June 12, 2013
By Fabio Murkawa
Selling commodities to China and manufactured products to Argentina and Venezuela is a “lost bet”, in the opinion of Uruguayan economist Arturo Porzecanski. Such a trade strategy, which the economist attributed to Brazil, is “useless for a country that plans to join the first world,” he said.
With decades of experience on Wall Street, Porzecanski was chief economist for Latin America and responsible for emerging markets at institutions like ABN Amro Bank and ING Bank, among others. He left the market in 2005 to dedicate himself to academic life, and today is the director of the International Relations Program at American University, in Washington.
Porzecanski is in Brazil to discuss, in two events, the country’s trading relations with Argentina. Yesterday, he participated in a roundtable in Sao Paulo promoted by the consulting firms Tendencias and Arko. Tomorrow, in Brasilia, he will go before the Foreign Relations Committee of the House of Deputies, invited by the Brazilian representation in the Mercosur parliament.
In an exclusive interview with Valor PRO, the real-time news service of Valor, Porzecanski said that Brazil will profit more if it abandons the priority it gives to the regional block and seeks bilateral agreements with other countries or regions, like other emerging nations have been doing, along with Europe and the United States. He even said the country needs to cede in the negotiations of the Doha Round, to not leave Brazil’s Robert Azevedo “wandering”, after he was elected WTO secretary-general last month.
Following are segments of the interview:
Valor: You said recently that Brazil is a hostage to Mercosur and characterized as “suicide” the policy adopted by Argentina related to the international economy. What are you suggesting with that?
Arturo Porzecanski: The Mercosur of Argentina and Venezuela is a lost bet. If you look at history, and ask what the benefits of Mercosur were, it becomes clear that it wasn’t only just a waste of time, a diversion of trade and attention, but it was a loss of other opportunities.
Valor: Which opportunities?
Porzecanski: If Brazil had a strategic alliance with Argentina, on the one side, but at the same time had one with China, the U.S., Europe, fine. You could have a useless alliance but at least take advantage of the others. In this case, to stay in this “foundering boat” without negotiating other opportunities for the 21st century is terrible for the people and for Brazilian companies. For example: why does Brazil buy 90% of the cars exported by Argentina? Because no one else will buy them. Mercosur today is before anything else a political alliance with many negative points on the economic side. So, why remain in this unhappy marriage?
Valor: Has Mercosur already failed?
Porzecanski: If failure is measured the way an economist measures one, yes. If it’s a political alliance, who knows if the Planalto understands that it was a big success? I don’t think it was a success on any plane. That attitude of solidarity, unity of the people.. it’s silliness. All of the others are nationalists if it is convenient for their own wallets. If it isn’t, they aren’t. Japan practices an intelligent nationalism, China also, the U.S. … That nationalism (of Mercosur) is not intelligent. I don’t see where the dollars are. And as a (Brazilian) subsidy for the bad policies of the other (members of the block).
Valor: What trade direction do you suggest for Brazil?
Porzecanski: The opportunities are among the remaining 98% of the world. Europe is in recession now, but they’ll bounce back. If Brazil wants to sell commodities to China and manufactured goods to Venezuela and Argentina, if that is the Brazilian development model, ok. But that doesn’t have much of a future. Now, Brazil has a unique chance with the election of Roberto Azevedo at the WTO.
Porzecanski: If Brazil doesn’t change its trade policy to support the success of Azevedo in the round (of trade negotiations, at the end of the year) in Bali (Indonesia), it will be terrible. Why did people vote for Azevedo? Because, as Brazil was always among the ones who blocked Doha Round agreements, they made the bet: “Let’s put a Brazilian there, who knows maybe he can get the Planalto to change Brazilian foreign trade policy.”
Valor: And do you think he could?
Porzecanski: Yes, but it would be a shame to leave Azevedo twisting in the wind. If Brazil doesn’t support a new round, changing policies and attitudes, it will be a shame. They won’t ever put a Brazilian in charge of running anything. Because, if he cannot get the support of his own country, imagine who will vote for a Brazilian in the World Bank, the IMF or any other global governance institution. It’s a unique opportunity.
Valor: Analysts say that the WTO lost its relevance. Was that a determinate reason for the Europeans and the U.S. to allow a Brazilian in charge?
Porzecanski: Just like Brazil, many defend multilateralism, but the difference is that the others do other things that are not multilateral. Europe, the U.S., Asia, all of them are making bilateral agreements, regional ones, while talking about multilateralism. Perhaps Brazil wants to be the only one who preserves its ideological “virginity”, while everyone is prostituting themselves? (laughter)
Valor: You said that last year the commodities boom was a passing thing and that countries should prepare for the “lean cows”. Has the period of the “fat cows” for Latin America come to an end?
Porzecanski: We still have fat cows, but they aren’t fattening up anymore, they are getting thinner. There are countries that took advantage of the boom to save. And others that just increased expenses along with revenues. That is the case with Uruguay, with Brazil. Brazil never zeroed out its fiscal deficit, even in the best of times. So it has no cushion. There are countries that are worse off, like Venezuela and Argentina, which raised spending more than revenues. Now that commodities are falling, they don’t have financing.
Valor: What is Brazil’s cushion?
Porzecanski: Fiscal and monetary policy in recent years was to give the economy stimulus, and it didn’t work. Today the government doesn’t have either fiscal or monetary space, for this it is trapped, raising interest rates, when the economy needs low rates. It’s not a good position to be in. For that, the first alert from the agencies (that classify risk, which are threatening to lower Brazil’s grade) has come that things are getting worse.
Valor: Brazil is living through a dilemma of high inflation with low growth. What is the way out?
Porzecanski: The way out is to make all the structural reforms to lower the Brazil cost, to improve the functioning of the markets and the investment climate. Because society has the money. The government doesn’t have money. But the investment climate is not as good as it could be. It’s a question of efficiency and productivity. And that is how you move into the First World. Why do Germany and Japan produce what they produce? It’s not because they’re cheap. They don’t have the Haitian cost of living, but they have extremely high productivity.