Will Brazil Be Part of the Solution to the Eurozone Crisis?

Q: Brazilian Finance Minister Guido Mantega was in the headlines Tuesday for rejecting a European Union idea of buying European bonds to help ease the euro zone’s debt crisis, a notion that Brazil itself had floated, in a somewhat different form, earlier in the year. Could Brazil, along with other BRICS, be part of the solution to the euro zone crisis? What does the Rousseff administration stand to lose if it asserts itself more fully in the European debate? What are the risks to Brazil, economically and politically, if it stays on the sidelines and the euro zone crisis gets worse? Where do you see Brazil’s role in global economic affairs headed?

A: Joel Korn, managing partner at Performa Partners in Brazil and chairman of the Foreign Investors Group: “The eurozone debt crisis brings far-reaching implications and challenges to the world economy. As such, it is difficult to rule out large economies with strong foreign exchange reserves—as is the case of Brazil—from the rescue efforts, at the multilateral level, to help certain European countries go through the structural adjustments and to restore the necessary stability in financial markets. The political pressure on BRIC countries will certainly be present to make them participants in the liquidity plan, through the IMF. As a member of the G20 countries, the Rousseff administration is expected to contribute to the debate at multilateral meetings. Doing nothing is a negative position on both counts. Politically, an indifferent stance would not be well received by the international community, and it would not be compatible with Brazil’s growing importance as the sixth-largest economy in the world and with the role that it is expected to play in global affair. In economic terms, the European Union is a very important market for Brazil, accounting for over 20 percent of Brazil’s foreign trade, or close to $100 billion per year. Brazil is certainly not immune to external shocks and a worsening of the current crisis is a matter of concern. Simply, there is no ground to justify staying on the sidelines. On the internal front, long-overdue structural reforms would ease the execution of fiscal and monetary policies to curb inflationary pressures and would strengthen further the competitiveness of the economy, a critical factor to overcome in this very challenging environment. Brazil’s role tends to be increasingly more active, as the country’s foreign trade expands along with foreign investments. We’ve been witnessing a growing presence of Brazilian companies in the United States, Europe and Asia.”

A: Albert Fishlow, professor emeritus at the School of International and Public Affairs at Columbia University and a member of the Inter-American Dialogue: “Brazil has wisely backed away from earlier indications that it wished to play a larger role in helping to resolve the continuing financial difficulties within the eurozone. China, the principal objective of Sarkozy’s hopes for assistance, has resolved only to study the matter, rather than purchasing $150 billion in securities immediately. With uncertainties and daily policy changes still occurring, President Dilma’s stance at the G20 should be more to encourage an E.U. solution rather than offer Brazil’s financial help. Although the sum would be small, any foreign policy gains would likewise be minimal, and the risks would be considerable. In the midst of a global slowdown, this is a time when Brazil could benefit most by focusing upon domestic economic issues.”

A: Giorgio Romano Schutte, professor of economics and international relations at the Universidade Federal do ABC: “The financial crisis that exploded in September of 2008 coincided with a special moment for Brazil. The country recorded 7 percent annualized GDP growth, high rates of formal job creation and significant increases in wages, fueling internal consumption. Moreover, the government regained popular support, and President Lula had won international recognition. In addition to these factors, Brazil held the chair of the G20. The country was not only able to quickly respond to the crisis, mobilizing its public banks to maintain credit, amongst other measures, but was able to emerge on the international scene as part of the solution, rather than the problem. Within the G20, Brazil, along with the other BRICS, argued that it is necessary to reform the IMF and World Bank as well as increase regulation of the financial markets. The outlook for growth and profit gains, driven by large offshore oil discoveries and public works for two major sporting events (the World Cup in 2014 and the Olympics in 2016), led to an excessive influx of dollars that has generated pressures on both the exchange rate as well as a sterilization effect. The management of these pressures has caused a rise in the internal debt. With a weak economic outlook in Europe and the United States, this pressure continues to be a challenge. Thus, the government is looking at ways to manage its capital accounts and create conditions to reduce the market’s interest rate, and therefore, the differential between other countries. The solution to the European economic crisis is of great interest to Brazil, but it is mainly Europe’s task. The Brazilian contribution is indirect, defending its own economic drive and contributing, together with the other BRICS countries through the IMF.”


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