flying over the global power curve without stalling. His comparative analysis of Brazilian defense and military spending is convincing this way.  If Brazil is reaching for the top, it is not with offensive weapons. Moreover, he points out that Brazil’s foreign assistance budget and its willingness to “pay off” other states for political cooperation are limited. These empirical dimensions of foreign policy are very telling with respect to motivation and vision. If Brazil does not have much “skin in the game,” then how might one argue that it has repeatedly undertaken concerted efforts to become a major power?

Brazil Defense

One might argue, as Trinkunas does, that Brazil has faced recent opportunities to harness existing capabilities (mostly expressions of soft power to use Nye’s term) to make a move to rapidly increase its geopolitical influence. He points to Brazil’s “ascendency” in South America as well as the transition from the unipolar moment in U.S. hegemony following the fall of the Soviet Union to “greater multipolarity” over the past decade. However, he flips the argument around to suggest that Brazil’s failure to galvanize support around Latin America (Argentina and Mexico) for a permanent seat on the United Nations Security Council and the U.S. success in incorporating Mexico and Colombia into its geopolitical orbit despite its own decline indicates Brazilian failure to ascend.

This argument stands in contrast to Brazilian foreign ministry officials’ caution in asserting too much leadership in South America and around the LAC region. From all indications and political pronouncements, Brazilian leaders prefer to deepen strategic partnerships with Argentina and Mercosul while expanding alliances around the LAC region without imposing its own blueprint or stepping on toes. This foreign policy framework fits into Brazil’s multilateralist convictions and its own national interest in building consensus around reform of liberal international institutions of global governance that increase representation of the developing world, not Brazilian geopolitical power exclusively. This distinction is essential. For most Brazilian leaders under democratic rule, making global governance more representative is the most constructive avenue for advancing Brazilian national interests, most of which correspond to the economic and social development of the LAC region as well as Africa and other developing or low-income regions of the world.

Trinkunas correctly notes that Brazil’s multilateral efforts and initiatives are slow to develop and do not challenge Brazil’s capabilities or impose substantial costs. Rather than assume that such a relatively slow process is further evidence of Brazil’s failure to seize the moment to rise, another argument would tender that IIRSA, UNASUR, and CELAC are products of consensus building, albeit imperfect, but better suited to the historical convergence of LAC nations eager to cooperate among themselves as one more hedge against a global political economy that offers scarce opportunities to rapidly increase national wealth through participation in global production chains bent on efficiently extracting natural resources, trading agricultural and mineral commodities, exploiting relatively cheap industrial labor, and more recently, penetrating the region’s swelling consumer markets.

Brazilians are weary of their own inabilities to overcome national bottlenecks to further economic and social development, but few are blind to the very real limits placed on such development by international economic and political factors well beyond their control. Indeed, Brazilian foreign policy has emphasized the importance of addressing these limits through democratic reforms at the International Monetary Fund and better regulation of European and United States banks in recent years for obvious reasons. Moreover, Brazil’s trade policy agenda seeks market access concessions that would improve the developing world’s ability to respond to economic opportunities-largely in the face of U.S. political opposition-including ongoing violations of World Trade Organization agreements (such as the Cotton Dispute among others).

Brazil’s current capabilities and level of economic development are not fully determined by U.S. policy or the institutions of global governance, but there are observable, external limits to Brazil’s rise. If opportunities do exist for Brazil to join the club of super powers, the costs associated with overcoming these external obstacles may not be worth the benefits or be supported by a majority of Brazilians who continue to demand more focused policy attention on national economic development, including better public education and healthcare. During the coming decade it is more likely that elected leaders will opt for greater investments in these basic public services than spend on geopolitical power capabilities in order to seek reelection.

While I disagree with Trinkunas’ fundamental question about whether Brazil will choose to ascend or stick it out as a “critical” middle power, his U.S. foreign policy recommendations are helpful for advancing a more constructive and productive bilateral relationship. As he advocates, Brazil should contribute more resources, from international peacekeeping to humanitarian assistance, to project its national values, competencies, and its own multilateralist, consensus-building international strategies. Brazil may also benefit from scaling back the number of its multilateral initiatives to better focus on the most important. Certainly President Dilma has pulled back from former President Lula’s ambitious agenda in Africa, and it appears that her intensifying concern over the economy and fiscal policies leaves her little time to ponder geopolitics.

Will Brazil’s foreign policy principals change anytime soon? No, nor would U.S. interests be served by a rapid reorientation of Brazil’s international strategies. The long term, national interests of the U.S. are best served by working with Brazil to strengthen international economic and security regimes through consensus rather than imposition. The U.S. should understand that Brazil’s interest in anchoring collective security efforts in the South Atlantic is an opportunity, not a danger. Moreover, U.S. international economic policies, largely framed by the rhetoric of “competitive” capital and trade liberalization, continue to thwart market driven development around the developing world and fall painfully short of providing global leadership. Without significant changes in U.S. policies, it is unlikely that Brazil will concede to U.S. policy preferences, preferring to work with others, including the BRICS and IBSA, to stake out its principles of international economic governance and seek reforms that redistribute global market opportunities.

Trinkunas teaches us plenty about Brazil and the world. No doubt that Brazil has risen in global stature and economic importance. Brazil will likely rise in the future, although the pace is likely to be determined more by international economic factors than deep reforms in domestic policymaking. Brazil also seeks to become more influential in global governance matters, yet progress here depends on continued economic growth and development as well as an increasing willingness to spend more national resources on the creation of international public goods.

Do Brazilians share a thirst for major power status? Certainly some observers, including Trinkunas, might infer that Brazil’s active multilateralism reflects a consensus around doing what it takes to get to the center of the bargaining table on the most important issues facing global governance. No one would dispute that Brazil seeks dramatic changes in the institutions of international cooperation and law, and the foreign ministry works awfully hard to take advantage of every opportunity within sight. Yet, this does not mean that Brazil and its own representative institutions of governance are gearing up to project the nation as a major power anytime soon.

Yes, Brazil sits uncomfortably between the developed and the developing world with a penchant for the former and a political conviction to work closely with the latter. Expect Brazil to increase its contributions to “shaping and enforcing the rules that govern international order,” but mindful not to challenge the global power curve with a strategy that stalls its capacity to build international coalitions around democratic reforms of the institutions and rules that serve to entrench the status quo. The more relevant question is whether Brazilian foreign policymakers are improving the country’s capabilities with respect to incorporating more and more nations into global decision making to offer expanding opportunities for development through global trade and investment. Trinkunas’ assumption may be correct. Brazilians might be better off if the nation pursued major power status, but there is an equally compelling argument that Brazil’s current strategy is best suited to the majority of Brazilians who elect their governments to improve education and healthcare-at least for now.

Mark S. Langevin, Ph.D.

Director, BrazilWorks

June 3, 2014

 

 

Brazil’s Nuclear Power Plans Three Years after Fukushima

Posted on by Chris Cote

by Chris Cote
April 2014

The 2011 Fukushima accident interrupted plans to build four to eight new nuclear power plants and highlighted an internal debate over nuclear energy’s trajectory in Brazil. In anticipation of forthcoming strategy documents, this BrazilWorks Briefing Paper discusses the potential role of nuclear in Brazil’s future energy mix.

Read the entire briefing here: Brazil’s Nuclear Power Plans Three Years after Fukushima

Bolsa Familia and Brazil’s Future

Posted on by Chris Cote

“There is no doubt that Bolsa Família has been transformative,” Deborah Wetzel, an economist in the Latin America sector at the World Bank who has worked closely with the Bolsa Família administrators, said proudly at the Woodrow Wilson Center in Washington, D.C., on January 29, 2014.

Teresa Campello, Brazil’s Minister of Social Development and Fight against Hunger, spoke with passion and pride for over an hour, explaining away common criticisms and extolling the program’s successes.

And she has much to brag about. Bolsa Família, which received much attention as it hit its 10 year mark in 2013, is a program through which the Brazilian government transfers small amounts of cash — enough to help them live above the poverty line as defined bythe Millennium Development Goals – to families on the condition that their children attend school with an 80 percent frequency. Indeed, the results are impressive. Brazil has cut extreme poverty in half over the last ten years and lowered its Gini coefficient, a measure of inequality, by 15 percent.[1] The country’s poorest regions, the Northeast and the North (which contains most of the Amazon Rainforest), have benefited the most.

A Path to Health and Education Gains

Minister Campello highlighted improvements in health among Bolsa Família participants:

  • 99.1 percent of infants get vaccinated.
  • The ten year period saw a 14 percent reduction in premature birth rates.
  • Fewer babies are born underweight.
  • There was a 58 percent decrease in malnutrition mortality rates,
  • And a 46 percent decrease in diarrhea mortality rates.

Some of the improvements are less quantifiable. Schools are providing more nutritious meals to their students, an additional incentive for students to attend, and more consistent attendance pressures teacher to meet the demands of a more responsive class.

The gains in education Minister Campello emphasized are equally impressive, and it is easy to imagine how a new, larger generation of healthier students and workers will benefit Brazil:

  • Students whose families are part of Bolsa Família attend high school at a higher rate than their peers outside of the program.
  • Students at age 15 are more than 20 percent more likely to be in the appropriate grade level now than they were ten years ago – a rate of improvement much higher than the national average.
  • The dropout rate is lower among Bolsa Família students than the national average.

Similar to the lending terms of the Grameen Bank (the Indian microfinance pioneer), the recipients of the cash transfers are almost exclusively (9 in 10) women. They are more likely to focus on the needs of the entire household. The program is also celebrated for its ease of use. The funds are transferred through cards, which work just like ATM cards: Bolsa Família participants can withdraw cash and spend it at their discretion.

Wetzel, the World Bank economist, commended Campello’s team for the unique quality of its leadership and for the “quality and rigor” of its technical team. She noted there are three unique aspects of the program: (1) there have been consistent on the ground results, (2) it was implemented with several technical innovations, (3) the experience is scalable and translatable across the globe.

Mapping Poverty, Translating Techniques

For the future, the single most important part of the program is the data it has collected. Through Cadastro único, (Single Registry) the program’s administrators have details of how and where its registrants live. The resulting “poverty map,” which represents data for one-third of all Brazilians, will help better target poverty alleviation initiatives going forward. Bolsa Família, as President Lula and others have said, generates economic growth. For every $1 put in, the program produces $1.78 in GDP.  Campello and Wetzel stress that for this reason the program is not charity. The program benefits all Brazilians. And with the data incorporated into the “poverty map,” those benefits should only grow and further multiply.

One of the most encouraging aspects of the poverty alleviation program is that it is scalable and translatable. Brazil has seen results in urban centers and drought-laden rural areas, and other countries have had success implementing similar strategies. In fact, the concept originated in Mexico under the Deputy Minister of Finance, Santiago Levy, who is now Vice President for Sectors and Knowledge at the Inter-American Development Bank.

A “Fragile” Future?

What no one mentioned was that this period of success, from 2003 – 2013, coincided with one of the largest commodity booms that Brazil has experienced. Brazil’s economy, heavily dependent on exporting commodities like soy to China and the United States, grew tremendously. No matter what, Brazil’s poor are better off than they were a decade ago. But what happens when the boom stops? Or even slows? Brazil is part of the “Fragile Five,” a group of emerging economies marked by worrisome dependence on foreign investment.[2]  Brazil has invested heavily in public infrastructure investments, especially in the lagging North and Northeast. But efforts continue to be inadequate in light of the pace of regional growth; when compared with countries with similar growth rates, Brazil’s infrastructure investment efforts are second-rate, in part, according to the Financial Times, because of the government’s poor ability to execute.[3] Unlike the team that runs Bolsa Família, who is doing a lot with a little, Brazil has sacrificed quality to quantity as it tries to build railroads, ports, and roads, especially across the North and Northeast – the same two primary targets of Bolsa Família.  Similarly, quality of public education, especially at the K-12 level, continues to be generally poor. What good are higher attendance rates if classes are vapid?  Or if area around schools are plagued by violence?

There is no doubt the Brazilian government has made major inroads in alleviating the previously taken-for-granted poverty in Brazil through Bolsa Família. After ten years of improvements, the successes are worth celebrating. Extreme poverty is all but eradicated, bolstering the economic resiliency of those poorest families. Still, major macroeconomic setbacks, and other development issues like education and violence, will hurt a decade-old success story, one that has implications for millions families. If Brazil can decrease its foreign dependence or if, as they have been until now, commodities still continue to be consumed worldwide at high rates, Brazil’s next generation – including, for once, its poorest – will be off to a strong start.


[1] Deborah Wetzel, “Bolsa Família: Brazil’s Quiet Revolution,” Valôr Economico, November 4, 2013. http://www.worldbank.org/en/news/opinion/2013/11/04/bolsa-familia-Brazil-quiet-revolution

[2] Landon Thomas Jr., “’Fragile Five’ Is the Latest Club of Emerging Nations in Turmoil,” New York Times, January 28, 2014. http://www.nytimes.com/2014/01/29/business/international/fragile-five-is-the-latest-club-of-emerging-nations-in-turmoil.html?_r=0

[3] Joe Leahy, “Brazil risks lost decade as it bungles infrastructure boost,” Financial Times, September 22, 2013. http://www.ft.com/cms/s/0/f2296aa8-2373-11e3-98a1-00144feab7de.html#axzz2rpwdwGFO

The U.S. – Brazil Battle Over Cotton Subsidies

Posted on by Mark Langevin

By Mark S. Langevin, February 6, 2014

The U.S. government is dead set against India and other governments around the world providing financial support to their poor farmers. At the same time, the United States is once again squaring off with Brazil, in another round of the long running “cotton dispute” between the two nations over U.S. subsidies. The U.S. government’s strategy of non-compliance with WTO rules against those subsidies has a clear goal. In soccer terms, it seeks to compel Brazil to accept the consolation match – rather than raise the champion’s trophy by winning U.S. compliance. A little bit of history is in order. In 2005, in a decision hailed widely at the time, the WTO’s Dispute Settlement Body (DSB)ordered the U.S. government to eliminate its cotton production subsidies as well as its agricultural commodity export guarantee programs. Read the entire article at The Globalist here.

Langevin: Brazil Is Too Big to Lose

Posted on by Mark Langevin

 

“Langevin Brazil Is Too Big to Lose”
December 30, 2013
The Houston Chronicle
by Mark S. Langevin, Ph.D.

Texas is the commercial gateway to Mexico, but few understand the central role the Lone Star State plays in U.S.-Brazil relations.

Texas exports to Brazil are worth $10 billion and thousands of jobs. Brazil is one of state’s fastest-growing export markets through sales of crude oil, oil and gas equipment and services, chemicals, aviation products and agricultural products. Brazil and its national oil company Petrobras are ramping up oil and gas exploration and production activities throughout the massive, offshore and ultra-deepwater “pre-salt” reserves to double petroleum production by 2020. Texas-based oil and gas firms will play measurable roles in this oil bonanza.TexasFlag

Brazil’s chemical and plastics industries are on the rise, providing even more opportunities to Texas-based equipment manufacturers and service providers. Clearly, Brazil cannot realize its tremendous potential for oil and gas, chemical, and polymer production without Texas. Also, the state’s aviation industries will likely increase exports to Brazil as well. Brazil is one of the largest helicopter markets, due in large part to the expanding offshore petroleum production. Aside from civilian uses, Lockheed Martin and Bell Helicopters will tender bids for a growing list of military procurement contracts as Brazil becomes one of the top 10 defense spenders in the world by 2020. Texas is big on Brazil, but the state’s potential to do business with 200 million Brazilians will require greater bilateral cooperation between the governments of Washington and Brasilia to facilitate trade, open new markets and overcome the so-called “cotton dispute.”

Read the entire Op-Ed at The Houston Chronicle here.

President Dilma’s Approval for November 2013

Posted on by Mark Langevin

November 2013 CNI-IBOPE Presidential/Government Public Opinion Evaluation 

The most recent CNI-IBOPE public opinion poll of government approval indicates that President Dilma is recovering from her fall in the polls immediately after the June mobilizations.  It seems that the polling in June and July of this year really demonstrated the frustration of the median Brazilian with the state of government and public policies, not so much a direct criticism of the actual Brazilian executive.  President Dilma must continue to bear down on the issues that matter most, especially public health and the SUS, but her recent rise in the polls brings her closer to where she currently stands in general and her place in the Presidential election of 2014.

Principal Results:

  • The percentage of the population that reports an excellent or good evaluation of President Dilma’s government rose from 37% to 43% from last month.
  • The overall approval rating remains within a band of 54 to 56%
  • 53% of Brazilians remain confident in President Dilma’s leadership
  • The portion of the population that approves of the President’s public policies increased, with anti-hunger and anti-poverty programs leading the way.
  • Health policy remains a problem with 52% reporting worse performance than a month ago.
  • President Dilma’s popularity is highest in the states of Amazonas,  Rondônia, Piauí and Ceará.
  • Her lowest popularity ratings are found in the Federal District and the states of São Paulo, Espírito Santo e Rio de Janeiro.

Read the entire report here.

What is the Future of the Bolsa Família Program?

Posted on by Mark Langevin

For many the Bolsa Família (or Family Stipend) program has been the hallmark of the Brasilia consensus since 2003 when the government coalition, headed by the Workers Party, aimed to institutionalize pro-growth and income redistribution policies as the twin heads of a national development program.  In her recent briefing, Celia Lessa Kerstenetzky responds to the question about the future direction of the program after a widely recognized and successful first decade.  In the briefing, What is the Future of the Bolsa Família Program? she reports,

“When speculating about the programme’s near future, two distinct visions come to mind. In the first, by transferring cash to eligible poor people and targeting social services at them, the programme will take over the core of the Brazilian welfare state. In the other, the programme will find a proper place within a universalistic, rights-based social welfare architecture.”

 The first is vision is a liberal response to the legacy of poverty and discrimination in Brazil; the second is a economic and political project aimed at transforming Brazilian development and democracy by creating the conditions for an equal playing field for all Brazilians.  The first vision may not succeed in addressing all of the brutal aspects of Brazil’s legacy of poverty and discrimination and the second may be an overly ambitious response to the promise of democracy as a system of political representation, not necessarily a recipe for universal equality. Kerstenetzky argues,

“Back in the origins of the 2001 Bolsa Escola, and especially later with the 2003 Bolsa Família programme’s inclusion of extremely poor childless families, one finds a plain rejection of pauperism. These programmes were based on the non-pauperist assumption that poverty is not fundamentally
a matter of wrong choices by poor people but, rather, a lack of social and economic opportunities and protection—a diagnosis that couches them in the tradition of the universalistic welfare state (the second vision described above). “
She may be correct in her observation that former President Lula’s intent may have coincided with an analysis of the fundamental lack of opportunities, but this was the founding premise of his Workers Party, its very reason to govern.  Yet, the Workers Party led government, whether under Lula or current President Dilma Rousseff, may not embrace the entire project of building a universalist welfare state, only those aspects that parallel its electoral underpinnings.  Despite the briefing paper’s obvious value to all of us, Kerstenetzky does not offer a political-electoral analysis of the program or its future.  However, she does conclude that,

“making explicit the non- pauperist assumptions of the Bolsa Família programme—and unambiguously acting on them— may be the expected contributions of the public officials in charge of it to the public conversation on the programme’s future.”
In large measure, the upcoming 2014 federal elections, including that for the presidency, may decide the future of this watershed public policy program; and in doing so, frame how Brazil goes about including those at the margins of the global economy and Brazilian society for decades to come.

Does Brasilia Matter?

Posted on by Chris Cote

Prepared by Chris Cote and Mark S. Langevin, Ph.D.

October 17, 2013

THE REVELATION that the U.S. National Security Agency has been reading the text messages and e-mails of Brazilian President Dilma Rousseff and other senior officials and gathering information on the national oil company Petrobras led to a scramble for new Brazilian internet protocols, a rewiring of the greater part of the continent, and, of most immediate consequence, a postponement of President Rousseff’s October State Visit to the United States. Even a last minute U.S. visit by the Foreign Minister could not circumvent the embarrassing postponement for the Americans.

The debacle has led many observers in both countries and across the world to ask fundamental questions about U.S. intentions with respect to Brazil and its role in the world. Michael Shifter, President of the Inter-American Dialogue concluded,

The revelations suggest that the U.S. went way too far, beyond any reasonable justification of containing security threats… Such an overreach is disrespectful and has touched a real nerve in Brazil, a country that prizes its sovereignty and is understandably sensitive about such abuses.

In large part the U.S.-Brazil relationship is decentralized across a number of bilateral dialogues, ranging from the Strategic Energy Dialogue to the Joint Initiative on Urban Sustainability among dozens of other consultative mechanisms. How has U.S. spying on the Brazilian government damaged these dialogues and breached whatever bilateral trust existed before the debacle? Does Washington have the desire to conduct an honest, mutually respectful relationship with its largest South American ally and trading partner or – reckoning back to a Cold War mentality – has it been hoping only to manage this global swing-state, to balance Brazil away from Russia or China, and perhaps – as many in Brazil suggest – prevent her rise?

Read the entire BrazilWorks Briefing Paper Does Brasilia Matter here.

The Brazilian Tax System

Posted on by Mark Langevin

 

Review of

“Evaluation of the Structure and Performance of the Brazilian Tax System

White Paper on Taxation in Brazil”

Discussion Paper: No. IDB-DP-265
August 2013

Published by the Inter-American Development Bank (IDB)

and written by:

José Roberto Rodrigues

Afonso Julia Morais Soares

Kleber Pacheco Castro

This White Paper is essential reading on the distinct policy dimensions of Brazilian Tax Policy and provides a critical assessment of the redistributive effects of current tax policies.  This short review outlines the key points and propositions advanced by the IDB,

“The problems include complexity, the heavy burden for the tax administration, the latent cumulativeness, the indirect burden on exports and productive investments, and even tax competition between states to an extent not seen in other federations, referred to by Brazilians as a “fiscal war (2013:6).”

In short, Rodriques, Soares and Castro argue that the Brazilian tax system is inefficient and unjust, and thereby undermines both the economic development of the country and amplifies the income inequality that continues to plague Brazil in the twenty-first century.

“In 2010, the overall gross tax burden reached 34.19 percent of GDP—the fifth highest in the country’s history, second only to the tax burden during the 2005–08 period. The tax burden totaled R$1,289 billion. In per capita terms, this level of taxation represented a burden of R$7,022.30 for every Brazilian. On average, every Brazilian resident had to work about 125 days a year (365 days) just to pay taxes (2013:12).”

It is an appropriate policy moment to discuss Brazil’s tax system, the historically high “take” coupled with the global and national economic slowdown raises the question of whether the current tax policies are sufficient, or worse, an obstacle to future economic growth and current social equity.  As the White Paper and its authors point out, the Brazilian state collects a large proportion of the Gross Domestic Product (GDP) in taxes, now well above 30%, but has not yet achieved a satisfactory level of quality public services, at least comparable to those developed nations that “take” a third of the economy in taxes.  The spat of protests in June illustrate the growing public concern over the relationships between income, taxation and public services.  Moreover, the authors of the paper point to the glaring weight of the levy of the ICMS, Brazil’s tax on merchandise, services and goods which amounted to 45% of all taxes collected and represented some 15.4% of the GDP in 2010 (2013:22). The ICMS is an indirect tax levied on common purchases of wage goods and services, and is therefore highly regressive especially in the context of high-income inequality. More than any other aspect of Brazil’s complex tax code, the ICMS contributes the most to the inefficiency and income concentrating effects.

With respect to Payroll Taxes, the paper criticizes the high levels of employer contributions to the overall weight of these deductions and transfers and suggests that reforming these taxes to reduce employer contributions could lead to great job creation and efficiency, thereby triggering greater productive investment.  While such outcomes might be expected given significant reductions for employers, there may be alternative fiscal and regulatory policies that could also achieve such ends.  While Payroll tax reforms might be warranted, they certainly are not priority at this time.

However, income and capital gains taxation in Brazil remain relatively low due to the over-reliance on the ICMS as the major source of government revenue in recent decades. In 2010 income and capital gains taxation represented 18.6% of all taxes collected and some 6.4% of GDP. In comparison with the ICMS, as well as the structure of taxation of more developed nations, Brazil’s income and capital gains taxation is too low, but cannot be reformed without a concurrent reform of the ICMS, namely the latter’s reduction as a source of government revenue.

The white paper treats other critical issues in Brazilian taxation, including inter-governmental transfers, but the core critique of this publication points to the growing need to integrate tax policy into a broader policy framework designed to advance equitable economic development. Indeed, the authors spell out a short list of policy reform areas for consideration, including:

1) Alleviating the fiscal war created by the ICMS and inter-governmental transfers;

2) Fixing the tax credit problem that undermines the country’s export led development dynamic;

3) Reducing “cumulative taxes” that distort the efficient allocation of productive resources;

4) The overall need to achieve greater tax equity and justice by lessening regressive taxation, namely the ICMS.

Overall, the IDB and the authors offer a compelling, well-researched policy framework for advancing greater research of Brazilian taxation and guiding policy discussion in an era of growing public and political concern over the gap between taxation and public services in Brazil.  The paper offers thoughtful policy analysis that identifies the need for reform and the opportunity to transform taxation to achieve multiple ends; government revenues, increased firm competitiveness and productive investment, and increased social equity.  While the private sector has always clamored about the need to reduce payroll and capital gains taxation, it is now time for civil society to understand taxation as a policy area that transcends the state’s “take” to finance public services.  Rather, and as the authors suggest, citizens and civil society need to advance a tax reform agenda that is compatible with Brazil’s need to grow through more equitable public policies.

Read the entire IDB White Paper here:

Evaluation_of_the_Structure_and_Performance_of_the_Brazilian_Tax_System

O Setor energético e as Relações Brasil- Estados Unidos

Posted on by Mark Langevin

Qual é a situação da cooperação energética entre esses dois países e quais oportunidades existem para o aprofundamento de tal cooperação, no futuro, por meio do diálogo estratégico? Se a energia é, agora, central para as relações Brasil-Estados Unidos, como essa importante área pode moldar a evolução das relações bilaterais nos anos vindouros?

Veja o novo artigo do Dr. Mark S. Langevin, Diretor de BrazilWorks.