Photo Jonathan Blair

Thursday, September 29, 2011

Drugs: Our time to lead?

The is one the Globe and Mail has missed: at last, a field we really dominate.

The 2011 edition of the UN's World Drug Report has great news for Canadians: we top the rankings for drug consumption. Here is the data for youth (Grade 10-12), in % who have ever used the particular drug and, in brackets, Canada's rank among all the countries for whom stats are available (minus island micro-states where, for some reason, consumption is often stratospheric):

Canabis:  47.3% (1st)
Extasy group: 13.2 (1st)
Cocaine:  7.2% (2nd)
Amphetamine group: 12.4 (3rd)
Heroin:  2.3% (8th)

And the bad Americans? They better us--barely--for cocaine, and that's it. We're the best!

Now, consider the following: Drug consumption has been going down slowly in this country, Canada has one of the lowest homicide rate in the world, and a declining crime rate. Clearly--unless you want to argue that addiction makes people nice--there is no direct link between drug consumption, the trafficking that underlies it, and violence. Perhaps we should be worried about rocking the boat with a big stick policy...

Tuesday, September 20, 2011

Latin American DIS-integration: Brazil's contribution

In previous posts, I have insisted on the structural dynamics and policy initiatives that are taking South America's Pacific countries away from the rest of the continent. Well, all the fla-fla around Mercosur and UNASUR notwithstanding, Brazil is also doing its part in the dis-integration of the continent.

Two illustrations: 

1) Petrobras, Brazil'soil giant, has just announced that they would build the Ipojuca oil refinery, in the northeastern state of Pernambuco, alone, i.e. without PDVSA, Venezuela's national oil company. On the surface, nothing is more justified as the Venezuelans have still contributed nothing to the joint project. Now, dig just a little bit and things get more interesting: PDVSA is being bled to death by Chavez, with its own domestic investment programs paralyzed, its production down, and its future bleak. How could it invest non-existing funds into the joint venture? Well, by borrowing, which is just what it tried to do, going to the biggest player in Latin America, Brazil's very own development bank, the government-controlled BNDES. The latter, however, judged a few months ago that PDVSA did not offer sufficient guarantees or repayment, and turned down its request, leaving the Venezuelans with... nothing. By the way, who is financing Petrobras' investment in the refinery? Yes, you are right, the BNDES.

Adding insult to injury, Petrobras has announced that the refinery would not use Venezuela's heavy crude, which is more expensive to refine than Brazilian oil. In other words, there is no point building a pipeline between the two countries, because nobody in Brazil could even use what Venezuela has to sell.

2) The Council on Foreign Relations, in its recently published report on "Global Brazil and U.S.-Brazil Relations," points out that "Brazil is escalating investment and trade throughout [South America]" (p. 56). Well, this is true, but extraordinarily misleading. I have been doing a bit of research on Brazil's global stock of investments, using data from the Banco Central. The numbers are truly interesting and they tell a very different story:

In 2010, South America as a whole represented 7.8% of Brazil's total stock of investments abroad, well after... Austria (22%), the Cayman Islands (17%), the British Virgin islands (8.7%), and the Bahamas (7.3%), all places best known for keeping banking secrets and not taxing much the capital that lands on their shores. With $5.1bn in Brazilian investments (3% of the total), Argentina is the only country of South America to make it to the top 10. In other words, Brazil's investments in the region are growing, but they don't matter much for Brazil. 

Two caveats: 

1) Nobody ever said that Chavez' PDVSA was a good credit risk and Brazil probably did what Canada, France of the US would have done. But that is the point: regional integration works when the biggest player is willing to pay, and Brazil clearly is not. Moreover, refusing to even set up a capacity to refine Venezuela's oil deepens that country's dependence on refining installations in Colombia and especially in the US: not much of a contribution to energy and infrastructure integration, leaving aside the bad blood.

2) Brazilian investors are doing what everybody else is doing: sending their money abroad to avoid paying taxes. Canadian investments in the region are also parked overwhelmingly in a few Caribbean tax havens, notwithstanding the big lie that one can read on Foreign Affairs website and in many "experts" writings pointing to the large and growing importance of Latin America and the Caribbean for the Canadian economy. Still: nobody seriously argues that Latin America is Canada's main foreign policy priority, while this is a song one hears a lot in Brasilia.

Monday, September 12, 2011

Lessons from Latin America: Greece must dump the Euro and the world should approve

[This piece was written with my colleague Yiagadeesen Samy, a conflict and development economist at Norman Paterson]

A few months ago, the economic powers that be chose France’s former finance minister Christine Lagarde over Mexico's Agustin Carstens to lead the International Monetary Fund.  One factor often mentioned in her favour was her better acquaintance with the tribulations currently shaking Europe's financial system, with Greece in particular, but also Ireland, Portugal and Spain on the brink of disaster.  Arguably, however, the relevant knowledge to face the crisis lies not in Europe but in Latin America, where Carstens and ilk in the region's finance ministries have literally grown up with hyper-inflation, brutal devaluations, humongous external debts, massive structural adjustments, huge and often violent social resistance to those, and debt repayment suspensions. 

Much of what is unthinkable in Europe today has been thought and tried many times in Latin America; for example, Argentina defaulted on its debt and devalued its currency in 2001/2002, which ultimately led to increased exports and economic growth later on.  Latin America, accustomed to debt crises, is now a continent going through a period of growth with quickly decreasing poverty and inequality.

Three relevant lessons can be drawn from Latin America's experience: overly strong currencies kill growth prospects; the poor are the ones who pay for adjustments; and lending and investments always come back if there is money to be made.

Right now, richer European countries, Germany in particular, are trying to save their banks by bailing Greece and company so that the latter can keep paying those banks.  The idea is to give as little as possible and to force local governments to draw as much as possible on their own countries’ resources, essentially by cutting services and putting people, especially public servants, out of work.  The outcome will be a massive recession in those countries that will make the weight of debt service even larger for governments whose tax base shrinks, imposing further cuts, and so on.  Social resistance will understandably ensue, as is already the case in Greece, limiting the ability of the government to implement those cuts, forcing in turn richer European countries to invest a bit more in the bail-outs.

There is another solution: Greece could move out of the Euro and reintroduce its own currency, possibly followed in that movement by Portugal and perhaps even Spain.  The new currencies would not be worth much, making it impossible for those governments to pay their debts, which will continue to be in Euros.  This, however, would only introduce a dose of reality in current discussions: Southern European countries, which face not only a problem of liquidity but also of solvency, cannot pay what they owe, they will not do it in the end, and the world needs to deal with it.

The flip side of the Euro exit, moreover, is that local governments won't have to make as deep a cut in their spending, lessening the social cost of the crisis and the political instability that results.  Meanwhile, local products and services will suddenly become competitive as these economies move from being high-cost but low-productivity holes, to low-productivity but also very low-cost heavens. The world would flock to Southern Europe's beaches and their agricultural products would flood global markets, all for the good of the local economies and, for agricultural markets, for the good of the world. Oh, and by the way, investments would follow and if Europeans are not interested in a suddenly competitive tourism sector, well, Asians and Latin Americans will be.

Meanwhile, Germany and other creditor countries would be confronted to saving their banks, which is basically what they are trying to do right now anyway. The only difference is that the checks, instead of going through Athens (and possibly Lisbon and Madrid), would move directly from Berlin to Frankfurt and Dusseldorf.

Sunday, August 21, 2011

Dilma Rousseff: That sinking feeling (2)...

After new accusations against Rousseff's Minister of Agricuture, Wagner Rossi finally resigned. He is the fourth minister, all of them "inherited" from Lula, to leave Rousseff's cabinet since she was elected. His resignation could suggest that the President is staying the course and will keep cleaning up the higher reaches of the government and is in fact read in that way by The Economist and many Brazilian commentators.

I am not convinced. She is doing her best, but looks increasingly hostage to her allies in Congress, particularly the PMDB, and vulnerable within the PT, many of whose leaders feel that her continuing campaign gives the impression that the Lula government was corrupt. She openly left the selection of Rossi's replacement to her Vice-President, Michel Temer, who is the PMDB leader, not a strong demonstration of force and autonomy...

Thursday, August 18, 2011

Dilma Rousseff: That sinking feeling...

From the outside, Brazil looks set for smooth sailing through the current crisis. In its web edition today, The New Republic has a little slideshow called "Economic Crisis? What Economic Crisis? Eight countries doing just fine." Brazil, with little surprise, is on the first slide.

Well, the country's economy certainly looks fine, but its politics are taking a turn for the bad and if hard decisions have to be taken, one really wonders who will be there to take them. In the last week or so, in the midst of ever-juicier corruption scandals, President Dilma Rousseff appears to be losing control.

Two developments look particularly disturbing:

1) After quite openly discussing the coup with Lula, Rousseff decided to keep the minister of Agriculture, Wagner Rossi, opting instead for getting rid of the people that surround him and that he has chosen personally... She thus retreats from a confrontation with the PMDB [Brazilian Democratic Movement Party], vice-president Michel Temer's party and the most important of the PT's  partners in the Congress. Even this, by the way, was not enough: she accepted a whole slew of Congressional "amendments," worth more than $1bn reais (more than U$600 million) to calm down her supporters in Congress. Obviously, she was under pressure: the PR [the Party of the Republic], another significant--though less weighty--ally had defected from the governing coalition after various of its leaders had lost their position in government as a result of the Ministry of Tourism scandal. If the PMDB were also to declare its "independence," the President would for all practical purpose loose control of the Congress.

2) Rousseff complained to her Minister of Justice for not having been informed in advance that a number of high-level officials from these two ministries would be arrested by the Federal Police... Doing so clearly suggests--though it proves nothing--that she wanted to be involved in police activities that affect her relationship with parties in Congress, not an easy thing to reconcile with democratic accountability and the political independence of the police.

These developments weaken Dilma in three important ways:

- Relative to Lula, who appears to have pushed her to a more lenient attitude than the one she had adopted previously (against the PR);

- Relative to the PMDB, which cannot but read this as a licence to binge on public funds, both over the counter, through budgetary "amendements," and under it, through nominations and contracts;

- Relative to the opposition and more broadly the informed public which, seeing her as a weak and easily swayed leader, won't have much incentive to compromise with her or to give much weight to her personal views, values or conviction.

The loss of respect is readily perceptible in the tone in which she is addressed in the media. A recent op-ed, about Brazil's--along with India and South Africa's--admittedly dismal show of subservience to Syria's Bashar--demeans her to the second-person "tu" in its very title: "Atenção, Dilma, ele assina em teu nome."

So, if --or is it when?-- push comes to shove in the next four years, who do you talk to?

Latin America: After all, this government looks serious indeed

Contrary to what I wrote last week, Minister of State for the Americas Diane Ablonczy was with Stephen Harper in Latin America and in fact spent three days in Toronto talking to stakeholders there right before leaving with the PM, which makes plenty of sense. The very critical post below was written as soon as I got the press release, i.e. right after Harper's return from Latin America, which made me think that she was just back from Toronto. I should have checked the dates. My mistake.

Expanding the Latin American Reserve Fund: Is UNASUR taking on the IMF?

There were interesting rumblings at the August 5 meeting of the Finance Ministers of the Union of South American Nations (UNASUR). The creation of the organization's Financial Council--following in the path of its Defense Council--was announced,and ways were discussed to protect the region from global financial instability. In that context, Brazil's finance minister Guido Mantega expressed his country's interest in joining an existing mechanism, the Latin American Reserve Fund (FLAR), which is currently made up of Bolivia, Colombia, Peru, Costa Rica, Ecuador, Uruguay and Venezuela.

The FLAR, very much like the IMF, is meant to help its members deal with current account and debt crises. Although the commitments of its members total U$2.3 bn, the FLAR, established in 1978, currently controls... $1.84 bn, which basically means that it cannot be of much help. Hence the idea of beefing it up to $10 or 20bn, by having the region's two largest economies, Argentina and Brazil, join in with significant contributions.

Brazil's support remained very abstract, however, and no decision was taken. In fact Mantega argued that the main obstacle lied in the FLAR's own regulations, which currently set a mzximum contribution of $500m to its participants. With Colombia and Ecuador--an unlikely pair--promoting the idea, and Argentina and Venezuela apparently enthusiastic the proposal, Mantega's argument sounds very lame.

Now, Brazil's stand should come as no surprise. These regional outfits offer very little to Brazil, for a number of reasons: 1) unless it invests massive amounts of resources in these endeavours, they are unlikely to have much bearing were a serious financial crisis--think Venezuela in the next 24 months--to happen in the region; 2) Brazil cannot openly dominate these mechanisms, for fear of looking like--and being painted as--an imperialist power, making its resources vulnerable to hijacking by more aggressive regional actors--think Hugo Chavez or friends; 3) for both these reasons and because such a fund would have no bearing whatsoever on Brazil's own financial security, a serious commitment would be a losing proposition with the Brazilian public and Congress.

Following Brazil's less than lukewarm support for Hugo Chavez' Banco Sur--idealized as a regional challenger to the World Bank and the Inter-American Development Bank--this latest non-decision thus looks a lot like another Brazilian refusal to serously back regional institutions, in spite of the country's lofty rhetoric about South American solidarity and integration. With international reserves currently worth $335bn dollars, even $5bn should have been easy enough to commit, obviously conditional on changes to FLAR's regulations.

Now, Brazil is not alone: given the size of the region's international reserves ($500bn for South America; 650bn for Latin America as a whole, and even $20bn for tiny Central America), the tiny amounts being discused here show once more that Latin America is not really serious about collective action. While there are many, many things that should keep Christine Lagarde awake at night, a Latin threat to the IMF is not one of them...

Friday, August 12, 2011

Brazil: The ways in for the private sector

In my recent post on Harper's visit, I have been insisting on the difficulties posed to private sector entry into the Brazilian market, particularly the fact that Brazil, especially under Lula, has been pushing very hard to protect and promote its own large companies and make them national champions. That view is a bit too simple and if you take it literally, you certainly cannot make sense of the flood of investments that has engulfed Brazil in the last few years, as the total stock of foreign investments in the country essentially doubled in five years, to reach more than $400bn.

So, there must be ways in, and there are. One of them is to produce something that no local champion does. This is the path taken by global car manufacturers and, recently, by RIM: you move in, fighting through the bureaucratic and regulatory maze, produce for the fast-expanding local market, and count your money. The appeal of this strategy is that the outsider, once inside, can reap the benefits of the still protectionist outlook and policies of the government.

Joint ventures represent the other path: work with a local champion, accept a minority stake in the project, and then you can produce both for the local market and for exports, in addition to benefiting from nice government treatment through your local friend. Look at this recent case: two groups from South Korea, Dangkuk (30%)  and Posco (20%) are joining Vale, Brazil's largest company, to build a huge steel mill project (the Compañía Siderúrgica do Pecém (CSP)) in the Northeastern state of Ceara. When completed, by 2014, CSP will be producing 12.5 million tons of steel per year. Total foreign investment: $2.1bn or about 20% of the total current value of Canada's investments in Brazil. Vale has a similar project with Germany's Thiessen Krup in Rio de Janeiro, the Compañía Siderúrgica del Atlántico (CSA).

This second path, no doubt, is the one that will be pursued by the Canada-Brazil CEO Forum. Opportunities there will be. Note however, that to play either of those games, you'd better be big.

Thursday, August 11, 2011

Latin America: How serious is this government? CORRECTION

Well: BIG change. This government looks serious indeed. Contrary to what I wrote, Ablonczy was with Harper in Latin America and in fact spent three days in Toronto talking to stakeholders there right before leaving with the PM, which makes plenty of sense. The very critical post below was written as soon as I got the press release, i.e. right after Harper's return from Latin America, which made me think that she was just back from Toronto. I should have checked the dates. My mistake.


Original post: I was quite happy with Harper's visit to Brazil and the region, but a bit of news kind of disturbs my bliss...

I have just received a funny press release from the Department of foreign affairs. The title is enticing: "Ministry of State [for the Americas] Ablonczy Successfully Concludes Outreach Tour." First thought: WOW!!! These guys are serious: while Harper is working the regions' Presidents, Ablonczy, no doubt with top bureaucrats from the department, works around him, visiting other countries, laying the ground for the next big show.

Well, I should have stopped at the title, because the rest is a sad joke: While the PM is in the region, the Minister responsible for the region has just spent, "successfully," three days IN TORONTO, "to establish a good dialogue with key stakeholders."

In other words, not only was she not in other countries of the region or at the very least with the PM, building links that presumably she could use as the main person charged with the follow up to his visit, but she was instead in Toronto, doing things that she should have done well before. Worst still, the biggest players in Toronto, beginning with Scotia's Rick Waugh were, well, with the PM in South America.


Wednesday, August 10, 2011

Harper in Brazil: inglorious--but useful--foray

In Brazil's main newspapers -- the Estado de Sao Paulo, the Folha de Sao Paulo, O Globo and the Correio Brasiliense-- the only article I could find that was specifically devoted to Harper's visit is a Folha piece revolving around his hiding a bathroom to get the Brazilians to change the timing of his speech... The episode is also the one thing about his trip that was picked up by the US press. Obviously, his arriving in a Brazil shaken by corruption scandals, on a dark day for global stock exchanges, and with London ablaze, kind of doomed the poor man to relative invisibility. But there is something real and true behind the apparent fiasco: there was not much for Harper to do there, although what was to be done he did.

Let's start with the not much: as he put it himself, trade between between Brazil and Canada, two of the world's ten largest economies, with a joint GDP of $4trillion (his numbers), is only $6bn, "little more than one tenth of one per cent of our joint gross domestic product." Joint investments are worth $23bn, not negligible but not impressive at all when you consider that Canada's global stock of investments is about $640bn. Now, Brazil's large economy and rapid growth mean huge opportunities for everybody to jump in and many are indeed interested: Scotia is getting a foothold in the banking sector and RIM will be producing smart phones locally, to mention only two of the 400 or so companies already there. But things are not easy for foreign companies in Brazil.

Brasilia is very keen on strengthening its own firms, holding equity in many and offering them subsidized credit. The National Bank for Economic and Social Development even helps Brazil champions to acquire foreign companies... The whole endeavour is explicit: on August the 2nd, the governament launched the "Greater Brazil Plan"--the Plano Brazil Maior--an industrial policy program involving "Buy Brazil" measures, tax cuts as well as targetted grants for business, in particular for the montadoras, i.e. the multinational corporations--Volkswagen, Ford, GM, Peugeot, etc.--that produce cars in Brazil. The plan is openly meant to protect  the national economy and compared to it Canada's past ventures in industrial policy look decidedly timid. Note that this type of initiative is also very popular, with most critics charging that Brazil Maior was "insufficient," and even the small-l liberal Estado de Sao Paulo basically agreeing with the importance of significant government support for local companies. To say the least, while this doesn't mean that foreigners are kept out--take the montadoras--it means that when foreigners compete with locals, the field is decidedly not level.

Trade is similarly hampered. Once again, Brazil is not a closed market. But since a big liberalizing shock at the beginning of the 1990s, little progress has been made and barriers, of all kinds, abound. The project of a free trade agreement between Brazil and Canada, which has been floated in the Canadian press, is patently absurd at the moment and probably for a while. Brazil, as a member of Mercosur, shares external tariffs with Argentina, Paraguay, Uruguay, and soon, with Venezuela, which means that any free trade arrangement has to involve all of them. In other words, as soon as the Paraguayan Senate relent and votes to let Venezuela in, which all other governments of the bloc have already done, Hugo Chavez will have a veto on any such agreement. In other words, unless global multilateral trade is freed up at the WTO--not in the cards for now--up and until Mercosur dissolves or morphs into a free trade area--which would be the same dissolving--Brazil is out of bound for free traders.

The main obstacle to change on both these fronts is that Brazil is doing really well right now, pursuing these kinds of policies. Poverty and inequality down, domestic demand up, GDP up, inflation down, FDI piling in in spite of the obstacles and Brazilian companies expanding out into the world. Why change what works to please Canada? Substance was thus missing, and the aggreements on tourism,  science and tech, fig leaves all, work well only because there is no much to hide.

Obviously, with an economy just this side of $2tn, crumbs can be huge and Harper's visit, along with the bilateral business council that he announced, may and probably will help Canadian companies pick them up. This is the second point I want to make: what could be done he did. The trip's potential lied on the political side of the ledger, both for bilateral relations and for Canadian foreign policy writ large. Harper was there to pay his respect to the new power on the bloc, essentially acknowledging that Brazil has arrived in the centre of global politics and, implicitly, that Canada, on its way out, recognizes it. The visit itself, particularly Harper's gushing speech in Sao Paulo, did the trick, coming on top of the massive diplomatic effort that spanned the better of the last ten years and that culminated in reciprocal visits of high-level civil servants from both governments in the last year. Brazil and Canada now have a mature relationship, one that recognizes the changed stature of each and that, without denying different and sometimes conflicting interests and views, won't be derailed by trade disputes or by the involvement of some loony expat in kidnappings, as it was before. Dilma Roussef's return visit, hopefully in the coming year, could once and for all turn the page.

Monday, August 8, 2011

Drug legalization? No panacea

The case for drug legalization has always looked tight to me: make it all legal, unclog prisons of people who were either having fun or a health problem, leave the first alone if they don't bother their neighbours or run people over with their car, and get treatment for the others. In the process, take criminal networks out of the equation, avoid gang violence, and use the police for really serious stuff. On top, you get regulated products, avoiding problems of purity and possibly better conditions of consumption as people don't have to hide to do drugs.

Now, if the goal is to reduce human suffering, a new study of Florida by the US Centers for Disease Control suggests that things may not be that simple, even if suffering is defined, in the narrowest possible way, as avoiding death.

The study shows a death rate for prescription drugs of 13.4 per 100,000 people, compared with 3.4 per 100,000 for cocaine and heroin taken together (there was no significant number of marijuana-related death). Now, to put this in perspective, remember that the homicide rate for the US is about 5 per 100k, for Canada 1.6, and for France 1.3. In fact, up and until President Calderon launched his War on Drugs in Mexico, that country's homicide rate was hovering around 10 per 100k.

In other words, legal prescription drugs may be more lethal than illegal ones--even when both trafficking-related and overdoses are considered together.

Fortunately for legalizers, a number of caveats warrant mention: 1) marijuana, the drug most commonly and realistically contemplated for legalization, is not particularly dangerous, and possibly less damaging--though it depends on consumption rates--than alcohol or cigarettes; 2) the study only regards Florida and some factor may make things worse there (the study mentions that similar trends were found in Kentucky though and a Toronto Star investigation sees a similar explosion of oxycontin-related deaths in Ontario...); 3) during the period covered by the study (2003-2009), prescription drug deaths had increased by 84%, from 7.3 to 13.4 per 100k, i.e. current rates do not reflect some kind of stable status quo; and 4) much of the increase is driven by three drugs: oxycodone (+264% during that period), alprazolam (+ 233.8%) and benzodiazepines (+ 168%), which implies that measures specifically targeting this trio could have a large impact on the overall death rate for prescription drugs.

The case against legalization is not closed, in other words, but there is still much to mull about.

[Thanks to Freakonomics for the tip on the study...]

Tuesday, August 2, 2011

Why Latin America's Pacific bloc should worry Brazil

Last week-end, Colombian president Juan Manuel Santos was visiting Felipe Calderon, his Mexican counterpart. The meeting was explicitly linked by the leaders to the "Deep Integration Agreement" with Peru and Chile that was launched last April through the "Lima Declaration." Progress along those lines has to be worrying for Brazil, because if it gains any traction, the resulting bloc of fast growing and relatively large economies would represent a real alternative to Mercosur, with open economies and healthy relations with the United States, unlike poor, troubled and increasingly isolated Alba.

Checking a few numbers is a bit shocking in fact: both the total GDP of the Pacific bloc and its average GDP per capita (ppp) are slightly larger than Brazil's and so is the population of the bloc. Even its military budget is comparable, if slightly lower.

As I have noted earlier, Peru under Humala is a bit iffy and seems to be very keen on better relations with its big amazon neighbour. Moreover, Brazil "has" Mercosur, and once that bloc--essentially Argentina--is brought into the equation, things look much better.

Now, in 2011 Mercosur is "celebrating" 20 years of existence, but nobody seems to be particularly keen on celebrating. Those 20 years have seen trade grow, but since the mid-1990s, even trade within the bloc is down in relative terms. As to regional value chains, the real nuts and bolts of integration today, they are still a dream. Argentina and Uruguay are patching up their paper-mill war, and nobody seems to be particularly keen on deepening the relationship and moving towards coordinated policy. Many in Brazil, consider in fact that Mercosur is an obstacle to an effective trade policy, and things will get worse once Venezuela is finally admitted--Paraguay's senate at some point will have to yield.

What is left is UNASUR which, very cleverly for Brazil--and Venezuela-- excludes Mexico and guarantees Brazil's prominence. But UNASUR is not Brazil's thing. In fact, the secretary-general of the Union, Colombia's María Emma Mejía, has declared, not a bit mischievously, that Brazil cannot become a power without support from the region.  

Add to this the negative perception of Brazil among its neighbours, documented recently by the Fernando Henrique Cardoso Foundation, and you get a sense that Brazil's South America project, launched in 2000 by Cardoso, but aggressively pursued under Lula, could well be unraveling.

Tuesday, July 26, 2011

Brazil and the dis-integration of Latin America

A noisy regionalist rhetoric dominates Brazil's foreign policy discourse: Brazil is a regional leader, Brazil's foreign policy priority is Latin America, Mercosur remains a central tenet of its foreign policy, etc. etc.

The Mercosur part of this argument has been damaged in recent years by repeated and never-ending disputes, leading prominent commentators like Marcos Janks to call the customs union "a suitcase without a handle," and PSDB presidential candidate Jose Serra a "joke" and a "hurdle" for Brazil. The rest of the equation, however, is largely taken for granted in discussions of Brazilian foreign policy.

Rubens Barbosa, a very prominent retired diplomat and former Brazilian ambassador to London, basically sinks the rest of the argument by pointing out that Brazil's share of foreign investments in the region has fallen from 5.9% in 2006 to 1.7% in 2010. Now, reflect on those numbers: Brazil is currently the world's seventh largest economy, with about 6% of global GDP and Latin America is "its" region. Yet, it basically does not figure among investors into it, leaving the place to "foreigners" like the US, Canada, and EU--particularly Spain--and, increasingly, China. Trade numbers tell the same story: while "up" in absolute terms, the region's share of Brazil's total exports and imports has been declining in recent years.

People have been wondering for a while why Brazil's many regional endeavors had been so devoid of structure, why the Rio Group, UNASUR and especially Mercosur had never really evolved significant institutional capabilities. Obviously, Brazil was not alone in all those, and most Latin American countries are reluctant to tie themselves into a constraining framework with so big a partner as Brazil. But, as Germany and to a lesser extent France have shown with Europe, asymmetry can be compensated in many ways, through institutions that constrain the big fish or through compensation funds. Yet Brazil has never seriously tried those.

The reason looks straighforward: there is simply not enough at stake in the region for Brazil to invest significant amounts of political and economic capital in building serious regional institutions. With so few real ties to the region, political leaders are at a loss to sell serious engagement to the broader public or even the national Congress. Without surprise, they thus fall back to making the right noises in ever multiplying summits and meetings, none of which contributes much to the institutionalization of regional affairs. It is the new inflation: ever-growing mountains of paper on ever-shrinking substance.

The investment numbers reinforce the impression that Latin America is dis-integrating. In the global division of labour, most countries of the region are becoming--again--exporters of primary goods, either minerals, energy or agricultural products, and importers of industrialized ones. Asia, and China in particular, is already the main destination of primary goods and the main source of industrial ones, while Latin neighbours appear increasingly like competitors on global markets. The structural basis of integration is breaking down.

One can argue about how good or bad these developments are, but it is becoming harder to deny that such a breakdown is taking place, however frequent regional summits may be and however thick the Latin solidarity rhetoric that accompany them.

Friday, July 22, 2011

Killing drug lords: What it does do, and what it doesn't

Decapitation is popular among War on Drugs advocates. You cut the head, and perhaps the neck or even part of a shoulder while you are at it, and the "cartel" is done with as a national security threat.

Former Drug Enforcement Administration Administrator Robert Bonner has argued in Foreign Affairs that this was a key lesson Mexico has to learn from Colombia's success: "Removing the kingpin and his potential successors is the death knell for such organizations." It is quite clear that Mexico has taken note.

Now, note the proviso Bonner introduces in his analysis: "In Colombia, the objective was to dismantle and destroy the Cali and Medellín cartels--not to prevent drugs from being smuggled into the United States or to end their consumption. Indeed, there are still drug traffickers in Colombia, and cocaine is still produced there, but compared with the old cartels, the trafficking groups there today are smaller, more fragmented, and far less powerful--and, most important, they no longer pose a threat to Colombian national security. From a law enforcement perspective, the problem in Colombia today is manageable. The United States must accept that the goal in Mexico is similar: the destruction of the large Mexican cartels, nothing more and nothing less."

Here is the key: national security is the goal, NOT drug trafficking or even public security. This is also how Columbian President Santos put it when he visited Mexico in August: a matter of national security, that has been essentially dealt with as the country now only confronts "minicartels." Violence remains a problem, however, as Colombia's "manageable" public security problem today means 32 murders per 100,000 people, vs Mexico's 18. As I pointed out recently, Eduardo Guerrero Gutierrez has shown how the fragmentation of drug trafficking organizations is in fact a major driver of violence. As to drug trafficking, a recent analysis from the US Customs and Border Protection shows that the killing of drug lords has no bearing whatsoever on the amount of drugs that crosses the border.

So, once again, the beauty of decapitation is in the eye of the beholder and depends on what she wants: national security for the US, public security in Latin America, or effective decrease in drug smuggling. And the problem is: you have to choose.

Thursday, July 21, 2011

Crunch time for the OAS?

On July 20, the House Foreign Affairs Committee has voted to suspend the United States' contribution to the OAS, with Republican members accusing the organization of being anti-US, supporting Hugo Chavez and the Castros' Cuba. If that decision holds, the OAS would lose $44.2 million--or more than half of its $85.3 million budget--and its very existence would be at stake.

Now, if the OAS were to disappear, what would be lost?

The first answer that comes to my mind is "little." After all, $85 million is not much money and the OAS has never been known for its efficient use of resources. With the re-democratization of the region, other mechanisms of cooperation have emerged that have played prominent roles in the international management of inter-state and domestic political tensions in the region, particularly in South America. Moreover, once you consider Canada's $10 million grant, the fact that the other members paid on average about $900,000 shows how little they care about the OAS and how much it was seen as a US "thing" for which the US was by implication expected to pay.

There are counter-arguments. The OAS has been an important player in crisis management and electoral observations. With the adoption in 2001 of the Inter-America Democratic Charter, moreover, it has become a symbolic bulwark of democracy. More subtly, its very existence has provided a readily-available forum where the countries of the hemisphere could quickly engage in broad-based multilateral discussions of common problems. Finally, it embodies the hemispheric idea, anchoring a regional identity that is distinct from the rest of the world.

The problem with all those arguments, however, is that without exception, they have been breaking down in recent years. What the OAS provided in terms of diplomatic mediation and electoral oversight, ad-hoc groups of countries from the region and beyond can just as easily supply. Moreover, those diplomatic "services" were increasingly confined to Central America and the Caribbean, as the big South American countries, Brazil in particular, were strongly opposed to OAS' presence in "their" part of the hemisphere. Finally, the OAS' inability to effectively reverse the 2009 coup in tiny Honduras and its unwillingness to confront the deteriorating political situation in Venezuela have severely damaged the credibility of the Charter and by implication of the OAS as a bulwark of democracy in the region.

The issues of an hemispheric forum and of some kind of shared continental identity are closely linked: without a sense of "togetherness," there is little point in maintaining a permanent space for joint discussions. Along with many recent developments in the region, what this new crisis reveals is the breakdown of any such sense of a shared identity. The main reason is relatively simple: the continent that was embodied in the OAS was anchored in Washington and that continent does not exist anymore.

Since the end of the Cold War, the US has been disengaging from Latin America and the Caribbean. The region's has declined in importance as a destination for its investments, as a trade partner and as a security preoccupation. There lies the much-criticized US indifference to the region since Ronald Reagan's, with Obama's only the last. Close relationships and interests obviously do exist, but they are bilateral and sectoral.

This process has been mirrored in the region, with links to the US weakening drastically. Even Mexico has now announced that its trade dependence on the American market was now coming down. South America has long "graduated" from US dependence with Hugo Chavez' obsession with US imperialism sounding increasingly anachronic. The US matters, but along Europe and especially China.

Without the US, what is left? Well, a number of overlapping blocs and regions, whose joint issues are properly addressed in a number of overlapping institutions and forum, which is largelly why such arrangements have multiplied in recent years. What is more, these blocs and regions do not share a common agenda: what happens in Central America does not have much bearing on South America. And while say, drug wars in Colombia and Mexico may affect Central America and the Caribbean, they also impact West Africa and through it, Europe. The War on Drugs is thus a transcontinental issue that calls for a transcontinental forum.

Brazil, with all its talks of South American integration but all its diplomatic efforts in the US, Europe, Africa, the Middle East and Asia, is at the vanguard of this process of de-continentalization. Mexico, Colombia and Chile, looking intently towards China, are there too. From these countries' standpoint, a US-centred organization for a supposedly shared region is simply meaningless.

Now, to go back to the OAS, the amounts involved are so tiny that the organization could easily be bailed out. Expect many in Canada, with their dream of a neighbourhood where the country is not alone with the Big Guy next door, to call for a rescue. They will no doubt be joined by the well-meaning Americans who still see their country as a kind of uncle to the region and who lament its new "isolationism." The governments of Central American and Caribbean countries, who dominate the OAS assembly and get many of the plush jobs it provides, will join the chorus. In the end, they will probably win and a marvelous occasion will have been lost to have international institutional arrangements reflect a bit better the underlying economic, political and strategic realities of the world.

Monday, July 11, 2011

Latin America's other bloc

The background is the quiet confrontation that saw, on one side, Brazil support Christine Lagarde against Mexico's Agustin Castens for the top job at the IMF, and on the other Mexico's refusing to support the ultimately successful candidacy of Brazil's José Graziano da Silva for the FAO's directorship.

The foreground is Chile's Sebastián Piñera's two-day visit to Mexico, during which various agreements were signed and above all where the two announced they would collaborate on relations with Asia.

Like much diplomacy, especially Presidential diplomacy in Latin America, declarations are one thing, action something else altogether. In the current context, the noises from Mexico, however, have a deeper meaning. They point to the consolidation of a liberal/Pacific bloc in Latin America, made up of Mexico, Colombia, Peru, and Chile. This bloc has close links--trade, political and even military--with the US, and it looks frankly at Asia, mostly--though this is less true of Mexico--without much apprehension.

From Brazil's standpoint, this is bad, bad, bad, mostly because it challenges five basic tenets of its current foreign policy: 1) it keeps the US, albeit indirectly, very much in South America's picture and 2) it brings Mexico into it, both of which play against Brazil's attempt to carve South America out for itself; 3) it pointedly asserts that one can play a liberal card and win, which is very much at odds with Brazil's outlook; 4) it suggests that one should accept and capitalize on a global division of labour in which Latin America is a provider of natural resources and agricultural products, something that Brazil still refuses to do, in spite of the desindustrialization that has taken place in the country since the 1990s; and 5) it sinks the idea that Brazil could represent a unified region in global institutions.

Obviously, the news is worse for Chavez' Alba, which is even more deeply caught up in backward rhetoric, schizophrenic foreign policy--where deep and un-diversified dependence primary good exports is mixed with attempts at autonomous action-- and anti-US outlook, when the US is simply not a dominant force in the region any more.

Now, Humalla may change the game a bit if he clearly aligns Peru with Brazil, but if he is anywhere as pragmatic as his campaign has suggested, he will play along and join Andean countries' movement away from Brazil and its Atlantic dependencies.

Tuesday, July 5, 2011

Blindness: Christine Lagarde, the IMF and emerging powers

There is an intriguing piece in today's New Republic that asks "Why is the IMF Chief Almost Always French?"

The question is certainly warranted: since the Bretton Woods meetings in 1994, where France was not represented, five of its twelve managing directors have been French. The answers, from Harvard's Dani Rodrik and Jeffrey Frankel, and the Center for Global Development's Arvind Subrramanian, are also sensible: within the framework of the informal agreement according to which the World Bank would go to an American and the IMF to a European, given that the a Brit can never really be seen--including by many Brits--as a full-fledged European, and thanks to France's elite Public Sector prep-schools--les Grandes Ecoles-- the French have won "on merit" most times. Their fanatical attachment to these positions, the relative proximity of World War II still plaguing the Germans, their lack of seriousness the Italians, and the small size of their economies everybody else, round up the field of explanations.

All bland stuff. The interesting part is the paper's blindness to the absurdity of the arrangement given Europe's and France's quickly declining global status. With Asian economies building up reserves that dwarf the IMF's, Latin American countries now net creditors on global financial markets, and both Brazil and Mexico, along with China, Russia and India among the top 12 economies in the world, the powers that be at the IMF will have to choose between keeping the French in the driver's seat of a vintage gaz-guzzler, or getting a "Southerner" to drive a high-tech "zero-emission" speedster that will really get the world through the traffic.

Much more perceptive views can be gleaned from a different piece by Subramanian, who points out that the voting was rigged by rules that give European countries an overwhelming plurality of votes and that will have to change if the Fund wants to keep any degree of legitimacy. He also adds that Lagarde's election reflects the lack of unity of BRICS countries. A related point is taken up by Peter Hakim and Carlos Acosta Córdoba, who ask why Brazil did not support Mexico's candidate, and find an answer in Brazilians'--ultimately successful--brinkmanship to get the top job at the FAO, an endeavour that was not supported by Mexico.

Divisions among the BRICS and the big Latins come as no surprise: their interests are, to say the least, heterogeneous. For Western policy-makers and analysts to take for granted that no compromise can be reached among them, however, borders on schizophrenia.

Tuesday, June 28, 2011

A measured take on the War on Drugs

Jimmy Carter has now added his bit to the clamor against the War on Drugs: bad idea, through and through, a cause of violence, not a solution, etc., etc.. He is joining another bunch of ex-Presidents, this time from Latin America, who along with a few private sector big shots are now calling for social and health measures, decriminalization and a more narrow focus on transnational networks and organized crime instead of small-time traffickers.

This line is almost as old as the War on Drugs itself, which Richard Nixon launched in the 1970s. There is much to commend it and, for what it is worth, I agree with most of it, feeling in fact that decriminalization does not go far enough. This is not the point of this post, however.

I am more interested in understanding the War on Drugs, its prospects, and its impact on Latin America. From that angle, Carter's contribution, like most of the critics', does not help at all because they see it as one big integrated entreprise.

It is more useful to look at the War on Drugs through three distinct lenses: drug consumption as a health issue (or, for security buffs, as a "human security" problem), drug violence as a public security challenge, and drug trafficking organizations (DTOs) as national security threats. If you then distinguish between North and Latin America and the Caribbean, you get six cells in which to give a mark of pass or fail. Doing so honestly, I would argue, should make you realize that the whole endeavour may not be as disastrous as it looks.

Let's start with North America: 1) Compared to the 1970s, drug consumption at first came down and then plateaued for about two decades, so on this one we are talking about a marginal pass or a marginal fail; 2) Drug violence as a public security challenge has been declining regularly throughout the United States and remains very low all over Canada. Cost has been high, but it is a bit difficult to argue that the effort has come to nought when homicide rates continue to decline year after year in the face of roughly stable levels of drug consumption; 3) The problem of drug trafficking organizations as national security threats was serious for a while in Colombia--South America's second-most populous country--when the FARC guerrilla, quite a significant military force, started to draw on drug revenues to sustain its activities. However, a policy of decapitation of the local DTOs and a massive military effort against the FARC have led to the destruction of the threat from the US' standpoint. A similar policy is being implemented with US support by the Calderon government and it is perfectly plausible to argue that soon enough, the possibility that Mexican DTOs could represent a national security threat to the United States, and even to Mexico, will vanish for good. Beyond Mexico, DTOs are unlikely to gain a degree of political influence in any major country of the region, except perhaps in Venezuela, although things are far from played out there. So, at least for now, we have an easy pass here. In other words, from a North-American standpoint and considering our three dimensions, the War on Drugs has been an expensive but largely successful endeavour...

The picture is less rosy in the rest of the hemisphere:. 1) Drug consumption is rising almost everywhere, although the levels remain much lower in most countries than in North America and Europe: fail. 2) Drug violence is a major challenge and in many places a growing public security threat: Colombia still has a murder rate that is higher than Mexico's and among the highest in the world; Brazil has seen homicide rates decline in the Sao Paulo and Rio area, but explode in the North and Northeast of the country. Meanwhile, Venezuela, the Caribbean and Central America's northern triangle (El Salvador, Guatemala and Honduras) now rank among the most violent countries on the planet: fail again. Finally, 3) DTOs have respectively been eliminated and are in the process of being weakened as national security threats in Colombia and Mexico but the story is very different in the British Caribbean and in Central America, where the prospects of narco-states are real. All in all, the region fails again.

The picture drawn above, in sum, looks very different from the one we usually see, most recently in Carter's op-ed: the War on drugs has been quite effective at containing drug violence and at eliminating national security threats to the United States; for Latin America, it has been relatively successful in Colombia and Mexico, though strictly from a national security standpoint, and a disaster from a public and human security perspectives. Everywhere else, it has been disastrous however you look at it. This more measured picture helps one make sense of a number of apparent paradox: 1) how the US has been able to mobilize for so long huge amounts of money and why many of the people involved, in the US, in Colombia and now in Mexico, continue to claim that the strategy is the right one and that is it working; 2) why the US, now that the national security threat is receding, is cutting by half its overall military and police assistance to the region, particularly to Colombia and Mexico; and 3) why most of the action now appears to be moving to Central America, where the World Bank is investing $1.2 billion dollars, and the US $300 million.

The really twisted implication of the success of the War from a national security standpoint is that as an option, it will remain part of the US policy repertoire, in spite of its massive negative implications for Latin American countries: the Americans will soon cut their financial support for Mexico's war effort, as they are doing for Colombia, and leave local governments to deal with the public and human security consequences of the strategy. In addition, as Eduardo Guerrero Gutiérrez recently suggested, a similar process is taking place within Mexico, where the federal government, having decapitated the large cartels that threaten national security, will now leave the public security problem, i.e. the management of the fragmented and possibly more violent remaining organizations, to states and municipalities, whose capacity to deal with them is limited.

In other words: the War on Drugs has been mostly bad, but too good for the US and not bad enough for Colombia and Mexico, to be doomed. Bet on it to survive the current onslaught.

Thursday, June 23, 2011

In context: Canada and drug violence in Central America

Big news from the Department of Foreign Affairs: Canada is getting serious about drug-related violence in Central America: "The Honourable Diane Ablonczy, Minister of State of Foreign Affairs (Americas and Consular Affairs), today announced that the Government of Canada is contributing over $5.2 million to help address security challenges and implement institutional reforms in Central America."

Looks good, no?

Well, let's get a bit of context here, from the very same conference in Guatemala where Ablonczy has made the announcement:

The World Bank pledged... U$1billion, in addition to the $200 million it is already providing. The US meanwhile, is increasing its support from U$ 260 million to 300 million.

In other words, parse things as you wish, Canada's involvement is window dressing, which, as I have argued recently, is perfectly understandable.

Wednesday, June 22, 2011

Thinking clearly about Canada and drug violence in Mexico

From the Globe and Mail to Policy Options, the cheerleaders for Latin America are out again: Canada must do something about drug violence in Mexico, we have strong interests in that country, and we can make a difference. On all three counts, the cheerleaders are wrong.

The basic problem was and continues to be that Canada does not have much at stake in Mexico, and consequently lacks the political drive to engage it sustainably on a significant scale. A big fuss is being made over Canadian investments and the 2500 Canadian companies that have operations in Mexico. A stop at Statscan's website tells another story: in 2010, investments in Mexico represented 0.74% of the total stock of Canadian investments abroad. Leaving the US out of the figures doesn't help much: Mexico reaches barely 2.5% of this much smaller total, 32% less than in 2000. On average, our vaunted 2500 companies have assets of less than $2 million each: take out Scotia Bank, Bombardier and a few other big players and you realize that most of those companies are tiny outfits with very small operations on the ground.

Wait, wait, sing the cheerleaders, investments may be low, but trade is high: Mexico is now our third largest trade partner! Which is true: at 3.5% of total trade (1.3% of exports, 5.5% of imports), Mexico indeed ranks third in our amazingly undiversified trade matrix. Yet, what matters for the domestic politics of foreign releations are absolute numbers, and not many jobs, careers or pensions depend on what happens down there.

Well, we are now told, trade and investments are only parts of the picture and probably not the most important ones: what truly matters are those Mexican drug "cartels" who are waging a war in Mexico, gaining ground on US drug markets, and whose reach is felt "in the streets of Vancouver" and soon, no doubt, in Chicoutimi. Let's carefully assess this one.

A horrible war is indeed being fought in Mexico, one that has claimed more than 30,000 lives since President Calderon took power in 2006. It is also true that Mexican "cartels" have a very significant presence on US drug markets and that, given their hold on hemispheric drug routes, they probably play a role somewhere along the chain that takes drugs from the Andes to our streets, and they may eventually become major players in the bulk or detail market here.

Before concluding that this calls for Canadian involvement in Mexico's war, four questions need to be addressed: 1) Is trafficking per se the cause of Mexico's drug violence? 2) Does violence follow drugs? 3) Are Mexican "cartels" more violent than the organizations that currently control these activities? And 4) Can we do something about it? The answers are no, no, no, and not much, and the conclusion is that the war in Mexico is not Canada's business. Let's take these issues one by one.

One: trafficking and Mexico's violence. Before Calderon launched his offensive in 2006 and especially after 2008, violence had been declining for more than a decade. Up to 2008 Mexico had been making slow but regular progress on a number of fronts: GDP per capita and the human development index were up, democracy was slowly consolidating, and corruption—as assessed by Transparency International—was diminishing albeit even more slowly. With global drug prices down and consumption relatively stable, the relative value of the drug trade in the Mexican economy was diminishing. The country, in spite of a serious problem with organized crime, was slowly evolving towards a kind of middle class society, with significant but not overwhelming problems. It is quite likely that it was the Mexican government's new war on drugs that changed all this for the worse. Before 2008 the drug traffickers seemed quite happy to put their money in the banks instead of fighting over turf.

Second: drugs and violence. Neither drug production nor trafficking or consumption are directly connected to violence. Bolivia and Peru, where cocaine production is up, are not particularly violent. In Mexico in the 1990s and early 2000s, as local cartels were establishing their dominance over the hemispheric drug trade, levels of violence were diminishing. The largest per capita drug consuming countries in the world are in North America and Western Europe, both regions where, by global standards, levels of violence are respectively low and ridiculously low. Even more telling, while the Mexican cities that lie on the border with the US now rank among the most violent in the world, their US "sisters," just across the border, are among the safest in the United States. As drugs move across the border, and most of what is sent does, it stops killing! Clearly, what matters is the management of the drug trade, not the drug trade per se. And the war on drugs looks increasingly like the worst way to manage it.

Third: the terrible Mexican drug lords. The quickly growing presence of Mexican cartels on US soil shows that they make their sums: using violence would doom them in that environment and they know it, hence the calm at the border and in most areas that they are "invading." As for Canada, there is no reason whatsoever to think that Mexican cartels would be more violent than our native biker gangs or ethnic mafias. Finally, and sensational press reports notwithstanding, Vancoucer remains one of the safest global cities on the planet.

Four, "Our time to lead?" The scope of the problem in Mexico is staggering. The country has three times Canada's population, 2500 police forces, and one of the most complex and unwieldy political system in the whole world. Greater Mexico City, whose population is about 25 million people, has three relevant governments, each with their own police forces. In 2010, public security spending in Mexico was about $16bn, with $2.5bn for policing along. Meanwhile in Canada, Mexico is too rich to qualify for CIDA funds, National Defense is about to engage in deep cuts, and the largest envelope at Foreign Affairs for the kind of activities contemplated by the cheerleaders is the Stabilization and Reconstruction Task Force's $75 million fund, an envelope, that also finances a whole range of acitivities in "fragile and failing states," among others Afghanistan and Haiti.

Does all this mean that Canada should do nothing or that our help, with training and institutional reform, for instance in the judiciary, is doomed to be irrelevant? Not necessarily, though we need to be careful, especially with training, which is quickly becoming Canada's trademark contribution to international quagmires, from Afghanistan to Haiti, Central America, and now Mexico. Leaving aside the unfathomable naivete of the idea that those situations are technical matters that can be settled through some kind of capacity-building (who trains the Taliban?), Afghanistan should have taught us that it can backfire: Jorge Chabat, one of Mexico's foremost expert on drug violence, points out that the only thing worse than a corrupt and violent policeman is a well-trained and well-equipped corrupt and violent policeman...

The keys to any initiative has to be modesty and sustainability: the thinness of Canada's interests in Mexico implies that resources will be sparse and domestic constituencies, both within and outside government, small and narrow. What effort is made should be small enough to be easy to sustain over time. Working with local partners not engaged in confrontational policies is possibly most promising. Judicial reform is in Mexico to stay, as is police reform, and Canada can help those that are engaged in this process. A better understanding, through local research, of the specific linkages between policing and violence on the ground could help to better manage drug trafficking. Working in one city for a long period may be most helpful. In the end, however, what appetite and money there is here for fighting drug violence may find better use and have a bigger impact in Central America and especially the Caribbean. On this file, as with any policy towards the Americas, we need above all to avoid facile and poorly informed frenzies.

Saturday, March 19, 2011

Security Council: A "payback" vote from those kept out?

So non-permanent members Brazil, India and Germany abstained and refused to go along with Britain, France and the US in the Security Council's vote on military action in Lybia. How interesting that these three countries, along with Japan, are the leading candidates to permanent seats in the Council itself...

This sounds a lot like "We won't make trouble this time, but we could in the future," and it fits with Brazil's messy involvement in the debate about sanctions against Iran's nuclear program: global governance is becoming ever more tricky, not so much for lack of means, but for lack of legitimacy at the top. And take legitimacy, as Jacques Ellul does, in its narrowest and most cynical acception here, not in any normative way: a legitimate power is one that can command support, for any reason.

Monday, March 14, 2011

Brazil's security policy today

What follows are notes that I have prepared for a discussion of Brazil's security policy organized by a Canadian government agency. It addresses in turn three questions: What are Brazil's regional and sub-regional security interests? What are Brazil's strategic interests in the Amazon region and what challenges and threats does it perceive there? What are the drives of Brazil's nuclear program and what are the implications for regional security?

1- Brazil's regional and sub-regional security interests

Brazil has two broad regional security preoccupations: the first is the risk that political instability and violent criminal activities in neighboring countries could affect its domestic economic, political and social dynamics; and the second the threats to regional stability stemming from tensions between some of its neighbours and the development of significant military capabilities by most of them.

Brazil shares borders with ten countries, several of which are plagued by political tensions and significant levels of violence, primarily but not exclusively drug related. Most problem countries lie in the Amazon basin: Colombia's civil war is under control but not over, and while drug violence has declined precipitously in recent years, its levels remain among the highest in South America. Venezuela is mired in a deepening economic, social and political crisis, and, along with its growing importance as a drug export platform, its homicide rate is now the highest in the region. Peru is riding the wave of higher prices for its mineral exports, but its political system remains fragile. Drug production is increasing again in regions that are poorly controlled by the government and where the Sendero Luminoso appears to be waging a come back. Bolivia is periodically shaken by large-scale social mobilizations, its political system remains unstable and coca cultivation and cocaine production appear to be increasing. Paraguay, finally, remains fragile politically, with high levels of corruption including in the police and the army.

While drug violence is slowly being brought down in the Southeast (SP and Rio), it is increasing in the rest of the country, particularly in the Northeast. Uncontrolled production and trafficking, and poor control of their hinterland by neighbouring states confronts Brazil with significant challenges. These problems complicate law enforcement and effective containment of drug violence in the country, and they threaten the level of order and stability that would optimize investments in resource extraction and avoid the establishment of the kidnapping, extortion and protection rackets that thrive in a law and order vacuum and that have plagued Colombia in particular.

In addition, many of Brazil's neighbours have complicated bilateral relationships. Colombia's relations with Ecuador and Venezuela are currently being patched up, but a significant degree of distrust remains and Peru and Bolivia still have territorial claims over Chilean territory. Chile's continuing arms build-up, which has not let up under civilian governments, is a source of preoccupation for its Andean neighbours. All the countries of the region except Argentina, Uruguay and Paraguay, are involved in significant arms procurement, involving major weapons systems, particularly combat aircraft, but also, in the case of Venezuela, submarines and very large amounts of easily-smuggled small arms. Brazil's own military budget dwarfs those of its neighbours, but the quality and sophistication of its major weapons system is not on a par with those of Chile, Venezuela and in some areas, Colombia and even Peru.

These threats are significant but not acute or at least they do not seem to be perceived as such. Indeed, Brazil's defense initiatives, particularly as outlined recently in its new Defense Policy, are clearly meant to address those problems but over a very long time frame. Its combat aircraft acquisition program is only to be completed by 2025, and its submarine fleet by 2043. Significantly however, a key plank of the Defense Policy involves a very significant reinforcement of the system of military outposts on the Amazon border.

In dealing with those problems leadership matters less than size here. While clearly dominant and recognized as such, Brazil cannot claim much effective leadership leadership in the region. Its growing activism in South America, which really started only under Cardoso and became significant under Lula, is strictly diplomatic with Brazil acting as a generally effective and respected honest broker.

Institutional security arrangements in the region are generally weak and most tensions and crises are managed and resolved through presidential diplomacy. Brazil has never really pushed for their institutional consolidation, but one must also acknowledge that such moves would have been resisted by neighbours that do not support and would likely oppose any serious Brazilian assertion of non-cooperative leadership in the region. That being said, the South American Defense Council of UNASUR is developing into an important discussion and confidence-building mechanism. In addition, Brazil has signed bilateral military cooperation with most of its neighbours.

Now, what could be the implications of Dilma Rousseff's elections for Brazi's regional security policy? While the regional strategic picture and Brazil's reading of its vulnerabilities is unlikely to change in the short, medium and even long term, Dilma Rousseff has sent a number of signals that suggest she may significantly alter the way in which they are to be tackled by the government.

Since she formally took power at the beginning of the year, two main things are striking: the first is a clear re-alignment towards the West and particularly the US in international positions, with unambiguous statements about human rights, most significantly in the case of Iran, and recently strong support for the denunciation of the Libyan regime while presiding the UN Security Council, a position that was unpopular with many Arab, African and the leftist South American states around Venezuela's Hugo Chavez. This reorientation may significantly affect Brazil's ability to continue to smooth tensions and conflict within South America as Hugo Chavez, in particular, but also Evo Morales and Rafael Correa, may be much more reluctant to seek and accept Brazil's regional brokerage in the region. This problem may be further aggravated by Dilma Rousseff's likely inability to muster the global popular legitimacy that played an important role in the effectiveness of Lula's diplomacy. The interesting paradox here is that this could well make Brazilian diplomacy less useful to the United States than the policy of the much more critical but also regionally more efficient Lula/Amorim tag team.

The second one are the deep defense cuts recently announced, representing more than 25% of the expenditures budgeted. While much of this may simply flow from the further postponement of Brazil's acquisition of advanced combat aircraft, it also means that most of the country's budget will continue to be devoted to personnel expenditures and pension payments. These cuts, while they fit the new government's commitment to fiscal discipline, nonetheless manifest a significant degree of comfort towards the country's security environment.

2) Brazil's strategic interests in the Amazon

The main locus of the country's security preoccupations is the Amazon, where resource security, risks of crime and political instability contagion, as well as international tensions and arms races are all significant issues.

Brazil's energy mix is the most diversified of any major economies. Now, significant part of its current electricity is produced jointly with Paraguay and most of its proven oil and gas reserves are offshore, mainly on the Rio state Atlantic littoral. However, the country's remaining hydroelectric potential is concentrated in the Amazon where much of its mineral wealth also lies. Moreover, the region is broadly considered one of the richest reservoirs of bio-diversity. The Amazon is huge (5.2m square km, i.e. roughly 60% of Canada's land mass…), it remains for the most part sparsely populated and has a poor communication and transportation infrastructure. Most importantly from a strategic standpoint, it remains poorly explored and its full potential unknown. In other words, one of the most important foundation of the country's current and future economic security—its huge energy and resource base—lies in areas whose effective control and protection is difficult and expensive.

In addition, the status of the Amazon as the foremost green symbol and the global implications of the preservation or destruction of its environmental riches, has turned it into a central plank of Brazil's international relations, particularly with regards to Western countries.

The strategic importance of the Amazon for Brazil and its prominence in the global environmental policy debates has led to the emergence of a strong nationalist discourse around the country's exclusive claim to the management of the region. The threat of "internationalization" of the region, notwithstanding old declarations of Mikhail Gorbatchev and François Mitterrand--when both still mattered--and continuing calls for outside pressure on Brazil from environmental circles, is hardly credible. Nonetheless, it remains a theme of discussion in the press and in nationalist policy circles.

In practice, threats to the region can be subsumed under the broad themes mentioned in section 1 above: penetration by drug trafficking or armed group networks from neighbouring countries, increasing the difficulties for the government to deal with drug trafficking and violence, and creating insecurity and thus lessening the appeal of the region for investments in natural resources extraction.

In that context, it is striking to see that little effort is made by Brazil to tackle regional challenges multilaterally, in spite of the fact that an ad-hoc mechanism, the Amazon Treaty Organization, does exist, having been established at Brazil's initiative in the 1970s. What action there is essentially unilateral, i.e. Amazon policy appears to be seen strictly as a national issue in which nobody else is to be involved.

An important mechanism to deal with threats to the region is the SIVAM/SIPAM initiatives, respectively the Amazon Vigilance and Protection systems. These programs involve an important system of land-based radars and surveillance aircrafts, with a broad mandate that ranges from narrowly military objectives and drug trafficking interdiction to environmental protection. In addition, as mentioned above, the government is committed to more than doubling the number of army bases along the Amazon border and to increasing the number of navy bases along its main rivers.

3- Drivers of Brazil's nuclear program

There is limited credible security rationale, regional or global, for Brazil's nuclear program. That program consists in a currently limited civilian electricity generation capacity, which the government plans to expand in coming years, in installations for nuclear enrichment, and in a project for the construction of several nuclear-powered submarines.

Brazil's nuclear program has four overlapping rationales: energy security including both electricity generation and the protection of its offshore fossil fuel reserves, acquisition of nuclear technology expertise, and symbolic challenges to P5 powers' prominence in global nuclear affairs. Only one of them, energy security, has regional determinants: offshore energy reserves protection may possibly be threatened by Venezuela, which is in the process of acquiring conventional nuclear submarines from Russia.

Brazil has ratified the Tlatelolco treaty banning nuclear weapons from Latin America in 1994, and the Nuclear Nonproliferation and Comprehensive Nuclear-Test-Ban treaties in 1998. Brazil, however, has refused to sign the additional protocol that would enable the IAEA to realize more extensive inspections of the country's nuclear installations. The reason commonly alluded to is the need for Brazil to protect the technology it uses from potential disclosure by international inspectors. In addition, Brazilian politicians including President Lula, have been critical of the NPT, arguing that nuclear powers have not fulfilled their treaty engagement to move towards full nuclear disarmament. There is significant lobby, which includes military officers, civil servants and politicians, both retired and active, that favours the mastery by Brazil of the full nuclear cycle and would like the country to entertain the possibility of developing nuclear weapons.

As mentioned above, essentially self-sufficient in gas, oil and biomass, and with secure sources of hydroelectricity at home and in its immediate vicinity, as well as a huge potential thereof in the Amazon, Brazil has limited needs for civilian nuclear energy. In the broader framework of its claim to regional and global prominence, however, the full mastery of nuclear technology and the resulting ability to build nuclear weapons may be seen as advantageous. The fact remains that both nuclear technology and nuclear weapons production set a small group of nations apart from all others, particularly, from Brazil's standpoint, the permanent members of the Security Council, a small club its diplomacy has been aggressively seeking to join for years. The latter probably also best explains Brazil's dissidence, along with Turkey, in the recent debate about Iran's nuclear program. In addition, it is difficult to deny that the NPT "deal," which denied nuclear weapons to all but a handful of states, in exchange for the latter commitment do disarm, is not being flouted by most nuclear powers. In other words, it is primarily in the framework of Brazil's broad claims to "great powerdom" that its nuclear policy should be understood, not primarily as a security

The regional security implications of Brazil's development of nuclear submarines and especially nuclear weapons would be very significant, no doubt leading to attempts, individual or collective, by various countries to acquire a technology that, as India showed recently when it leased nuclear submarines from Russia, and as Pakistan, India and North Korea have shown, is not at all out of reach. Various Brazilian analysts have pointed to this eventuality and to its negative implications for Brazil's relations with its neighbours.

To sum up: in spite of the fact that its immediate neighbourhood includes a number of countries whose relations with one another is often troubled, whose political systems are fragile, and where political and drug violence abound, Brazil security is not threatened in South America—or in the world, for that matter—and that perception is broadly shared among its political establishment and the electorate. Regional insecurity was not an issue in the last election and it is not part of the every-day political debate in the country. The lack of salience of the security issue explains why Finance Minister Guido Mantega could announce to little outcry that the military budget would be slashed by 26% in 2012.

Brazil's vulnerabilities, however, especially in the Amazon region, cannot be dismissed easily and certainly point to the need for significant investment in the defense infrastructure of the country.

Tuesday, January 11, 2011

Haiti: UNESCO delusions

The UNESCO's Irina Bokova and Michaëlle Jean call on donors to “heed their promises to Haiti.” In an article devoted to education, one of the central tenets of any public policy, no specific mention is made of the Haitian government’s responsibilities or actions in the field. The international community is doing as if there were no government in Haiti. In fact there is one, corrupt, inefficient, and irresponsible, and this is why all the development aid that has poured in the country over the last decades has produced no benefit for Haitians. Haiti’s politics and its rulers are the main problem, not money or training, and doing as if they were not is delusional.