Photo Jonathan Blair

Saturday, April 20, 2013

Why Venezuela matters for Brazil

Some may have been surprised by the swiftness with which the Brazilian government recognized the victory of Nicolás Maduro in Venezuela. Along with Venezuela’s closest allies, from Cuba and Argentina to Bolivia and Ecuador, Brazil congratulated Maduro Sunday night, even before the chavista-dominated National Electoral Council even declared him president-elect, early Monday morning. Why would Brazil, which has in fact been the target of Venezuela’s claims to regional prominence under Chavez, be so keen to secure the sympathy of his successor?

Ideology played its part, with Lula himself openly rooting for Maduro’s victory and the knee-jerk leftism of the Workers' Party's (PT's) core constituency predictably pushing for the a quick and strong affirmation of solidarity, especially once the United States had expressed reservations.  As Paulo Sotero has pointed out, however, most leaders of Brazil’s ruling Workers’ Party were to say the very least measured in their praise of Chavez and the disputed election provided an opportunity to play out the global “seriousness” that the country’s elites, right and left, so strongly strive for.

Security worries may also have been at play. Brazil shares a long border with Venezuela and the prospects of political instability right over a poorly-controlled frontier area must have worried Brasilia. The extent to which an early recognition could help stabilize the country in the face of strident resistance and the mobilization of the opposition, however, is far from clear. Why then move so quickly?

I think the answer lies deeper than ideology or even security preoccupations and reaches to the very core of the Brazilian government’s economic model, which is still rooted in old and increasingly far-fetched dreams of industrialization. The ten-year-long Golden Age of Lula’s presidency was based on low inflation and the effective redistribution of reasonably high growth. The axis of that growth, however, has lied in growing exports of primary products, primarily agricultural. For twenty years now, Brazil has been quickly de-industrializing. The fast decline of its manufacturing sector has taken place in the face of strenuous efforts of the government, particularly under the PT, to shore up and protect what a half-century of state efforts had produced, until the brief neo-liberal opening of the early 1990s triggered a debacle that China’s rise, and the primary goods bonanza it produced, only deepened. 

Much of Brazil’s industry is not competitive globally. Domestic protection and support for national “champions” have consequently been crucial to its survival, but so has regional integration, particularly Mercosur. Hiding its industries behind a common tariff with even less competitive—and even keener protectionist—Argentina, ensured that a market would be found for Brazilian products. Bringing Venezuela on board was an even better deal: with no industry to speak of, Venezuela brought no competition within the bloc but putting its sizeable market behind the tariff wall broadened the reach of Brazil’s uncompetitive manufactured products.

Deepening economic instability in Argentina is now threatening the whole scheme. Cristina Kirchner’s attempts to protect its own industrial sector by imposing barriers to Brazilian products, along with declining demand in Argentina, is hurting Brazilian manufacturing exports to that country which, to take a recent example, have declined by 10% in the first three months of this year. With mass protests against Kirchner in the streets of Buenos Aires and most of the country’s major cities last week, continuing high inflation and falling confidence, things are not looking up.

In such a context, what export market is left for Brazil’s industrial goods but troubled Venezuela, whose oil revenues “protect” from economic collapse? Mercosur is a raw deal for Venezuelan consumers, who would be much better off importing from the cheapest world producers, but the chavista mix of ideological blindness and economic incompetence is proving to be a boon for Brazil. In that context, quickly recognizing Maduro and keeping a clearer-eyed opposition out of power was a no-brainer.