Monthly Archives: September 2012

Brazil’s ‘disregard’ for inflation in context

Earlier this week an interview with Maílson de Nobrega in O Estado de São Paulo was cited in this blog pointing out that there may be new economic model in Brazil that is setting aside inflation targeting. Some confirmation of has come from the Banco Central in a Reuters article, which says that meeting the country’s inflation targets this year would be too costly.

Does this mean Brazil is returning to run-away inflation and the need to purchase high-value consumer durables to maintain equity? (Stories about of people in the late 80’s and early 90’s buying multiple washing machines on a Friday and selling them on a Monday to prevent cash payments on withering away to nothing over the weeked).

In a word: no.

The Banco Central admits it will miss the targeted inflation rate of 4.5%. It expects annual inflation for 2012 to be 5.2%. Call them optimistic and pessimistically round up to the whole number. That’s still only 6%. A bit higher than Australia’s official rate, but really not that shattering provided officials don’t get complacent and let things really slide.

Inflation targeting may no longer be the primary Banco Central policy tool, but it still appears to be mighty important to overall macroeconomic policy-making.

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La Nacion’s summary of Cristina’s speech in Georgetown

For those who are interested, the Argentine newspaper La Nacion has an extensive article summarizing president Cristina Fernandez de Kirchner’s speech and Q&A session at Georgetown. On the whole, not an overly slanted report, with the heaviest hit against Cristina coming in the first paragraphs when the paper quips: “It is a good policy to know how to evade questions.” While the paper is certainly right that Cristina spectacularly evaded some very direct questions — i.e., about press freedom, distorted inflation reporting, minimum income levels in Argentina, Paraguay and reactions to a hypothetical democratic breakdown in Venezuela — if you watch the clips you won’t find anything particularly strange. Getting a direct answer out of many political figures in such a situation can be surprisingly difficult.

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Cristina Kirchner explains things in her own words

Argentine president Cristina Fernandez de Kirchner gave a big speech to the students at the Georgetown University Latin American Centre. She took questions from the students, and the clips can be seen here.

Whether you agree with her or not, the answers she gives to some very pointed questions give quite a bit of insight into the world view in the Casa Rosada. I’m not going to summarize the remarks because they were given on the fly to very pointed questions and thus open to all sorts of interpretation (see the Argentine press, and frankly a good chunk of the English reports).

The clips are in Spanish. Thanks to Prof Bill Smith at the University of Miami for flagging this as something of interest.

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A change in Brazil’s economic policy consensus?

Former Brazilian finance minister Maílson de Nobréga has shared with O Estado de São Paulo the obvious, but not necessarily widely reported conclusion that there has been a substantial change in Brazil’s economic policy. The consensus economic policies in Brazil can be traced back to the Real Plan of Fernando Henrique Cardoso and focused squarely on controlling inflation. For the last eighteen years monetary policy from the Banco Central and governmental fiscal policy has been devoted to keeping inflation down at levels familiar to Australians, not the eye-watering 8,000% plus rates that were seen episodically in 1980s and early 1990s Brazil. Understandably, Brazilian policy makers have subsequently had a bit of a phobia about inflation. Dilma appears to have cracked through this fear.

The point made by Maílson is that the government is now focusing on influencing the value of the real, Brazil’s currency, and bringing down interest rates. If this means inflation might creep up a little bit, so be it. As Maílson notes, this is the first real change in Brazil’s core macroeconomic policy since 1994.

Three things are interesting about the changes brought in by Dilma.

First and perhaps foremost, the ease with which Dilma has quietly pushed this policy through points to a real change in how Brazilians and the country’s macroeconomic literati feel about their ability to control inflation. On one level this represents a healthy shift in thinking that opens up some potentially useful macroeconomic policy options. On another level there is some room for concern if the government gets too comfortable with letting inflation drift. What often gets forgotten is the serious damage that inflation does to the poor, of which Brazil still has many, who lack access to the financial instruments necessary to manage the economic stresses of rapidly rising prices. Killing inflation in Brazil has probably been at least as important as Bolsa Familia in tackling the country’s poverty rates — it allowed the bottom quintiles to  save, plan for the future, and crucially for the consumer boom, access credit.

The second interesting thing about Dilma’s policy changes is that it demonstrates a very clear recognition of just how much the over-valued real is damaging the country’s industrial base. Sure, the value of overall exports are soaring, but that has a lot to do with commodity prices. The pages of Folha, Estadão, and Valôr have been filled with stories of firms closing down in the face of cheap Chinese imports and, more recently, US markets closing in the face of a rising dollar. Dilma’s concern on this front is very real and very deep. Highly aggressive language about currency wars from her finance minister Guido Mantega was echoed by the president herself this week at the UN General Assembly opening.

The final interesting point is one that will be very welcome to Brazilian businesses struggling to find affordable credit in Brazil to finance new operations. A consistent complaint from firms has been the high domestic interest rates, which in turn helps push up the value of the real. Pushing rates down is part of a strategy of trying to stimulate the economy within the bounds of what the government is fiscally able to do — Dilma does not have as much money to play with as might appear from a survey of the country’s foreign currency reserves.

Debate in Brazil on this is vibrant is likely to heat up, which is a good thing given the very different economic scenario both in Brazil and internationally.

–Sean Burges


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Here we go again? Brazil and Turkey trying to defuse Iran?

O Estado de São Paulo is reporting that the Brazilian and Turkish foreign ministers are talking of relaunching the May 2010 Tehran declaration on nuclear fuel swaps in an effort to prevent an armed attack on Iran. For those who don’t remember, the reaction from the US was, at best, frigid, or to quote one US diplomat talking off the record at the time “Hilary was pissed”. The clever thing that Brazil’s Antonio Patriota and Turkey’s Ahmet Davutoglu have done this time is to pull in another player, namely Sweden’s Carl Bildt.

Reviving the 2010 deal is likely to be received poorly by the nuclear powers trying to pull Iran back from the proliferation brink. That Brazil is pushing such an idea on the margins of this year’s UN General Assembly should not come as a surprise — Brazilian president Dilma Rousseff was explicit in her address that the world has too many weapons of mass destruction and should work to get rid of them all and focus on hunger and poverty instead. While it is hard to argue with her point, we might also ask awkward questions for Brazil about diverting resources away from small arms and warplane manufacturing towards development-facilitating activities, two lucrative export industries for her country.

Dilma is less beholden the hard left of her Workers Party than Lula was — we need only look at how she stared down recent labour action in Brazil — but still needs to throw the odd bone to the Party old guard who have found memories of resisting the empire with their Iranian brothers in the 1970s. What probably matters more in this instance is Brazilian desires to squash anything that might create a precedent for unilateral or multilateral violation of sovereignty, a principle that is utterly sacrosanct for Brazilian foreign policy. After all, another key theme in Dilma’s address to open the UNGA was that the doctrine of “Responsibility to Protect” should be accompanied with a parallel “Responsibility While Protecting”. In practical terms this would likely leave those participating in any internationally sanctioned intervention in a country such as, say Syria, liable for collateral damage. Given the difficulty of getting those with the capability to actually undertake R2P actions to participate, the Brazilian coda, if accepted, would make the potential legal and political costs of such missions even more prohibitively high. And with no R2P being practiced another threat to sovereignty is defused.

All this cynical analysis aside, hopefully the world will get lucky and Sweden will find a way to work with the established team of Brazil and Turkey to rein in Iran’s nuclear ambitions and prevent another conflagration in the Middle East.

–Sean Burges

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Engaging Latin America…. the short lesson…

Illinois governor Quinn is going to Brazil to drum up trade and investment links.  This is his fourth such trip of the year and seventh of his term. Cabinet level trips from the US government are more frequent. Even Canada and the UK are in on this act. Simple lesson here…. if you want to engage the region, visit it and take business and civil society groups with you. Make it easy for them to go with you. South America is not that much further by plane than China.

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Reminder: “Regional Reactions to the Rise of Brazil” conference starts tomorrow

A quick reminder that the 2012 edition of ANCLAS’s Latin America and the Shifting Sands of Global Power conference series starts tomorrow. The title this year is Regional Reactions to the Rise of Brazil. The conference website is here. Details are as follows:


Regional Reactions to the Rise of Brazil –
Latin America and the Shifting Sands of Global Power, 2012

Wednesday 12 September and Thursday 13 September

All Day Event

9:15 am – 6:00pm

The Haydon-Allen Lecture Theatre (The Tank)

Australian National University


Brazil has risen. Whether through discussions of the BRIC emerging market countries in the international media, the succession of Brazil cover stories in magazines such as The Economist and Newsweek, or the stream of official government visits from nearly all nations to Brasília, there is a public consciousness that Brazil has arrived on the global scene. But this is often where the discussion stops. Even within Brazil and Latin America precious little attention has been given directly to what the rise of Brazil means for the region and how countries within the Americas are responding to the increasingly muscular giant in their midst. The 2012 edition of the Australian National Centre for Latin American Studies annual conference Latin America and the Shifting Sands of Global Power will take up this theme by focusing on regional reactions to the rise of Brazil.


Day 1 – Country Cases

Session 1 – Setting the stage – Brazil’s rise and ambitions (9:15-10:45)

a. The Rise of Brazil in Latin America
Dr. Sean Burges – ANU

b. Brazilian aims and ambitions in Latin America
Prof. Carlos Pio – UnB, Brazil

BREAK (10:45-11:15)

Session 2 – The Mercosur Neighbourhood (11:15-12:45)

a. Socio-environmental conflicts in South American regionalism
Dr. Marcelo Saguier – FLACSO, Argentina

b. Paraguay: A Brazilian Satellite?
Assoc Prof. Miguel Carter – American University, USA

LUNCH (12:45-14:15)

Session 3 – Contesting leaders Regional Middle Powers (14:15-15:45)

a. Inter-connection versus integration: Venezuela-Brazil cooperation and the Abreu e Lima refinery
Mr. Guy Emerson – ANU, Australia

b. Beware the Awakening Giant of Latin America: Mexico’s Reaction to the Emergence of Brazil as a Regional Superpower
Dr. Daniella di Piramo – Griffith University, Australia

BREAK (15:45- 16:15)

Session 4 – The Latin Jaguar (16:15-17:00)
a. Some implications of new international status of Brazil: National interest versus regional compromise?
Prof. Roberto Durán – Universidad de Chile, Chile

RECEPTION (17:00-18:00)

Day 2 – Regional and thematic issues

Session 5 (9:00-9:45)
a. Juan Jose Garcia, Vice Minister for Foreign Affairs of El Salvador

BREAK (9:45-10:00)

Session 6 – Integration & Security (10:00-11:30)

a. Brazil’s Rise and its Neighbours: Balancing Global Ambitions and Regional Constraints.
Dr. Mahrukh Doctor, University of Hull, UK

b. Colombia’s reactions to the Rise of Brazil
Prof. Sandra Borda – Universidad de los Andes, Colombia

LUNCH (11:30- 13:00)

Session 7 – People & Resources (13:00-14:30)

a. Physical integration between Brazil and Peru: Balance of a decade and impact on regional development and bilateral relations
Dr. Rosario Santa Gadea – Universidad del Pacifico and Peruvian Center for International Studies, Peru

b. The social foundations of economic expansion: Migration, labour and inequality in Brazil and Latin America
Prof. Nicola Phillips – University of Manchester, UK

BREAK (14:30-15:00)

Session 7 – Brazilian implications of the regional reactions (15:00-15:45)
a. Dr. Tim Power – University of Oxford, UK)

Session 8 – Round Table discussion (15:45-16:45)

RECEPTION (16:45-18:00)

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