Brazil

The Senate Foreign Relations Committee recently released a report penned by Carl Meacham titled “Latin American Governments Need to ‘Friend’ Social Media and Technology,” calling on U.S. policymakers to recognize and harness the growing power of social media in Latin America. Some of its most interesting findings include: Latin Americans are second only to North Americans in terms of social networking -- for those that access the Internet, 8 in 10 use social media. While broadband access is limited but increasing (expected to surpass 30 percent by 2014) some 36 percent of Latin Americans Internet access of some form. And, 90 percent of Latin Americans have cell phones – so the potential to expand is large. Facebook claims 100 million Latin American users, led by Brazil, and then  Mexico, Colombia, Argentina and Venezuela. Some governments – most notably Colombia – are investing millions to expand Internet use, seeing it as an important driver of economic growth. Overall it is an interesting and fairly positive technological look at the region. While Latin America falls behind Asia in terms of access to the Internet, the region’s citizens are more socially connected – at least as measured by Facebook, Twitter, and the like. These connections have had and can have broader political and economic impacts than just catching up with family and friends. Social networking has already played big roles in Colombia, with a Facebook-led series of marches against the FARC in 2008 that spread throughout the country (and as far as New York and Chicago), and in Mexico, where twitter updates on drug violence give people vital information the local press and governments are no longer able or willing to provide. Some even see the arrival of social media to Latin America as a great democratizer – helping open up governments (like in the Arab Spring) and media monopolies. While there is much potential, we should be cautious about what social media can and cannot do. As Meachem’s report shows, Internet access is still limited and, in my experience, expensive (though the spread of smartphones and data plans could help this). Until it becomes more accessible, social networking’s grander democratizing possibilities are pretty limited. But these network can – and in some places already do – change the ways some Latin Americans interact, mostly for the better. And as the world globalizes, these ties, and the spread of technologies, will only become more important.

Workers harvest soybeans at a farm in Tangara da Serra, Brazil (Paulo Whitaker/Courtesy Reuters). A recent article by Mariano Turzi argues that soy is the most recent of Latin America’s commodity booms, creating many of the same challenges that metals, minerals, and oil brought in the past. Whether economic booms and busts, populist leaders, or fights between more powerful (e.g. Brazil) and weaker (e.g. Paraguay, Uruguay, and Bolivia) nations in the supply chain, Turzi worries about the fallout for the Southern Cone and its future. Mexico Evalúa recently released the first study I have seen evaluating the outcomes of Mexico’s New Security Model. The results are mixed, at best. Some of the most fundamental measures differentiating the new security model from its predecessors – such as tracking law enforcement officers and their arms in a national database – have not become universal, and in fact have actually declined in recent years. The huge government outlays – now six times the amounts at the start of Calderon’s term – remain at times unspent and in others poorly accounted for. Accountability in general remains perhaps the biggest challenge. Mexico Evalúa finds it hard to judge these programs from the outside, as few metrics are provided. The military maintains even less oversight than the other security agencies they analyze. But reports such as these are at least a start toward pushing for more openness, evaluation, and in the end, better outcomes. Finally, the Justice Department’s National Drug Intelligence Center’s annual report shows cocaine prices increased by a third and purity decreased by more than two thirds from 2007 to 2010. This seems to have led to a decline in cocaine use – down by almost a quarter -- confirming the findings of the Substance Abuse and Mental Health Services Administration report included in last week’s reads. Less positive, methamphetamine production (north and south of the border) seems to have reached an all time high, driving prices down, while purity has continued its steady climb.

A general view of Sao Paulo, the biggest Latin American city (Paolo Whitaker/Courtesy Reuters). A new piece by Eduardo Guerrero in Nexos looks at the growing problem of extortion in Mexico. Differentiating it from drug-trafficking, he finds it more violent and coercive, and argues it is on the rise for three reasons: fragmentation of cartels, displacement of crime rings (and their response to expand into new territories), and finally rampant impunity for such acts. Drug abuse in the United States is on the uptick overall, though use of “harder drugs” seems to be down, according to a recent study by the Substance Abuse and Mental Health Services Administration (SAMHSA). Marijuana use has increased some 20 percent over the last four years, particularly among young people. Today more than one in five Americans aged 18-25 get high on a regular basis. On the other hand, rates of methamphetamine and cocaine abuse have been steadily declining since 2006. The World Economic Forum released its Global Competitiveness report this week, which measures competitiveness based on twelve benchmarks that include “basic requirements”, such as institutions, “efficiency enhancers” such as market size, and “innovation and sophistication factors”, such as innovation. Among Latin American countries, Mexico had the biggest boost in the rankings, moving up 8 spots from 66th to 58th, and improving on 10 of the 12 categories (its only drop was in macroeconomic environment). Brazil also made gains, up 5 places to 53rd overall (due largely to the size of its internal market and its sophisticated business environment), and Chile remains at the top of the region and the 31st most competitive nation worldwide. Central American countries such as Guatemala, El Salvador and Nicaragua registered steep declines in their ratings, due to weakening institutions and rising insecurity, while Argentina and Venezuela remained generally unchanged, but near the bottom of the list at 84th and 124th overall, respectively.

Passengers on a bus pass a vehicle painted with a slogan during an anti-drugs campaign to mark International Anti-Drug Day in Jakarta (Dadang Tri/Courtesy Reuters). The “drug war” strategy of the last four decades revolves primarily around  supply side measures. Whether  eradication, interdiction, or arrests, it fixates on stopping the seemingly endless flow of drugs and cash across U.S. borders . But there is obviously another side to the equation – U.S. demand. The United States is the largest consumer of drugs across the globe (though there are signs that the cocaine and marijuana markets in Europe and the developing world are catching up) with 1 in every 7 Americans having tried an illegal substance. Marijuana accounts for the vast majority of that consumption, followed by prescription drugs and cocaine. Three basic strategies underlie the traditional approach to dealing with drug abuse at home: prevention, treatment and enforcement. Prevention programs seek to stop substance abuse by educating primarily schoolchildren on the dangers of narcotics. Even with their memorable slogans (such as Nancy Reagan’s “Just Say No” campaign or Drug Abuse Resistance Education’s “D.A.R.E. to resist drugs and violence”) the results have been  disappointing. A number of studies show these efforts – costing millions of dollars - may slightly slow marijuana experimentation among teens. Treatment programs, particularly when focused on rehab for heavy drug users, are by far the most cost effective U.S. policy. For every million dollars spent, these programs reduce lifetime cocaine consumption by 100 grams.This may not seem like a lot, but it is more than three times as effective as preventive programs and punitive measures. Investing in treatment also yields impressive returns in terms of public safety, as every dollar spent on substance abuse rehabilitation reduces  the costs of associated crime by an estimated seven dollars. Still, soaring dropout rates – even within mandatory programs -- question the long-term benefits of formal treatment for the relatively few drug addicts who choose to participate. A final major element of demand side in the United States has been enforcement, namely incarceration of those selling and using drugs. From 1972-2002, the number of drug offenders behind bars increased twelve-fold (accounting for about half of the total growth of the federal prison population). This has hit African American communities the hardest, as 1 in every 3 black males goes to prison at some point in his life (1 in 15 black adults are currently behind bars). This is at least in part because the punishments for crack are harsher than those for powder cocaine, leading to longer sentences for black vs. white offenders. This style of stepped up enforcement doesn’t seem to have changed the fundamental drug markets, at least not for the better. Cocaine and heroin prices have hit all-time lows, indicating greater availability, while purity has increased by more than half in recent years. Methamphetamine rose from near obscurity in the early nineties to become the drug of choice for roughly 1.5 million Americans today. Latin American officials such as presidents Felipe Calderon of Mexico and Juan Manuel Santos of Colombia are increasingly calling on the United States to do more to reduce consumption, and a recent report co-authored by former President of Brazil Fernando Henrique Cardoso urged a “paradigm shift” in global drug policy to treat “drug addiction as a health issue, reducing drug demand through educational initiatives and legally regulating rather than criminalizing cannabis.” So what should the U.S. government do? Some experts favor legalizing narcotics, putting an end to drug war once and for all. These advocates maintain that making drugs commercially available will replace illicit markets with formal ones, and thus eliminate the violence of the illegal drug trade. Researchers have found that legalizing marijuana would not necessarily lead to a rise in substance abuse (since those that want to get high today can, at least in many states, do it quite easily), and could slash one fifth of Mexican cartels’ profits. Ending the prohibition on harder drugs may not have the same effect, as legalization could prompt more consumption of cocaine, heroin or methamphetamine (because current enforcement against these drugs is more effective than for marijuana). To appreciate the potential costs of a surge in use, one need only to look at the double-edged consequences of ending the prohibition against alcohol. While the likes of Al Capone are history, Americans today are four times more likely to abuse alcohol than all illicit drugs combined. Alcohol-abusers are also more prone to break the law, as more than half of the current prison population committed their crimes drunk. Other experts (especially those at RAND corp.) suggest we focus our anti-drug resources on enforcement that prioritizes harm reduction. The idea here is not to lock people up indiscriminately, but to go after the most violent drug traffickers and retail dealers. While this may not alter the availability and price of drugs (current policies haven’t done this either), it would they suggest reduce the effects on the larger community and population – whether here in the United States or in places such as Mexico. For the past three decades Washington has spent the bulk (an average of two thirds) of anti-drug resources on supply side solutions. Even as the U.S. drug control budget expanded by more than 50 percent in recent years, expenditures for demand side policies remained stagnant, growing less than one percent per year over the past decade. Realizing that there is no easy solution on either side of the border, it is time to rethink these strategies, keeping in mind the brief successes and unfortunate failures of the last four decades.

Weak economic data, a Washington debt standoff, a downgrade of U.S. federal debt, and rising European default fears helped send the S&P 500 stock index down 16% between July 22and August 6.  As the figure above shows, equity prices of late imply the worst earnings growth rate expectations in 25 years—such expectations even turned negative last week.  This dour outlook stems partly from renewed risk-aversion, which ironically redirected cash into downgraded U.S. debt, but it also reflects a sharp rise in concerns about where new profits will come from.  Operating margins and profits are near all-time highs, but revenues are still below their 2008 peak and real consumer spending has grown by only 2% over the past year.  Corporations currently have strong balance sheets and the lowest net debt-to-revenue ratio on record, but this is largely the result of cost-cutting which may have run its course.  In short, either stocks are very cheap or growth prospects very dim. Chart Book: Economic Recovery Analysis Brief: Economic Recovery Doubts Cloud Markets Spence: Stagnant and Paralyzed Rubin: America's Success Depends on a Sound Fiscal Regime

Brazil's President Luiz Inacio Lula Da Silva (L) and South Africa's President Jacob Zuma join hands during a news conference at the Union Buildings in Pretoria July 9, 2010. (Thomas Mukoya/Courtesy Reuters) American alarm, sometimes justified, sometimes not, over China’s engagement in Africa occasionally crowds out what other emerging countries are doing on the continent. I recently called on the Brazilian ambassador in Washington and some of his staff to talk about current African developments. What I heard about Brazil’s involvement with Africa is gratifying to friends of that continent and deserves to be better appreciated by an American audience. Many Brazilians are of African origin. The Nigerian Ooni of Ife, paramount traditional ruler of the Yorubas, likes to say that Brazil has the second largest number of his people in the world, and he regularly visits northeast Brazil. When I served in Lagos in the late 1980’s, embassy staff sometimes traveled to the United States via Rio on Varig, then the Brazilian national carrier. But Brazil’s engagement with non-Lusophone countries was limited. Former president Luiz Inacio Lula da Silva changed that. Since 2003, Brazil has almost doubled its embassies in Africa, and it now has full-fledged diplomatic representation at the ambassadorial level in thirty-three out of fifty-four African nations, with two consulates-general, in Lagos and Cape Town. While former President Lula was in office, he visited twenty-one countries over the course of twelve trips to Africa. Brazil has also has established technical cooperation projects. Commerce has followed Brazil’s new political and diplomatic activism. Trade between Brazil and African countries has multiplied fivefold since 2003, and now amounts to twenty-five billion dollars in value, according to the Brazilian embassy. Africa has become Brazil’s fourth largest trading partner, after China, Argentina, and the United States, and ahead of Japan and Germany. A CFR Task Force recent report, Global Brazil and U.S.-Brazil Relations, recommends inter alia that U.S. policy makers recognize Brazil’s international standing and work with it to develop complementary policies. With Brazil’s expanded presence, new activism, and important commercial ties, Africa would be an appropriate theater for Washington-Brasilia bi-national consultation, coordination, and cooperation, in the spirit of the CFR Task Force recommendations. Read the report here.

Miner Gomez celebrates as he arrives on the surface as the ninth to be rescued in Chile (Ho New/Courtesy Reuters). Today is the one year anniversary of the collapse that buried 33 Chilean miners deep underground for more than two months. Their rescue inspired a jolt of nationalistic pride in Chile, and not a little media fanfare, but now many of the survivors find themselves worse off than before the ordeal. Despite, and in some cases because of their fame (sure to increase with the production of a movie based on their tale), almost half of the 33 are unemployed, and some are back working underground to make ends meet. Sebastián Piñera’s high hasn’t lasted either – recent polls show his ratings slipped to 31 percent last month, a far cry from his 63 percent approval rate in October 2010. Even the Economist is down on Piñera at this point, criticizing the billionaire for creating ties between government and the private sector that are often too close for comfort. Dilma Rousseff recently unveiled the “Bigger Brazil Plan”, or “Plano Brasil Maior”, a program designed to make Brazil more competitive and stimulate investment in the face of an increasingly overvalued real and the influx of inexpensive goods from abroad. Some question whether the bill will have any positive effect in the long-run, arguing that the $16 billion in tax cuts for manufacturers will be offset by higher sales taxes, needed to finance recent government spending sprees. For those that haven’t seen it, this Los Angeles Times four-part series on the Sinaloa cartel is an illuminating profile of the more average citizens involved, the way the business works, and one particular DEA attempt to take down a cartel.

As President Ollanta Humala assumes office today, it looks as if he has chosen to emulate Lula rather than Chavez. His cabinet is full of moderates, and some even see it as leaning center-right. While growth is expected to continue at about 6 percent, the new administration will face many challenges, in particular security and the increasing presence of transnational crime, as well as high levels of inequality.

An elderly Guatemalan woman rests before leaving Bolivia from Santa Cruz (David Mercado/Courtesy Reuters). For those of you that haven’t seen this yet -- the Economist’s Americas editor Michael Reid provided a great overview of Latin America’s progress in recent years, as well as the challenges that lie ahead in his testimony before the Senate Foreign Relations Committee Sub-Committee on the Western Hemisphere two weeks ago. The following are two, slightly less optimistic pieces – based on economics, and in particular income inequality. FOCAL recently released a policy brief authored by Guillermo Perry and Roberto Steiner on “Economic Growth and Inequality” in Latin America. Two graphs stand out here. The first, on page 3, reflects that while inequality is getting better in Latin America, the situation is still pretty abysmal, as the most equal countries in the region are still more unequal than most countries across the globe. The figure on page 5 suggests a possible explanation: Latin American countries have among the least progressive taxation systems in the world. A World Bank study from 2008, “The Measurement of Inequality of Opportunity: Theory and an application to Latin America” gives a sense of just how much this matters in the lives of Latin Americans. Analyzing data from 6 countries in the region, it shows that up to half of differences in income are due to structural inequalities. Getting ahead in Latin America today, it seems, still depends on being born a specific race, in a particular place, and within a certain kind of family. Lastly, CFR’s independent Task Force report “Global Brazil and U.S.-Brazil Relations” argues that the U.S. must take Brazil seriously as the newest pillar in a multipolar world.

A new Council on Foreign Relations task force report always gets my attention. Task forces are painstaking efforts (trust me, I’ve directed one) spanning about a year each that bring together a couple dozen diverse figures to form consensus on a particular area of critical policy importance. The latest installment, released yesterday, is entitled Global Brazil and U.S.-Brazil Relations. It’s interesting in its own right, but it’s particularly relevant to those who focus on energy and environment. Why? If you’re like me, you often tend to wonder where energy and environment really rank in the foreign policy hierarchy. Sure, people pay them lip service, but when push comes to shove, it’s not clear how much attention they’re paid. That’s why it’s striking to read this judgment from the task force: “Energy and environmental issues provide Brazil with its most substantial platform for international influence.” Indeed the report spends a full chapter on energy and environment, looking into everything from oil to biofuels to hydroelectricity to climate negotiations. Remember, this isn’t a bunch of energy experts saying this – it’s a host of foreign policy heavyweights (along with a few energy and environment experts too). The other theme that stands out is the importance of Brazil’s global role. David Rothkopf, a task force member, captures it well on his blog: “While it should hardly be seen as revolutionary that a country that is the fifth most populous in the world, encompasses the fifth-largest land mass of any nation, and, at expected rates of growth, will within a few years be home to the fifth-largest economy in the world should be seen not just as a leading regional power but as a vitally important global player, historical habits and old policy frameworks are hard to undo.” That sounds about right. Brazil is going to play a big role in the future, including on energy and environment issues. Those who want to get smart about it now should read the report.

Today the Council on Foreign Relations is releasing its independent Task Force report, “Global Brazil and U.S.-Brazil Relations”. Although there were some differences of opinion among Task Force members (some of which are noted in the additional comments and dissents section of the report), everyone agreed to Brazil’s rising importance.

The United States should seize the opportunity to transform its relationship with Brazil to reflect its role as a world power, says David Rothkopf, member of a CFR Independent Task Force whose new report urges a UN Security Council permanent seat for Brazil.

Argentina's President Cristina Fernandez de Kirchner waves as she enters Congress for the inauguration of the annual ordinary sessions in Buenos Aires (Marcos Brindicci / Courtesy Reuters). By the end of next week, Argentina’s current president Cristina Fernández de Kirchner will have to decide whether she’s in or out of the upcoming presidential race. According to recent polls, if the Peronist leader runs, she will win reelection, likely in the first round. Nearly half of Argentines say they would vote for her if the election were today, and her overall approval ratings top 60 percent. Her opposition is divided and as a result more easily conquered. Ricardo Alfonsín, the Unión Cívica Radical (UCR) candidate and son of former President Raúl Alfonsín, leads the pack, but his support is just under 20%.  So far he has been unable to bring other opposition figures into his fold, likely dooming his rise. Argentine presidential races often come down not to a contest between political parties but between different factions within the Peronist party. Here Kirchner’s best-known challenger is Buenos Aires province political boss and former president Eduardo Duhalde. Once an ally, now a fierce opponent, Duhalde has the support of some breakaway Peronist factions. But with political patronage flowing (boosted by a strong economy), it will be difficult to entice many other party leaders away from the Kirchner fold. In the end, assuming Cristina jumps in to the race, it is hers to lose. The challenge will be maintaining her current momentum through October. A bumper soya crop and a booming Brazil should help. Most expect Argentina’s economy to continue growing at a fast clip – 5 to 6 percent -- over  the next four months.  Energy could pose a problem, as years of (government mandated) low prices have both increased demand and limited investment. A cold winter could expose the cracks in the system, causing a (politically challenging) energy crisis. But if Argentina can muddle through without any large shocks,  Cristina looks to remain in the Casa Rosada for another term. The markets seem to have come to this conclusion as well and are voting with their proverbial feet: capital flight increased during the first 5 months of the year.

Fans outside Johannesburg's Soccer City stadium before Mexico and Brazil World Cup game (Siphiwe Sibeko / Courtesy Reuters). The conventional U.S. wisdom today is that Mexico is a problem, and Brazil is an opportunity. The reality is that while Mexico faces serious challenges, the United States shouldn’t count it out. And, while Brazil does present real promise, there are serious issues it has yet to take on. Economically, these two countries are not as drastically different as current analyses suggest. Yes, Brazil has had six years of consistent high growth. In large part, these were the dividends from macroeconomic reforms begun in the mid-1990s under President Cardoso and reinforced and deepened by President Lula (in fact, the pick up in growth coincided with the start of Lula’s second term, when domestic money finally believed  his centrist promises). By comparison, Mexico embarked on a similar reform process ten years earlier and earned its macroeconomic dividend in the 1990s, when Brazil was still struggling to rein in hyperinflation. Looking at per capita growth rates over the last twenty years (not just the last 7 or 8), Mexico and Brazil actually look fairly similar (with annual average per capita growth of 2.25% and 2.5% respectively). While both countries have now solidified a range of necessary macro reforms, they face somewhat similar long term  challenges. Both desperately need to invest in  infrastructure, in education, and to find ways to reduce stark inequalities. Both too are now thriving democracies – a plus on so many levels, but not for pushing through big comprehensive reforms. There are of course big differences – but those don’t necessarily cut just in Brazil’s favor. Brazil is a bigger market, has ever increasing oil finds, and is a complement to China’s rise – all positive. But it is also a more bloated state, stands in a much worse place vis-à-vis inequality and infrastructure, and faces worrisome inflationary and exchange rate pressures that threaten to undermine its recent gains. Mexico is already a more export and manufacturing-led economy. And while Obama (and others) made much of  the potential of US-Brazil trade during his March visit, the reality is that the United States already depends on Mexico as its second largest export market – earning some $163 bn last year compared to $35 bn with Brazil. Mexico is also a much more friendly business environment. According the World Bank’s Doing Business index, Mexico ranks 35th globally – and the highest in Latin America -- while Brazil is a woeful 127th (out of a total of 183 countries). On the downside, Mexico lacks widespread credit (which is much more available in Brazil), suffers from too many monopolies and oligopolies, and so far competes with (rather than complements) China’s rise. The upshot is that there is no clear “winner” in terms of future potential or peril. So what drives the misguided conventional wisdom? A recent paper by Roberto Newell, founder of the Mexican Institute for Competitiveness (IMCO), provides a partial answer.  Analyzing the Mexico coverage in the New York Times and Wall Street Journal since the late 1980s, he shows the increasingly negative tone and focus of the main U.S. papers of record. While political and economic news dominated both papers in the 1990s (in large part due to NAFTA), in recent years crime and the border have taken over the new cycle. Economic and political news – much of it good – rarely merit a mention, much less a sustained focus. Without doing a similar in depth study, anecdotal readings of Brazil in the U.S. media shows the reverse – an almost ebullient focus  on economics and politics, with relatively few stories on crime (even though Brazil’s 25 per 100,000 inhabitants murder rate far exceeds Mexico’s 14). This negative shift isn’t because that is the only news coming out of Mexico. Yes Mexico’s security situation is grave, but it isn’t Mexico’s only story. As the brief comparison above shows, there are many economic and political strengths (and weaknesses) in both countries. Newell lays out many more of Mexico’s advantages and advances vis-à-vis the much touted BRICs, which include Brazil. This skewed coverage hits both countries – though Mexico the hardest. For Brazil, it encourages the “hot money” flowing in, further aggravating the underlying economic weaknesses. For Mexico, the resoundingly negative take may, somewhat paradoxically, make it harder to address the security challenge. To see through necessary changes, Mexicans need some sense of optimism and can-do spirit, as well as a sense of what can be lost – and that is so much of what Mexico has gained.