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Political Economy of Brazil

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Brazil is a Country in east-central South America. The Capital of Brazil is Brasília. Brazil is one of the largest developing economies having strong economic specialty in mining, manufacturing and agriculture. Its service sector is also rapidly growing. Brazilian city of Saopaulo is one of the world’s major industrial and commercial sectors. Brazilian economy has seen many booms and crisis from 16 -20 centuries. In this era the economy of Brazil was heavily dependent on few agriculture products whose prices in international market were continuously fluctuating. In 18 century Brazil had a mineral boom especially in gold and diamonds and then in 19 century there was a coffee boom in Brazil and then in 20 century, Brazil enjoyed a rubber boom but by the mid or last half of 20 century, Brazil expanded its industrial production and became economically less dependent on agricultural products.

The role of government and interventionist policies to facilitate growth and development of Brazil

The Brazilian economy was privatized till 1980 but the role of government in economic sector was dominant. The government had major role in financial sector, industrial sector and even the natural resources were owned by government hence they had 70% major role in steel industry which were owned by steel enterprises. A survey conducted revealed that 39% of the assets of 5000 farms were belongings of state owned enterprises which later on increased to 48% within 10 years similarly the banking even commercial banking was under surveillance of state and 24% funds of commercial banks were owned by state and similarly  70% loans of banks for investment purposes were owned by government.

Such large scale presence of state in Brazilian economy was in the best interest of domestic and even in foreign and international owned private sector similarly it was so wise of Brazilian governments to provide the local companies with cheap inputs which would later on help to turn the best quality product similarly the government would provide them with the cheap electricity with pretty cheap cost.[1] Hence these were also considered to be the major loopholes to the national savings which lead to privatization drive in brazil for essence Brazilian state used to pressurize the state companies to low the prices for suppressing inflationary pressures which resulted in large deficit especially in enterprises and these enterprises forced the state to subsidise them which increased the government deficit also the state owned enterprises were overemployed by political pressures.

In 1980 officially privatization started initially in the country which initially started in steel and chemicals sector which later on dominated towards public utilities for example rail ,roads , ports and even later on exceeded towards telecommunication and major communication zones and later on lead towards inclusion of constitutional amendments which lead to foreign firms and their participation in public utility. Even till 2002, Brazil was privatized for about 63%.

Brazil privatization was that the privatization of public utility was carried out on the basis of granting concessions not the permanent transfer of assets so basically there were concession contracts for limited period of time and at the end of these assets would again return back to state despite privatization, state had regulatory role which allowed states to have a significant influence on economic activity. The most important regulatory role of state was setting tariffs. State prioritised the interested of investors by increasing tariffs and this attracted maximum investors for concession auction. So state adopted lenient policies towards newly privatised firms which increased the profitability of public utility for example after the privatization of electricity distribution section the profitability increased from4.3 % to 5.9%.[2]

So that’s how Brazilian government still regulate states economy.

The macro-economic policies of Brazil is called macro-economic tripod which include inflation targeting, fiscal surplus and exchange rate. Brazil implemented these policies after 1999.

Role of economic and political elite

The economic and business elite of Brazil has significant influence over politics since 2002. When Lula was elected as president in 2002, the Brazil economic elite was against him so they didn’t support Brazilian economy.[3] They were reluctant to invest which lead to tumbling of stock market, collapse of currency and increase in government borrowing  then Lula had to recognise the interest of economic elite, Lula started  an economic agenda named as “new developmentalism “ to provide support  for Brazilian multi-national corporations by giving them loans from state bank at low interests . The relation between government and economic elite declined from 2012 onwards. Brazilian exports were damaged due to less favourable global economy, this caused increase in state expenditure and decline in state revenue leading to high level of borrowing and tax increasing. When poor infrastructure projects like 2014 football world cup and Olympics of 2016 demonstrated corruption of government causing mass protests then the business elite along with media shaped the narrative blaming the corruption of government as the cause of failure of economy. The business elite and the public used the proverb of “pager o pato (to pay the duck, which meant that public and business elite are paying for government mistake) then bolsonaro rose, he had a record of supporting protectionism he assured economic elite that under his government the interest of business elite will be safeguarded then members of business elite declared their support for bolsonaro and then the bolsonaro became the president of brazil with the help of economic elite.

The petroleum firm, petropras, banco (largest bank), JBSS.A (meat processing firm having 191 enterprises around the world), AMBAV, b2w etc.

Degree of liberalization or protectionism

Although Brazil went for privatization or liberalisation but still in Brazil the government adopt protectionist policies.[4] Under Lula government, the Brazil one of the biggest economy were closed.  There were tariffs on around 2400products and local industries were not exposed to foreign competition. The cause of Protectionism in Brazil is that they lack trade dynamism in domestic level. There are less than 20,000 exporters in Brazil so Brazil still has protectionist policies for most of its goods. As current Bolsanaro government has lifted tariffs on about 2400 products but still subsidies are given to local products. Also in Brazil, the economic policy can be termed as economic nationalism, as people of Brazil prefer local products over the foreign products. For example almost all the cars on the roads of Brazil are produced in Brazil. Similarly people of Brazil prefer the cold drinks made in Brazil so Coca Cola had to come up with “Fanta Guarana” to increase their business because that drink was made in Brazil.  Another reason for which scholars call the Brazilian market as closed is the low entry rate of new business exporters. Already established exporters have monopoly over the exports. The trades barriers are relatively high so small companies with less valuable goods are unable to overcome trade barriers but only those firms and businesses with economies of scale can overcome these trade barriers.  These protectionist policies have benefitted the Brazil infant industries like the textile and computer industry which was not competitive enough to compete with foreign firms flourished under the protectionist policies of Brazilian government. Despite liberalization, protectionism is still a cornerstone of Brazilian economy. For example the iPhone price in Brazil is 50% more than in US. Due to these trade barriers, many foreign manufacturers are forced to start manufacturing inside the Brazil. Now the Bolsonaro’s government is committed to remove tariffs and open the Brazilian economy for the world.[5] According to world heritage foundation’s Index of economic Freedom, Brazil is mostly unfree and comes at 150th in number. Brazil has tariffs rate of 8.59% which is much higher than the average 2.59% in world. Protectionist measures are in form of tariffs and quotas which make the foreign good relatively costly and out of the purchasing power of domestic consumers. That’s the reason that there are less international firms in Brazil and even less then in Norway which has 2.5% of Brazil’s population.

Trade Specialization

Due to protectionist policies, there are fewer companies that are willing to invest in Brazil, which decreases the chances of innovation. Brazil main trade specialization is in oil seeds which account for its 13.8% of total exports with worth of US$29 billion. Also the mineral fuels like crude oil is one of the top exports of Brazil accounting for 11.8% of total exports. Meat industry is also one of the industries where Brazil has acquired the economies of scale with annual export of $15billion. Brazil has acquired economies of scale in production of Soybean. Brazil is the largest producer of Soybean that accounts for the 36% of the world production of Soybeans. Oil reserves of Brazil ranks 15th in world. So there are two main exports where Brazil can further develop trade specialization. The export model of Brazil faces criticism because it is based on the exports of basic or semi-manufactured products which decrease the chances of further industrial growth.  The problem of less advanced industries causes a hindrance in making Brazil an efficient economy although it is a resource rich country.

Role of international corporations/ economic linkages / globalization

Brazilian economy is largest in Latin America. Years of economy growth, credible macroeconomic policies and a rise of middle-class have made the country one of the leading recipient of foreign investment and one of the global and regional emerging power in global commerce. These factors make the Brazilian economy one of the most dynamic and promising forces in contemporary emerging markets. It is said that Brazil will be the third most for future FDI, behind China and India. During 1980s Brazil was one of the first countries having large protected markets and protected by all sorts of trade barrier which was the main reason that FDI was attracted to Brazil.

In the early days foreign investment were regulated by markets seeking and protectionist trade policies so hence there were restrictions on the activity of foreign companies including I finance and insurance sector but in 1990 liberalizing reforms were introduced so Brazilian development policy shifted from a focus on isolating the economy from international trade into integrating global economy through enhanced trade.

Through FDI in 1990s Brazil came to open its street later in the globalization process. Collar administration in 1990 and real plan in 1994 was introduced, foreign investment skyrocketed so the former president opened the economy to private investors and state-owned companies. The Asian financial crisis and 2001 crisis made Brazil one of the major developing and a gem for the foreign investors to invest in Brazil.[6]

So Brazil trade is mainly restricted to market access and dominance in the regional trade where they are ready to complete. Their liberation policies allow them for economic adjustment which is in favor of Brazil strategy. Brazil main trading partner are European Union, China, United States, Argentina, and Japan so the Brazil trading countries are with developed economies and the world power including emerging economies. The expansion of Brazil foreign-trade has helped the country to integrate into global economy although Brazil is still 1% of world trade.

Brazil exports increased when they joined world trade organization but overall north and South America as well as Europe were substantially benefiting to Brazil helping them in globalizing and balancing their trade.

[1] Helland Hauge, Gina Marie, and Marie Therese Mahnusson. “Globalization in Brazil.” Master’s thesis, Copenhagen Business School, 2011.

[2] Ibid

[3] Ibid

[4] Carneiro, Rafael D., and Brian Kovak. “The Evolving Impact of Trade Liberalisation on Wages and Employment in Brazil.” VoxDev. Last modified 2017.,in%20between%201990%20and%201994.&text=Because%20tariff%20reductions%20were%20different,its%20unique%20mix%20of%20industries.

[5] Helland Hauge, Gina Marie, and Marie Therese Mahnusson. “Globalization in Brazil.” Master’s thesis, Copenhagen Business School, 2011.

[6] Helland Hauge, Gina Marie, and Marie Therese Mahnusson. “Globalization in Brazil.” Master’s thesis, Copenhagen Business School, 2011.

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China and Venezuela Deepening Cooperation

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Image source: X @NicolasMaduro

In a significant development that underscores the changing dynamics of global politics and economics, Chinese President Xi Jinping and Venezuelan counterpart Nicolas Maduro recently signed several bilateral cooperation agreements in Beijing, highlighting the changing dynamics of world politics and economics. China’s determination to participate in partnerships that promote economic stability and prosperity demonstrates its unwavering commitment to global economic recovery.

The agreements signify a strengthening of their partnerships and span a variety of fields, including trade, the economy, and tourism. The cooperation has been upgraded to an “All-weather strategic partnership,” reflecting the continued dedication of both countries to the advancement and development of the other. The decision by China and Venezuela to strengthen their ties comes as the world is witnessing a transformation in international alliances and trade partnerships.

The economic collaboration between the two countries is one of the most significant aspects of this new era of partnership. The recent agreements are expected to further cement Venezuela’s ties with China, which has long been the country’s major trading partner.Investments in infrastructure development and oil and gas exploration and production are part of the cooperation in the energy industry.

During his visit to China, President Maduro expressed his optimism for the relationship’s future, stating it heralds the start of a “new era” for both nations. Venezuela, which has recently experienced economic difficulties, views China as a dependable ally that can aid in reviving its economy. China, on the other hand, sees Venezuela as a crucial friend in the region and a valuable supply of natural resources.

China and Venezuela’s energy cooperation has broad implications. As the globe grapples with concerns about energy security and climate change, this alliance might have a big impact on the global energy landscape. China’s investments in Venezuela’s oil sector can stabilize oil prices and provide a more consistent supply of crude oil to the global market.

Aside from the energy industry, both countries have pledged to deepen their collaboration in a variety of other economic areas. Venezuela can benefit from China’s expertise in agricultural technologies and infrastructural development in one area. Venezuela may enhance food production and reduce its reliance on imports by modernizing its agricultural sector with Chinese assistance, thereby increasing food security for its citizens.

Additionally, both countries have enormous potential in the tourism sector. Venezuela has incredible landscapes such as the famous Angel Falls and virgin Caribbean beaches, which may appeal to Chinese tourists looking for new travel experiences. Similarly, China’s rich history and culture have always captured the interest of visitors from all over the world, including Venezuelans. The tourist accords aim to make travel between the two countries easier, to foster cultural interaction, and to develop tourism-related enterprises.

Furthermore, the strengthened relationship extends beyond economic interests to include political and strategic considerations. Both countries have reaffirmed their commitment to mutual support in international forums and to no interference in the other’s internal affairs. This strategic partnership is consistent with China’s aim of establishing a multipolar world and strengthening cooperation across developing nations.

The collaboration between China and Venezuela should be seen in the larger Belt and Road Initiative (BRI) initiative. The BRI seeks to establish a network of economic and infrastructure partnerships across Asia, Europe, Africa, and Latin America. A deeper integration of Venezuela into China’s global economic vision through its participation in the BRI could create new trade and investment opportunities.

The potential for economic development in Venezuela is one of the most notable benefits of the China-Venezuela cooperation. In recent years, the South American country has suffered severe economic issues, including high inflation, financial sanctions, and political unrest. China’s investments and assistance can help stabilize Venezuela’s economy, generate jobs, and raise inhabitants’ living standards.

The China-Venezuela connection is a key milestone in the shifting global political and economic landscape. In a changing world order, this partnership has the potential to provide Venezuela with economic prosperity, stability, as well as greater autonomy.

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Confusion and uncertainty shape debate about U.S. Gulf policy

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Image source: twitter @USAinUAE

Debates about the US commitment to Gulf security are skewed by confusion, miscommunication, and contradictory policies.

The skewing has fuelled uncertainty about US policy as well as Gulf attitudes in an evolving multi-polar world and fuelled misconceptions and misunderstandings.

The confusion is all the more disconcerting given that the fundamentals of US Gulf relations are beyond doubt.

The United States retains a strategic interest in the region, even if its attention has pivoted to Asia. Moreover, neither China nor Russia is capable or willing to replace the US as the Gulf’s security guarantor.

“None of the Gulf states believe China can replace the United States as the Gulf’s security protector,” said Gulf International Forum Executive Director Dania Thafer.

The recent US military build-up in the Gulf to deter Iran with thousands of Marines backed by F-35 fighter jets and an aircraft carrier helped reassure Gulf states in the short term. So has the possibility of the US putting armed personnel on commercial ships traveling through the Strait of Hormuz.

The build-up followed the United Arab Emirates’ withdrawal from a US-led, 34-nation maritime coalition in May because the US had not taken decisive action against Iranian attacks on Gulf shipping, including a vessel traveling from Dubai to the Emirati port of Fujairah.

Even so, the United States has allowed confusion and uncertainty to persist. In addition, the US as well as the Gulf states, particularly Saudi Arabia and the United Arab Emirates, appear to pursue contradictory goals.

“The US…did not formulate a very clear approach to how the US wants to work with the GCC as a whole” instead of cooperating with individual Gulf states, said analyst Nawaf bin Mubarak Al Thani, a former Qatari brigadier general and defense attaché in Qatar’s Washington embassy.

The Gulf Cooperation Council or GCC groups the six Gulf monarchies – Saudi Arabia, the UAE. Qatar, Kuwait, Bahrain, and Oman.

“Unless the US becomes clear in its intentions about how it wants to proceed with its future defense relationship with the GCC as a whole, I think we will be going in circles,” Mr. Al Thani added.

The United States has unsuccessfully tried to nudge the GCC to create an integrated air and missile defense system for several years.

Former Pentagon official and Middle East scholar Bilal Y. Saab suggests that the US has moved in the case of Saudi Arabia to enhance confidence by helping the kingdom turn its military into a capable fighting force and developing a first-ever national security vision but has failed to communicate that properly.

“Our geographical command in the region, also known as the United States Central Command (CENTCOM), has been conducting a very quiet…historic transformation from being a war-time command to something of being a security integrator…to activate partnerships to attain collective security objectives,” Mr. Saab said.

“This is not just about having confidence in the US role; it’s also about the United States having confidence in the willingness and ability of those Gulf states to buy into this new mission of doing things together,” Mr. Saab said.

“My biggest problem is that we’re not communicating this stuff well… There’s a lot of confusion in the Gulf about what we’re trying to do,” he added.

Analysts, including Mr. Saab, caution that the United States’ recent willingness to consider concluding defense pacts with Gulf states like Saudi Arabia and the UAE is at odds with its revamped security approach to the region.

Saudi Arabia has demanded a security pact alongside guaranteed access to the United States’ most sophisticated weaponry as part of a deal under which the kingdom would establish diplomatic relations with Israel.

The UAE initially made similar noises about a defense pact but has since seemingly opted to watch how the US talks with Saudi Arabia evolve.

A defence pact “is incredibly inconsistent with what we are trying to do with CENTCOM… The moment you provide a defence pact to the Saudis or, frankly, any other country in the region, this is where you go back to the old days of complacency, of dependency on the United States as the guardian and as doing very little on your own to promote and advance your own military capabilities,” Mr. Saab said.

His comments may be more applicable to Saudi Arabia than the UAE, which has long invested in its military capabilities beyond acquiring sophisticated weaponry.

The roots of confusion about the US commitment to the Gulf lie in evolving understandings of the US-Gulf security relationship based on the 1980 Carter Doctrine, the United States’ response to Iran’s 1979 Islamic revolution, and that year’s Soviet invasion of Afghanistan.

President Jimmy Carter laid out the doctrine in his 1989 State of the Union address. “An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force,” Mr. Carter said.

Robert E. Hunter, then a National Security Council official and the author of Mr. Carter’s speech, insists that the doctrine was intended to deter external powers, notably the Soviet Union, rather than defend Gulf states against Iran or secure shipping in strategic regional waterways.

“The often-misquoted Carter Doctrine…did not refer to the ‘free flow of commerce.’ I wrote almost all of the speech… it was designed to deter Soviet aggression against Iran, following the Soviet invasion of Afghanistan, which began a few weeks earlier,” Mr. Hunter said.

The Reagan Doctrine, enunciated five years later by Mr. Carter’s successor, Ronald Reagan, reinforced his predecessor’s position.

“The US must rebuild the credibility of its commitment to resist Soviet encroachment on US interests and those of its Allies and friends, and to support effectively those Third World states that are willing to resist Soviet pressures or oppose Soviet initiatives hostile to the United States, or are special targets of Soviet policy,” Mr. Reagan said.

President George W. Bush’s development of US doctrine after the 9/11 Al Qaeda attacks on New York and Washington proved more problematic for the Gulf states.

Mr. Bush defended the United States’ right to defend itself against countries that harbor or aid militant groups.

His doctrine justified the US invasions of Afghanistan and, Iraq. Gulf states saw the Iraq war as destabilizing and problematic, particularly with some on the American right calling for a US takeover of Saudi oil fields.

Nonetheless, Gulf states had plenty of reasons to reinterpret the Carter Doctrine to include a US commitment to defend Gulf states against regional as well as external threats.

The Gulf states’ reinterpretation resulted from a US lack of clarity and actions that seemingly confirmed their revised understanding.

These included the United States leading a 42-nation military alliance that in 1991 drove Iraqi forces out of Kuwait, establishing bases in the Gulf in the wake of the Iraqi invasion, US interventionism following the 9/11 assaults, and the ongoing protection of Gulf shipping against Iranian attacks.

As a result, a lack of clarity and confusion in Washington and the Gulf’s capitals continue to dominate the debate about the US-Gulf security relationship.

Said Mr. Saab: “I would like to understand from the Gulf states whether what we are selling, they are actually buying. What we are selling is…a very real partnership. No longer guardianship, but actual partnership. I don’t know where individual countries stand on these proposals… Until we get common ground on this, there is nothing in the Middle East that we do that is really going to work.”

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US Diplomacy in Asia: Navigating a New Era of Cooperation

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State Department photo by Ron Przysucha/ Public Domain

In an era marked by shifting global dynamics and a resurgent emphasis on diplomacy, the United States must adapt its approach to international relations, particularly in its dealings with Asian countries. China’s recent call for the United States to recognize the shared aspirations of Asian countries has significant implications.

The changing global political landscape underscores the need for a commitment to cooperation, stability, and mutual development. The United States should heed this call and adopt a more cooperative approach in its interactions with Asian countries, which can benefit not only the region but also the entire world. This call from China comes at a time when the U.S. is making diplomatic strides in its relationship with Vietnam.

Vietnam, a significant player in the region, continually emphasizes that enhancing its comprehensive strategic cooperative engagement with China is its top foreign policy objective. This commitment underscores the importance of Asian nations forging partnerships based on mutual understanding and shared goals, rather than divisive politics.

China’s approach to bilateral relations with Asian countries is rooted in principles that promote regional peace, stability, development, and prosperity. It emphasizes that such connections should not target third parties or jeopardize regional well-being.

China’s call for the U.S. to adhere to basic norms governing international relations is an invitation to enter an era of diplomacy that moves beyond the outdated zero-sum pursuit of power politics. Understanding the changing dynamics in Asia is critical to understanding the significance of China’s call. The region is experiencing unparalleled economic expansion, technological advancement, and social development. Through trade, investment, and cultural contacts, Asian countries are becoming increasingly interconnected. Their mutual goals concentrate on maximizing their ability for the greater good.

Indeed, the world has changed since the days when superpowers ruled global affairs. Diplomacy is a more complex endeavor in today’s connected and multipolar world. By adopting a more cooperative approach to Asian issues, the United States has a rare chance to demonstrate its commitment to becoming a constructive global partner.

China’s call for the United States to respect common goals is grounded in a vision of Asian cooperation that transcends historical resentments and ideological disagreements. It recognizes that each country in the area has unique strengths and challenges and that collaboration can help solve those challenges more efficiently.

This call includes not just diplomacy but also economic links, cultural exchanges, and people-to-people relationships. Asian countries are keen to tap into the tremendous potential for trade and investment, and accepting this chance could help not only the US economy but also the stability and prosperity of the entire Asian region.

The US must consider the concerns and interests of all Asian countries, including China. A cooperative strategy that respects each country’s sovereignty and objectives is more likely to yield beneficial results and contribute to regional stability. The days of hegemony and Cold War mentalities are behind, and the future of global politics lies in cooperation, mutual progress, and common goals. The world is watching, and the choices made today will shape the future of international relations in Asia and beyond.

Furthermore, it is important to recognize China’s significant contributions to the prosperity and security of the Asian region and beyond. China’s economic growth and development have been major drivers in maintaining global economic stability. It’s Belt and Road Initiative (BRI) has aided infrastructure development in a number of countries, allowing for economic growth and connectivity.

China’s emphasis on a multipolar world and respect for sovereignty aligns with the values of equality and non-interference in other countries’ internal affairs. This position contrasts with previous instances of US interventionism and emphasizes the need to respect individual nations’ autonomy and choices.

While recognizing the significance of cooperation, it is critical to emphasize the dangers of pursuing aggressive policies in Asia. A confrontational strategy, whether through military posturing, containment efforts, or coalition formation to fight China, can lead to increasing tensions and instability in the region. Such acts may unwittingly put governments on the defensive, hindering diplomatic progress.

Whether or not Biden admitted it, his visit to Vietnam was mainly perceived as a major US move to court the Southeast Asian country and leverage its economy in support of the US offensive against China’s trade and technologies.

It’s highly important to remember that Asia is a diversified continent with intricate historical, cultural, and political aspects. The resolution of regional challenges and conflicts is more likely to be successful when strategies that emphasize collaboration and communication are used. History has taught us that engagement and diplomacy are much more successful means of settling conflicts than direct confrontation.

The call from China to the United States to embrace a new era of cooperation in Asian ties is a push for a more stable, peaceful, and prosperous world. Recognizing China’s contributions to global economic stability and its commitment to addressing significant global issues is extremely important. Adopting a cooperative approach in Asia based on equality and respect for sovereignty will pave the way for a brighter future for all nations in the area and beyond.

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