From Brazil

with Vincent Bevins and guests

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Vincent Bevins é colaborador do jornal britânico 'Financial Times' e correspondente no Brasil do 'Los Angeles Times'. Escrito em inglês, blog aborda principais acontecimentos do Brasil sob o olhar de um estrangeiro.

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The death of Brazilian industry – three theories

Por Vincent Bevins

President Dilma’s meeting with Barack Obama today may have been largely symbolic, perhaps even a wasted opportunity. But she did manage to lodge Brazil’s major complaint with the US at the moment: that Washington has been devaluing the dollar, making Brazilian products too expensive to export.

Of course on an economic level, this will get the country absolutely nowhere. Though Obama was likely telling the truth when he said he understood Brazil’s concerns, he has plenty of his own. Unfortunately, on the list of considerations that end up dictating US monetary policy, the President’s relationship with Brazil may not be in the top 50.

But politics is about politics, and naming and shaming the US may be worthwhile sometimes. It was indeed the US that caused the financial crisis, and reminding them that the rest of the world suffers as a result could be good for diplomatic leverage.

Back at home, what can be done to save Brazilian manufacturing? What should be done? Fears about the death of industry have become the main political and economic concern in Brazil recently – I explored this issue quickly in the LA Times after workers took the streets last week – but opinion is divided.

Amongst economists, business leaders and government officials, there are three basic schools of thought.

1. Brazil’s manufacturing sector is fundamental to the country, and world-class. If it weren’t for unfair and unexpected developments coming from the US, China, and Europe, we’d be doing fine, and something needs to be done to combat those countries.

2. Brazil’s manufacturing sector is fundamental to the country. But despite the problems caused by the value of the dollar, the real problem is a lack of competitiveness, and the government needs to undertake radical reform to reduce costs in Brazil.

3. Forget it. Brazil doesn’t need to export manufactured products, and even if it did, long-term economic trends will make it impossible. Brazil should focus on managing the transition to a natural resources economy. That doesn’t have to be so bad, they say. Australia and Norway have managed quite well.

Position one is held by the government and by representatives of the industrial sectors. This is especially true if you judge them by their actions rather than their words. Both Dilma and market leaders do agree that reform is necessary, but actually trying to do it has so far been out of reach. It would be costly and politically difficult to improve infrastructure, reform the tax code, and adjust government expenses. What we’ve seen instead is the currency war and a set of stimulus packages for the struggling sectors.

Position two is held by some economists and business leaders that you might say belong to the “development” school. Brazil should be very worried about trying to exist on basic goods alone – the country worked very hard to overcome dependency on selling commodities, and we shouldn’t let that slip away. The government should do all that is possible, including everything listed above, to save the sectors.

Position three is held by a surprising amount of serious commentators, who might be called the “free market” or “comparative advantage” school. Yes, reform is needed all around, they say, but things will be getting even tougher for industrialists. In the long term, the dollar will drop more and more, and the pre-salt reserves will only exaggerate the circumstances in favor of commodities producers. History is not on your side. Deal with it and move on. Unsurprisingly, the fact that serious people even think this does not please either the government or most business leaders.

When Dilma gets back, this will be the debate she will be wading through for probably the rest of her presidency.

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