Today in Specious Arguments: Lula's Absence at the G20 Destroyed Brazil's Economic Power!

Although editorials like this are all too common and don't surprise, their absurdity never ceases to amaze me. I always marvel at how far some will stretch in order to attack Lula, even when all other evidence suggests their arguments are wrong. Are there good reasons to criticize Lula? Absolutely. It's completely fair to say that his environmental record is at best "not good." Although I wouldn't fully agree, you could also suggest that he did not go far enough with his social programs, and that he compromised too many of his ideals to become president.

But to go after Lula because he skipped June's G-20 to deal with domestic disaster is facile and ridiculous. First, there is the fact that there is very little concrete evidence to suggest that Lula's absence has doomed Brazil. The author provides a lot of conjecture, but no actual evidence of damage. Could Lula's absence possibly be a problem down the line? Theoretically, I suppose so; but the idea that missing deals that could have taken place at one meeting across two days in June will reduce Brazil's economy and political presence globally is not only ridiculous; it's insulting to the expert diplomats Brazil has throughout the world to suggest that their efforts are undone just because a president missed a meeting due to issues at home. And there is absolutely no reason, politically, economically, or historically, to believe that the window that was open for opportunity for economic deals on June 26-27 will magically be closed on October 22-23, when the G20 meets again. Arguing that Lula's absence has caused irreparable damage to Brazil's standing in the global economy and politics is not just specious; it's patently absurd.

And on those issues at home...it's not like Lula dodged the meeting to vacation, or get some fake honorary title or something. There were horrible floods in Brazil; dozens were killed, and thousands more displaced. And this was almost simultaneous with the G-20 meeting. It's not like Lula waited to respond until it was too late. What is more, I just don't buy the "he skipped the G-20 for a few more votes at home argument," for several reasons. First, being president isn't the same as being head of the national bank; Lula has other duties besides economic deal-making. Taking care of his constituents is arguably at the top of the list of presidential duties. Surveying the damage and trying to help alleviate Brazilians' suffering through executive decision-making is probably more important than economic deals that can come later. I imagine most presidents or prime ministers would agree that domestic disasters take precedence over international meetings; you are elected by and serve your country's civilians, not the leaders and deal-makers of other countries.

Finally, this idea that Lula skipped the meetings for "a few more votes at home" is absurd. A) He's not running for re-election. Sure, you could suggest he did it to garner support for the PT's candidate, Dilma Rousseff; certainly, he's been very present in drumming up support for her. But the flooding happened in Brazil's Northeast, an area where Lula got 66% of the vote in 2006 (nearly propelling him to a first-round victory), an area where the PT has traditionally done very well. It's not like this was some opportunity to try to shore up support where Lula and the PT had traditionally lacked it, and to suggest as much is to effectively ignore both regional politics and the social conditions in the Northeast.

In short, this is one of the worst types of editorializing, relying not only on doom-and-gloom predictions based on hypotheses with no grounding in historical realities and gross simplifications of complex negotiations, but also turning to conjecture that ignores social realities and political practicality (who is the president supposed to serve?) in order to launch yet another smear campaign.

Fernando Henrique Cardoso and Caetano Veloso - Angry, Bitter, Jealous Old Men

A couple of Brazil's more famous political and cultural leaders have decided to make complete asses out of themselves in the past few weeks. The ugliest, worst, most infuriating, and most hypocritical incident comes from Fernando Henrique Cardoso himself, writing about Lula. The not-too-subtle title of his editorial? "The Time Has Come to End Lula's Monarchy in Brazil." This is rich on so many levels, not least of which because Lula has only served two terms. Why was it possible for him to serve two terms? Because of a constitutional amendment passed in 1998....giving Fernando Henrique Cardoso permission to run for re-election (an amendment that was surrounded by controversy and not-unsubstancial accusations that Cardoso engaged in corrupt practices and promises in order to get Congress to pass his request for an amendment that would allow him to run for re-election).

From there, Cardoso's rhetoric just gets more hilarious. He accuses the Lula administration of offering little more than "odd government decisions, apparently meaningless presidential phrases and so much propaganda," which sounds really witty and completely out of touch with reality. Aside from getting the World Cup and the 2016 Olympics (which aren't exactly empty statements of "propaganda"), Brazil's economy has bloomed under Lula in ways that Cardoso only dreamed of as he used the blank check he received for the plan that stopped hyperinflation in 1994 in Brazil in order to ravage the country with his neoliberal policies and hollowed-out monetary policies that saw the real drop in value by half to the dollar immediately after his re-election.

As I said, the development and growth Brazil is now experiencing dwarfs even Cardoso's hopes, and to add insult to injury, Lula was able to achieve this growth by basically taking the opposite approach to the national economy that Cardoso did. Lula halted the privatizations that Cardoso pushed; he increased federal investment in state companies like Petrobras, with great results; where Cardoso tried to attract foreign businesses and offer tax relief to the upper class, Lula invested in programs like Fome Zero and the Bolsa Familia to help the country see real improvements in standards of living and consumption rates; and instead of relying on investment from European and American multinationals, as Cardoso did, Lula instead sought to diversify Brazil's global economic relations, bringing in deals with Africa, China, and India, even while continuing to establish deals with the U.S. and Europe when it was practical and beneficial to Brazil.

In short, Lula did everything Cardoso spurned, and under Lula's policies, and not Cardoso's, Brazil has finally seen the growth that many have expected for Brazil for decades. As a result, Cardoso's rant comes off as little more than the humorous, impotent rumblings of an angry bitter man whose policies have been rightly spurned, and, what's worse, proven to be ineffective in the face of a political rival's much greater successes.

If Cardoso has reached the point of a hollow shell of an angry old man, then Caetano Veloso has gone beyond the point of self-parody. Veloso is highly respected musically globally, even while he puts out pretty middling stuff. However, while Veloso may have once been pretty politically engaged in opposing Brazil's dictatorship, he jumped the ship of political progressivism years ago. Back in the 1990s, he declared that Brazil no longer had racism (something with which his former collaborator and friend Gilberto Gil strongly disagreed with, and in any debate on whether a country is racist or not, I'm going to tend to side with the guy who would experience racism).

With a tendency for ridiculous statements in the past, you'd think Veloso would know when to keep his mouth shut. But he doesn't. In proclaiming his support in Brazil's 2010 elections for Green Party candidate Marina Silva, Veloso declared that Lula is "illiterate," a president "who doesn’t know what to talk about and when he does he’s coarse." That's fine - if Veloso wants to hold to that belief, that's his right. But that notion of Lula as an incompetent speaker was pretty much passe by 2002, as years of political experience had helped Lula sharpen his rhetorical abilities. Is he an Abraham Lincoln or Cicero when he opens his mouth everytime? Of course not, but neither is Obama, nor was Cardoso, nor are most people (including Veloso, in spite of how highly he holds his own lyrical ability). In his comments, Veloso doesn't come off as angry as Cardoso. Still, positions and statements like these are risible at this point; Lula's proven time and again he's far from "illiterate," and even if you don't think his every word is poetry, one might hope you'd realize that presidents are supposed, first and foremost, to help lead and improve their countries, and in that arena, Lula has been a major success. Sure, there are shortcomings even in his administration (hello, environmental policy), but to hear Veloso and Cardoso tell it, you'd think Brazil was ruined by the cult of personality of an illiterate laborer. It would be offensive if it weren't so disconnected with the actual current situation in Brazil.

Instead, Veloso and Cardoso just show their true colors: as bitter old men out of touch with Brazilian politics and development.

Is Brazil the Next Major "Imperialist" Power in South America?

A few weeks back, Upside Down World published an interesting report asking if Brazil is "creating its own 'backyard' in Latin America?" The article looked at Brazil's rapidly expanding foreign investments in recent years (from $250 million dollars US in 2003 to $10 billion dollars US in 2004 alone) and some recent points of contention (with Ecuador and Paraguay, particularly), and asks if Brazil is on its way to becoming an imperialist force in the region. It chronicles the various investments Brazil has made recently, from cattle farms in Uruguay to private companies' involvement in Ecuador to the Itaipu dam agreement with Paraguay to suggest Brazil may be trying to become a hegemonic power in Latin America.

I find the charge of "Brazilian imperialism" interesting but wrong-headed. I suppose from the strictest economic standpoint, Brazil's growth may look somewhat like imperialism, particularly to the political left of the region. I have a hard time buying into this right now, though, simply because countries can only grow their investments internally so much before they have to invest elsewhere. Brazil has invested wisely, and is succeeding for this. Accusing Brazil of becoming "imperialist" simply because it has succeeded in what all of the countries of South America have been trying to do to one degree or another for quite some time makes about as much sense to me as accusing a successful local coffee shop of becoming "corporate" when it expands and has multiple locations in an area.

What is more, I think the "imperialist" charge loses any legitimacy when it comes to dealing with the term from a geopolitical standpoint (because it's not just about economics). Indeed, I would even suggest that having Brazil become such a major global force is probably a net gain for South America as a whole. For too long, Latin America (including Brazil) hasn't really had a powerful geopolitical or economic voice that was willing to stand up for its interests in the global market. Now that Brazil is gaining that power, and has similar past experiences with its neighbors in the global economy, Brazil is definitely in the position to defend the region as a whole, and to use its power to sway American and European powers. I admit that Brazil could disregard its neighbors demands on issues such as equality and fair treatment in the way that the United States and Europe has traditionally disregarded anything that didn't line their own pockets and the pockets of their allies.

However, this just doesn't seem likely to me. First, these are Brazil's neighbors, and not just foreign countries, and it would really hurt Brazil's standing in the region. Secondly (and deriving from the first point) Brazil's global standing in the economy, while growing exponentially, is still relatively new and fragile, and Brazil can't afford to isolate entire neighboring countries where it has invested so heavily. Unlike China, the U.S., or major European countries (at least before the global meltdown), Brazil could not just cut its losses in one part of the world and focus elsewhere without major repercussions in its own economy. Thus, I think it is fair to say that, at least thus far, Brazil in the 2000s has been rather sympathetic to the interests of its neighbors, even while it tries to defend its own economic interests. There was evidence of this "sympathy-factor" when Evo Morales nationalized petroleum production, including holdings by Brazil's Petrobras, back in 2007. Lula calmly responded to the nationalization and took Morales on his word to "re-work" the deal, ultimately still getting a good deal on gas coming from Bolivia, but with terms more favorable to Bolivia than they previously had been, as well. The Paraguay case makes things look bad, but the Itaipu issue has been a contentious one that has been bubbling for years. It may still work to Paraguay's disadvantage, which would be disappointing and unfortunate. Brazil has a lot invested in that dam in terms of economy and infrastructure, and it very well may end up being shortsighted in its efforts to get the best deal possible for Brazil, while angering Paraguay and perhaps offending neighboring countries. But the operative word here is "may" - things still aren't resolved, and there's not a lot of concrete evidence that lets us conclude already that the Itaipu discussions are going to go well or poorly. And even if things do work out in a way in which Brazil comes off as an economic bully on this issue, I still don't think the dam and the recent issues between Ecuador and Brazil (which were since resolved) are enough to really point towards an emerging but latent imperialism on Brazil's part, at least not right now. I could be wrong on this down the road - presidents do funny things for strange reasons sometimes - but for the foreseeable future, at any rate, I really don't see Brazil joining the "traditional exploiters" in its treatment of the other South American countries anytime in the near future.

Ecuador Defaults on Its Loans - What Does It Mean for South America?

Back in October, I began wondering if relations between Ecuador and Brazil were not starting to head south. Dissatisfied with the work that Odebrecht, one of the largest construction firms in Brazil, had performed on dams in Ecuador, Correa expelled the company and siezed control of the dams in question. This was a particularly inflammatory action because Lula's government, ever trusting on the power of negotiations, had made strong efforts to work out a settlement between Odebrecht and Ecuador, and Ecuador, which gave hints that it may be willing to settle, rather quickly reversed course. In response, Brazil suspended a trade mission to Ecuador, and the sale of 24 Super Tucano jets (from Brazil) was frozen. Relations on both sides were harmed, as Brazil and Ecuador both had financial and infrastructural benefits they could have co-benefited from before things got tense.

Well, if things were tense before, they will get ugly now, as Ecuador has defaulted on its loans. As Boz pointed out, when Ecuador was trying to get support in the region for its default, Brazil was less than welcome to working with Ecuador on the issue, in part because of Correa's somewhat abrasive attitude towards Brazil back in September and October. The default only worsens things, as Odebrecht was not the only matter at issue back in October; Brazil's development bank (the BNDES) had invested $243 million in aid to help Ecuador, and the expulsion of Odebrecht and the default put that money at risk for Brazil. Brazil has already announced that it will no longer lend money to Ecuador, given its history of defaulting (in addition to this year, Ecuador also defaulted on loans in 1999, as well as in the 1980s.

Nor is Brazil the only one at risk here. By defaulting, Venezuela, one of Correa's creditors, is now going to probably have to swallow at least $400 million in bonds, at a time when the economy in Venezuela is already threatened by the low price of oil right now.

Right now, it's still pretty difficult to really come down on one side or another in this issue. I certainly don't think Ecuador "defaults out of spite." The default on loans is something Correa has been threatening since he ran for president in 2006. What is more, he's not some economic idiot or an uninformed ideologue - he has a PhD in international economics. That said, I think his move has a very real chance of seriously harming Ecuador's relations with its neighbors. Defaulting on IMF and World Bank loans that impose neoliberal economics is one thing; defaulting to friendly nations like Brazil and Venezuela, who can relate to the experience of onerous debts and who are providing a far more friendly, regional alternative to the IMF and World Bank is a very different matter. And Ecuador certainly isn't defaulting due to a lack of funds - it apparently has $5.65 billion in cash reserves right now, so this isn't a case of "we simply can't afford it." It definitely seems, as Ishmael put it, that "this is an ideological dispute more than a strictly economic one (in as much as you can separate the two)." And I'm not totally unsympathetic to Correa's desire to wipe the slate clean from debts established by previous administrations, and try to lead economic reform from within.

At the same time, Brazil and Venezuela certainly aren't "predatory creditors." Those two countries have been at the forefront in helping South America as a whole become a stronger economic bloc, breaking some of its economic dependence on trade deals and loans with the U.S. and Europe and strengthening the region's own economic power in the global economy (as well as helping to improve infrastructure and social programs). However, as two growing regional and, in the case of Brazil, global economic powers, they are experiencing one of the downsides that comes with a global economic presence: not all investments pay off in the end. This may not be the first time Brazil has had a debtor default in loans to Brazil, but I certainly can't think of a previous instance, and certainly not one with this magnitude both economically and geopolitically.

I think overall, everybody is losing in this. Correa's choice may be right for his country financially, but his general abrasiveness is really alienating and is putting Ecuador more and more in a corner by itself. What is more, Ecuador simply does not have all of the capabilities to establish major infrastructural development and independence on its own right now, and relies on its neighbors for basic construction and military needs (as the Odebrecht case and its fallout demonstrated), so the temporary economic benefits it may gain from defaulting are still mixed. And Brazil and Venezuela certainly are losing out: after trying to help a neighbor with a similar political ideology (i.e., more "left" than "right"), they are left swallowing hundreds of millions of dollars in loans, just as the global economy gets weaker. They really have no incentive to help out Ecuador in the future, and I wouldn't blame them for refusing to do so. I wouldn't say that Ecuador's regional relations are irreparably damaged, but given this default and (in the case of Brazil) previous contentions with its neighbors, Ecuador is looking pretty isolated right now.

More on the Brazilian Economy in the Global Credit Crisis

Apparently, I jumped the gun on the volatility post below. As remarkable as the 16 cent jump in the Real-Dollar exchange rate was yesterday, early reports in Brazil today are saying it closed at 2.31 reais to the dollar, another 15 cent jump. So in the last two business days, the real has dropped an incredible 15%.

In response to asdfhja's question below, it's a little trickier. To be perfectly frank, I don't really know much about the "why's" of currency exchange in the world today. While I'm familiar with why the real has performed as it has in the past (1990s, Brazilian currency in the 1980s), I don't really understand the "why's" so much currently as the "what's".

That said, my understanding is that when economies in the U.S. or Europe do poorly, the exchange rate drops (i.e., goes up in absolute number to the dollar) in Brazil because investors pull money out of emerging markets to prop up the already-established markets. As Brazil is one of the biggest emerging markets in the world right now, they've been hit particularly hard in the past few days, as foreign investors have pulled out in order to try to conserve money and preserve the American, European, and Asian markets. In short, foreign investors are pumping their money into their own markets rather than foreign markets, in order to shore up the "homefront" first, which in turn leads to a plummet in foreign investment in Brazil. To my understanding, then, that is the most basic reason why the dollar-real exchange rate has jumped so radically over the last two days; I'm sure there are other factors involved too, but right now, all the articles and journalists writing about this (and there aren't many) are still in the panic phase, without really getting at the roots of why the exchange rate has been so volatile (and to be fair, it is probably too early right now to explain this - it's only been two days, after all).

In what's an extremely bizarre situation, though, despite this plummet in the dollar-real exchange rate and the Brazilian stock markets, Brazil's economy is not in trouble. I realize that that may sound impossible, or that I'm schilling for the Brazilian government as propaganda, but that's not the case.

Again, as I mentioned below, Brazil's economy simply is not being devastated in the way the American economy is for a number of reasons: while credit is increasingly important in Brazil, it is not a credit-dependent society like the United States (and indeed, many people still do not even have bank accounts there); the housing market in Brazil, where apartment ownership is the norm, works in a radically different way than in the U.S. (among other things, high-risk lending is not nearly as common); there was no housing bubble that was ready to burst at any moment; and Brazilian banks are not suddenly collapsing because they put all their money into a housing market that was so susceptible.

What is more, Brazil has diversified its economy radically over the last 20 years, exporting everything from automobiles to soy to ethanol to oil (thanks especially to the large oil deposit recently discovered off the coast of Sao Paulo state), and it is far more self-sufficient in terms of energy than many places in the world.

What is more, Brazil is not indebted anymore to the IMF or World Bank, so it has been free to invest its money in infrastructure as it deems fit, without having creditors come calling or having other institutions dictate how Brazil should spend its money, an issue that's still extremely sensitive in Brazilian politics. Just today, Lula asked why the IMF doesn't bail out the US and Europe with large, long-term, high-interest loans that give the IMF the right to determine how those countries should spend their money, just as the IMF did to Latin America in the 1990s, a point that's not without a sense of truth and fairness behind it from a region that the IMF did everything to destroy 10-20 years ago, all in the name of "neoliberalism." (He rhetorically answered his question by saying it's because the US and Europe are pretending they aren't in a major crisis the way Latin America was in the 90s, when the US and Europe had no problem insisting Latin America was and that only the US and Europe knew what was good for Latin America, something which Latin American presidents too readily agreed with, to the detriment of their own economies).

At any rate, what this freedom from debt to the IMF and World Bank has done is allow Brazil to invest in its own economy, rather than relying on foreign investors, and so when the foreign investors pull out, while Brazil's stock market suffers a hit, the rest of the economy can and has been remaining strong. And finally, as Randy points out in the comments thread below, the lower real value actually helps Brazil in its overall trade income, and the $200 billion in reserve do not hurt in any way, even as the dollar suffers.

All of this is not to say that the Brazilian economy is not going to suffer ill effects from this global crisis sometime in the future; anything is possible. Yet as Randy rightly says, "Brazil is in far better shape than most of us."

Talk about Economic Volatility...

When I arrived in Brazil in September 2006, the dollar-real exchange rate was $1-2.25. Over my 18 months there, as the Brazilian economy improved drastically and the American economy faked its way along, it gradually dropped by 60 cents, so that when I left in March of this year, it was $1-1.65. (While I was happy for Brazil's economy to be so strong, it was not so much fun losing what amounted to 25% of my income while I was there, as I was being paid in dollars). The real continued dropping, ultimately dipping as low as $1-1.55 this August.

The fact that it took 18 months to fall 60 cents makes it all the more remarkable that, in about the last 45 days, the real has gone from 1.65 to the dollar back up to 2.25 to the dollar (it's now running 2.16 to the dollar, but yesterday it hit 2.25 while the international stock markets were open). Put another way, what took 18 months to fall took only about 45 days to rise back up to where it was in September 2006. From last Friday (the 3rd) alone to Monday, the real closed up an unbelievable sixteen Brazilian cents. That may not sound like a lot, but when you consider the fact that usually a shift up or down of 2 or 3 Brazilian cents was a major shift, the sixteen cents in one market day is mind-boggling.

In spite of this sudden (and perhaps temporary) turn of events, these shifts certainly do not signify that the Brazilian economy is suddenly in dire straits; indeed, they are overall performing far more strongly than the U.S. markets right now, in large part because the Brazilian banking system has not caught itself up in the greedy credit market in the way that the U.S. has for a number of reasons relating to overall individual wealth and income in Brazil, the basic differences in home ownership between the two countries, and the availability of credit in the two countries.

Nor does it seem likely at this moment that Brazil's economy is in any grave danger of fallout from the U.S. in terms beyond the dollar-real rate. Firstly, Brazil has done an excellent job of breaking its 1990s neoliberal dependency on the dollar. The Brazilian economy has diversified and strengthened on its own under Lula's administration. Secondly, and related to this, Lula has worked hard in the past 6 years to establish and strengthen Brazil's business ties beyond the United States and Europe. As a result, Brazil is a major trading partner with China, as well as the leading trade figure in Latin America. Under Lula, Brazil has also really begun important trade deals with the Middle East and Africa. Thus, Brazil's businesses and economy, while still affected by the events in the American and European markets, are in no way as heavily dependent on the well-being of the U.S. market for the health of Brazil's own economy.

This isn't to say the exchange rate shifts have no impact on Brazil. American imports to Brazil suddenly cost a considerable amount more in local values than they did 2 months ago. Likewise, Brazilians who are traveling to the United States will no doubt be less than pleased by how expensive everything will have suddenly become for them while they are here compared to how cheap it all would have been at the beginning of August. However, in many ways, Lula's efforts to diversify Brazil's trading partners is looking even smarter than it did a few months ago (when it still looked really smart), because, as John McCain would say were he Brazilian, the fundamentals of Brazil's economy actually are strong.

That said, the sixteen cents is still a doozy, and it will be interesting to see where the exchange rates go from here....

Nouriel Roubini's Economic Predictions, or, Why Fernando Henrique Cardoso Was a Terrible, Terrible President

This weekend, the New York Times ran an absolutely outstanding article on Nouriel Roubini, the man who accurately predicted the current financial crises facing the United States in startling detail and an economics professor at NYU. The whole article is really worth reading, and contains many nuggets, both from Roubini and from author Stephen Mihm, (including the fact that Roubini actually analyzes markets and their future not just on sterilized models that have nothing to do with reality but that actually draw on real economic events of the past). Again, read the whole article, both for Roubini's ideas and Mihm's.

Still, there is one small part that pertains to Latin America that is secondary but important. In discussing how Roubini could have predicted the current financial crises in the US, Mihm writes:

The ’90s were an eventful time for an international economist like Roubini. Throughout the decade, one emerging economy after another was beset by crisis, beginning with Mexico’s in 1994. Panics swept Asia, including Thailand, Indonesia and Korea, in 1997 and 1998. The economies of Brazil and Russia imploded in 1998. Argentina’s followed in 2000. Roubini began studying these countries and soon identified what he saw as their common weaknesses. On the eve of the crises that befell them, he noticed, most had huge current-account deficits (meaning, basically, that they spent far more than they made), and they typically financed these deficits by borrowing from abroad in ways that exposed them to the national equivalent of bank runs. Most of these countries also had poorly regulated banking systems plagued by excessive borrowing and reckless lending. Corporate governance was often weak, with cronyism in abundance.

This is absolutely true, and really gets at why I think Fernando Henrique Cardoso was such a terrible president. To be up front, yes, Cardoso did institute the Plano Real, which, after no fewer than 5 other failed plans, finally pulled Brazil out of years of inflation in the 100s and 1000s of percent. However, Cardoso actually did that as the financial minister during Itamar Franco's administration, and not while president himself (the Plano Real was what basically got Cardoso elected in 1994). Once he was president, however, he did exactly what Mihm describes: spent more than the goverment made, taking out enormous loans from the IMF and World Bank; selling off to private companies many state industries that, while inefficiently run at the time, could have been improved had a president cracked down on inefficiency and bureaucracy; dangerously deregulating the banking system, leading to more and more financial speculation in Brazil; and not only failing to crack down on the corruption and cronyism that had dominated politics, but actively participating in it.

Eventually, these things did catch up to Cardoso, and the economy plummeted in 1998, only recently recovering under the (radically different) Lula administration; the only reason Brazil's late-90s collapse isn't mentioned as much is because Argentina's made Brazil's look less significant. And just to top off the despicable nature of his administration, Cardoso hid all of the indicators of economic weakening when he ran for reelection in 1998. He campaigned on a platform of how much he'd done for Brazil's economy and how strong it was. Yet the moment he was reelected, he announced that the economy had taken a "sudden" downturn, and devalued Brazil's currency by half. The economy under Cardoso never really recovered, and the ever-cynical Brazilian electorate saw Cardoso's ploy for what it was: a whitewashing of the facts to get re-elected, followed by a shift in the economy that negatively effected almost all but the richest individuals and (now-foreign-owned) private companies. It's for these reasons that the frequent defenses of FHC that I encountered in Brazil among middle-class baby-boomers, based as they were in his creation of the Plano Real, were insufficient and indefensible. Yes, he did the Plano Real, but it had nothing to do with his presidency beyond getting him elected to his first term. From there, he participated in the worst economic models available, doing everything he could to re-screw the very economy he'd actually salvaged in 1994. These are the issues that Roubini in this article used to accurately predict what the U.S. is going through, and these issues are why I will never be able to defend Cardoso, a president who acted like the nation's economic savior even while he undid so much.

Around South America

-In Peru, official outrage erupted as a magazine ran pictures of a nude model sitting astride the national flag. Defense officials are outraged, wanting prosecution of the journal, while the journal's editor suggests there is no higher patriotism than celebrating national holidays and symbols by placing a naked woman on top of the flag. Seriously.

-Alvaro Uribe offered the rarest of rare things yesterday: criticism of the U.S. from his own mouth. Uribe took the U.S. to task for giving extradited drug-lords lighter sentences in return for information. I'm not sure who's right or wrong here; I don't think that more draconian sentences is going to solve the drug problem in Colombia (working on the demand-side will), but certainly lighter sentences in the U.S. prisons probably don't have many drug-lords shaking in Colombia, either.

-Ecuador's constituent assembly approved a new constitution for the country, now sending the issue to a national vote referendum at the end of September. Among the items that would be included in the new Constitution (if the population approves it, which it may not do) would be broader social programs; more presidential power to accomplish things (as the system is established now, Ecuador's Congress, wracked by cronyism, inefficiency, and a political elite that does little but take care of its own, can and does easily prevent anything from being done by what is probably a too-weak executive authority; the new constitution hopes to amend this); the president could close Congress once, but Congress could also unseat the president (with elections following in either circumstance); and, very interestingly for a Latin American and/or Catholic country, give same-sex unions the same rights as opposite-sex marriages.

-Bolivian indigneous groups from the Eastern lowlands are planning to meet with Congress in September to discuss how Chevron lied to Congress in an attempt to avoid paying $16 billion (with a "b") in damages for polluting the region (the decision stems from a case filed way back in 1993, and still has to receive a judge's approval some time next year). Representatives from the Cofan, Secoya, and Siona tribes are trying to get reimbursed for environmental damage caused by "dumping 18.5 billion gallons of toxic waste into Amazon waterways from 1964 to 1990, thereby decimating the ability of the indigenous groups to live off the rainforest. Texaco [bought by Chevron in 2001] also built roughly 1000 unlined open-air waste pits that have been leeching toxins into the soil and groundwater for decades." The indigenous leaders will be traveling in order to talk to Congress themselves and explain how Chevron's lobbyists, including Trent Lott, John Negroponte, and many other governmental officials past and present, have misled Congress and tried to get the U.S. government to pressure Ecuador to drop the case with the threat of withdrawal of economic support from Ecuador. (Erik may be right about coal companies in the U.S., but in my book, globally none is as despicable as the oil companies are.)

-Argentina's president Kristina Fernandez Kirchner has an amazingly sane take on how to deal with the drug issue, proposing to decriminalize possession and work harder at rehab programs and going after distributors and dealers (if you're going to attack the supply-side, that's the way to do it).

-The New York Times finally gets around to talking about the economic growth in Brazil that I've discussed before (for example, here, here, here, and here). The report offers the general picture of growth, but there are some pretty impressive stats, including the facts that "Brazil has shrunk its income gap by six percentage points since 2001, more than any other country in South America this decade," and that "while the top 10 percent of Brazil’s earners saw their cumulative income rise by 7 percent from 2001 to 2006, the bottom 10 percent shot up by 58 percent." I would just blatantly point out what the New York Times does not here, but is something I absolutely believe: these changes have happened in large part because of Lula's approach to governing, which has not shied away from investment but has avoided privatizations or short-term fixes, while simultaneously investing public money into social programs. Certainly, Brazil still has a very long way to go in terms of the income gap. Still, the facts that Lula's social programs are doing more than anybody predicted, people are gaining more access to purchasing goods that they previously never could afford, and Brazil's economy doesn't have any signs of slowdown ahead, as its currency is doing great and it's industrial base has diversified, are all excellent news, and I think a lot of the credit does belong to Lula on this.

-While we're on the subject of Lula, he took a new step in environmental protection, setting up a fund designed to "promote alternatives to forest-clearing for people living in the Amazon, and support conservation and sustainable development." As critical as I (and Erik and Randy) have been of Lula on environmental policy, this is truly a great step, primarily because it not only puts money into conservation efforts, but also because it puts money towards social programs that will hopefully prevent people from deforesting for money. I don't begrudge him his efforts to maintain sovereignty on the Amazon and in fact actually think the fund finally puts some efforts behind Brazil's rhetoric. (Up to this point, Brazil has often insisted that the Amazon is its business, and has often bristled at outside help, but without ever really trying to do much financially itself). Anyhow, this is just a small step, and will not radically shift Lula's environmental legacy. That said, it's still a great step in the right direction, and it's the best step he's taken environmentally yet.

-And finally, an interesting (if sometimes disjointed) article at the Times uses the rumor of a Brazilian immigrant winning the lottery to get into broader issues of what "the American dream" means to immigrants, how the economy's collapse is affecting them, and the ways in which modern technology allows Brazilians in the U.S. and Brazil to communicate more quickly than ever.

Brazil's Middle Class Growing

According to this report, issued yesterday in O Globo, Brazil's middle class is on the rise. According to the study cited in the article Brazil's "Classe B" (Brazil census and data measurements divide socio-economic standards into five classes; "Classe B" is the second 20% of income levels in Brazil), which is marked by a monthly income of 3,040 reais/month (US$1900/month) has swollen to almost 20 million people, or roughly 11% of society; home ownership among this group has grown nearly 80% in the last 5 years. The study cites the growth of personal as well as national incomes in Brazil under Lula's administration as the main reason for this growth. If the report is accurate, there are some truly encouraging things to be drawn from this, including people improving their class status, and consumer goods becoming more available to the populace (something I saw myself while in Brazil).

I actually was planning on writing about this beforehand, but Randy's comments in this thread merit some remarks, too. While I don't fully disagree, I don't fully agree, either, for a number of reasons. First, I never saw Lula as being the savior that many intellectuals and people from the left felt he would be when he was first elected in 2002 (and to be clear, I'm not accusing anybody I know in the US of having been like this). Too many people in Brazil turned on Lula when he didn't immediately launch a major revolution that solved Brazil's poverty issues immediately, which I found not only totally unfair, but completely unrealistic. While I wouldn't go quite so far as to say that poverty in Brazil is "intractible" (I feel that A) poverty probably can never be fully eliminated anywhere, just due to simple human nature to create inequalities; and B) (and rather paradoxically) I feel "intractible" suggests the current conditions can never be overcome, and I'm not willing to say that, either), it certainly faces such severe obstacles within society, that no president, Lula or anybody more radical (or counter-radical) could ever solve the problem of poverty in Brazil so quickly. It's ok to hope for important changes, and to even expect them, from Lula or other leftist leaders, but to expect that the extreme poverty in Brazil and, more importantly, social stigmas against the poor among the middle- and upper-classes could be eliminated under one president, strikes me as impractical. This is why I found the leftists and intellectuals' disillusion with Lula so frustrating when I was in Brazil; while he was and is certainly not perfect, the demands they were placing on him were so unrealistic as to be unachievable by anybody short of Jesus Christ himself, and even then, he'd have his hands full.

Secondly, I think this poll points again to how much the standard of living for people has improved during Lula's administration. Yes, it's just data on the 2nd-highest 20% of incomes in Brazil. Still, the fact that Classe B has grown so dramatically, and that access to consumption based not just on home ownership but on household goods has also increased, is promising, and does point to how much has been done in Brazil. Since Lula became Brazil's first "leftist" president since 1964, Brazil has seen unprecedented growth.

That said, I don't fully disagree with Randy, either. The report doesn't mention anything about Brazil's poorest, both in urban and rural settings, but it doesn't have to. Those people are still mired in poverty in a country with one of the greatest levels of economic inequality in the world. There are still plenty of landless, and plenty in the favelas, and any gains they may have made in the past few years are minor in the face of their situations.

However, I'm not quite willing to lump this on Lula, either, and not out of any particular partisanship. As I've said before, the problem runs far deeper within the social fabric, where poverty is treated as a criminal activity, and the poor little help or sympathy from the middle classes. In this atmosphere, the police can and do act not just with impunity, but with the tacit (and sometimes explicit) approval of wealthier elements of society and the media, garnering outrage and protest only when they torture and repress members of the middle class. Simply put, there is neither tolerance for nor acceptance of the poor and economically marginalized in Brazil. The fact that so many people have tried (and succeeded) to improve their class status alone hints at the social stigmas tied to being part of the lower classes. Like I said, while I wouldn't go so far as to say "intractible," the poverty issue in Brazil is indeed grim.

But again, I think this is where it is important to separate presidential politics and power from broader political and sociological processes. As Brazilian intellectuals failed to recognize, Lula, working within a presidential parliamentary system where white-collar politicians and much of the middle class (including many of my in-laws) irrationally hates him for having simply been a metal-worker, could only get so much done. Poverty is undeniably severe in Brazil, and police treatment of the poor, urban or rural, is abominable and unforgiveable, yet illicitly and explicitly approved of in Brazil.

When the time comes to evaluate Lula's administration, I suspect (though I may be wrong) there will be many areas where he will be legitimately deemed as a disappointment, if not a failure, particularly on environmental issues. However, I think that, at the end of the day, his administration has been nothing short of a major success on economic matters. That the poor are treated so brutally is not so much a symptom of Lula's failures as a symptom of the severe classism and racism that still pervade much of Brazilian society, issues which any president will be hard-pressed to solve by himself.