Latin America: Impressions of a troubled region

Key Points

• Apart from the controversial recognition of Castro’s dictatorship in Cuba, the Obama administration has largely ignored Latin American relations, indifferent to the economic decline and instability in several countries.
• Washington’s disengagement has allowed China to establish an economic foothold in the region using predatory business practices and exploitive projects.
• It’s not too late for the Obama administration to proactively support free-market exchanges and restore productive relations within the hemisphere.

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Brazilian President Dilma Rousseff’s visit to Washington this week suggests that US President Barack Obama may be prepared to focus more attention on Latin America, which he has virtually ignored aside from his controversial decision to recognize the Castro dictatorship in Cuba.[1] A stable and prosperous Americas is certainly critical to US security and prosperity. However, the Obama administration has failed to defend the country’s interests and promote its values, forfeiting strategic relationships on energy and trade. US reticence regarding authoritarian populism in the region is not a product of lethargy or indifference: it is the product of Obama’s gringo guilt that ascribes all of the region’s ills to US “meddling.”

Washington’s disengagement has contributed to economic decline, insecurity, instability, corruption, weakened democratic institutions, and the systematic violation of human rights. Worse still, the vacuum has been filled by China and chavismo—the authoritarian populism inspired by the late Venezuelan strongman Hugo Chávez. Specifically, predatory loans from China have made it possible for leftist governments to subsist despite unsound policies. Anti-US protagonists have imposed their divisive politics in many countries, while US allies feel abandoned and besieged.

Of course, the economic decline in virtually every country governed by leftist, statist, or authoritarian governments is fresh evidence that socialist formulas are recipes for failure. Opportunities to swing the pendulum back to the center exist, if the United States adopts a proactive policy to support free-market policies and the rule of law.

Brazil: Economic Malaise and Governance Crisis

Brazil, South America’s most populous country and the world’s sixth-largest economy, is suffering from economic malaise and a governance crisis that undermines the region’s prospects. This predicament is the legacy of leaders who relied on costly statist policies and protectionism and refused to retool their economy to make it more competitive and attractive to investment.

Sworn in to a second four-year term just five months ago, Rousseff is confronting the worst economic conditions in decades and a spiraling public corruption scandal involving the state-owned oil company, Petrobras. Even before her narrow victory last October, most Brazilians questioned whether Rousseff’s policies could jump-start economic growth and address the nation’s social and economic challenges. Her unabashed pro-business opponent, Aécio Neves, came within two percentage points of beating her. Since then, her popularity has plummeted; according to a poll taken in March, 62 percent of those interviewed rated Rousseff’s government as “bad” or “terrible,” while only 13 percent considered the government “great” or “good.”[2]

A series of protests this spring in Brazil’s main cities drew millions of people to the streets demanding Rousseff’s impeachment. Although the dissatisfaction appears to be rooted in middle-class anxiety about a flagging economy, the protests intensified after allegations that contractors tied to Petrobras paid $800 million in kickbacks to politicians—the vast majority of whom are from the president’s left-wing Workers’ Party (PT). Unless investigators are able to prove Rousseff’s direct knowledge of the kickback schemes, few experts expect the matter to escalate to her impeachment. Nevertheless, the arrests of the PT’s treasurer and an executive of Odebrecht, one of the country’s most important multinational companies, indicate an aggressive, independent investigation that is challenging the political establishment and powerful economic interests.[3]

Jump-starting economic growth and the productivity of Petrobras will take time and considerable effort. Rousseff appointed a new economic team at the beginning of the year that has proposed new measures to restore economic confidence and growth. In recent weeks, Brazil’s National Congress has begun to adopt elements of an austerity plan that is expected to bring government spending under control.[4] With Brazil’s vast natural resources, a regimen of overdue reforms should eventually get the economy growing again. However, the scandal-ridden politics, a fractious Congress, and the president’s plummeting approval ratings may make it difficult for her new team to get traction in a second term.

It may be too late to repair the relationship with Brazil to the extent that it can have a meaningful impact on bilateral interests; however, Obama can sustain positive momentum from his trip by keeping a channel open to Rousseff. This presidential-level personal diplomacy is needed to work around Brazil’s foreign policy establishment, which sees relations with the United States as a zero-sum game.

Nothing is more important to both countries than a healthy private sector–led dialogue, which can shape a practical agenda for jump-starting reforms to make them more globally competitive through cooperation with one another. Both countries (among others in the region) stand to benefit from an industry dialogue on what it will take to develop more productive energy sectors and attract essential capital and technology.

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Notes

1. Paulo Sotero, “In Trouble at Home, Rousseff Travels to Washington,” Huffington Post, June 23, 2015, http://ift.tt/1SHwSI9.

2. Roger F. Noriega and Felipe Trigos, Can Brazil Overcome Economic Malaise and Scandal? American Enterprise Institute, April 22, 2015, http://ift.tt/1OHniBi.

3. Blake Schmidt and Raymond Colitt, “CEOs from Odebrecht and Andrade Gutierrez Detained in Brazil’s Petrobras Scandal,” Miami Herald, June 19, 2015, http://ift.tt/1C1nDif.

4. Paulo Trevisani, “Brazilian Senate Passes Controversial Fiscal Austerity Bill,” Wall Street Journal, May 26, 2015, http://ift.tt/1C1nFX8.

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