Acknowledging the tectonic shift in U.S.-Brazil relations

For years the hackneyed joke about Brazil was that it was the country of tomorrow and always would be. But almost a decade ago, in the wake of the reforms of the Cardoso administration, and then thanks to the remarkable presidential tenure of Luiz Inacio "Lula" Da Silva and the industry and enterprise of the Brazilian people, the joke was overtaken by events. As investors, CEOs, journalists and most of the world's leading powers have recognized, Brazil has arrived.

While U.S. leaders like Presidents George Bush and Barack Obama have acknowledged the change, many in the U.S. policy community remained holdouts or skeptics. Yes, Brazil was on the rise they said, but they always found a way to qualify their views, to establish one criteria or another that Brazil would have to meet before it was finally seen as a "first-class power." While Asia specialists embraced the rise of China and India and quickly began to remake policy based on changing power relationships, Latin specialists clung to the past, to old formulations and prejudices.

In the eyes of these living museum pieces of Washington's small, inbred Latin American affairs community, Brazil might be the country of tomorrow, it might even be the country of later on today, but we would be sticking with the policies of yesterday until further notice.

Today, the Council on Foreign Relations (CFR) has issued a new task force report on U.S.-Brazil relations that goes a long way toward breaking with the past by recommending the U.S. move toward a new policy stance with regard to Brazil.  The central point of the report is that Brazil must be liberated from the Latin policy barrio and viewed as one of the most important global powers of today and of the century ahead. 

The report, entitled, "Global Brazil and U.S.-Brazil Relations", is the result of more than a year of work by a task force co-chaired by former U.S. Energy Secretary Samuel Bodman and former World Bank President James Wolfensohn and directed by CFR Senior Fellow and Director for Latin America Studies Julia Sweig. I was a member of the task force and the discussions surrounding the development of the reports recommendations were a fascinating microcosm of the all the debates, enthusiasms and frustrations that have marked conversations about U.S.-Brazil relations in recent years.

While it should hardly be seen as revolutionary that a country that is the fifth most populous in the world, encompasses the fifth-largest land mass of any nation, and, at expected rates of growth, will within a few years be home to the fifth-largest economy in the world should be seen not just as a leading regional power but as a vitally important global player, historical habits and old policy frameworks are hard to undo. Yet, this report effectively does so, enumerating the ways that Brazil has come to play a central global role on issues from trade to climate, from energy to shaping global economic policy. 

Yet for all its comprehensiveness and sweep, the one recommendation of the report that is sure to gain the most attention is its welcome recommendation that the Obama administration "now fully endorse" Brazil as a permanent member of the U.N. Security Council. While this step, which goes beyond the formulations of support offered by President Obama on his recent Brazil trip, may be seen as largely symbolic given that such a change in the structure of the Security Council is likely to be years off, it is likely to be deeply resonant in Brazil. The report's rationale explains why, as it notes that "a formal endorsement from the United States for Brazil would go far to overcome lingering suspicion within the Brazilian government that the U.S. commitment to a mature relationship between equals is largely rhetorical."

That's no small thing.  Because U.S. treatment of Brazil -- even during an Obama administration that seems sincerely committed to deepening the relationship -- has stubbornly reflected old notions about what the international role of Brazil should be.  Nowhere was this clearer than reactions to Brazil's initiative with Turkey to help broker a deal to avoid an international confrontation over Iran's nuclear program.  Because Brazil strayed from the U.S. script and acted independently -- even though it had received the explicit endorsement of the White House to go ahead with its plan -- the United States was frustrated and offended by Brazil's action. (Whether or not the actions of Brazil and Turkey were effective or deftly handled is a separate issue that I have addressed in the past. In brief: They weren't. But if making policy errors disqualified countries from developing strong international relationships, the United States and virtually every other country in the world would be isolated and alone.)

Because the United States has never really gotten over the idea that Brazil should take a back seat to U.S. policies, however, it didn't treat the difference over this issue like it does its myriad differences with, say, other BRICs like China, Russia, or India. Rather, it has continuously sought to penalize the Brazilians for their independence, most notably through withholding a full endorsement of Brazil's Security Council aspirations, of the type the United States had already offered to India. This despite the fact that the United States has had many equivalent or greater policy disagreements with the Indians, including one, for example, over India's own nuclear weapons program.

This kind of double standard, one for the emerging powers of Asia (think of the differences and conflicts with China that are regularly overlooked) and one for the emerging power of the Americas, is the source of Brazil's skepticism to date about U.S. sincerity in welcoming its rise. Another source of the resistance to support for recognizing the legitimate claim of Brazil to be acknowledged as one of the handful of most important powers in the world comes from the old Latin policy hands who would argue, as hinted at in a dissent to the task force report, that the United States needed to go to slow with Brazil lest it offend other aspirant regional powers like Mexico or even Chile. Yet there is clearly no reason why these countries could possibly think they should be accorded similar status to Brazil beyond their healthy national pride. Do you think that there was a big debate among Asia-Pacific policy hands about how Indonesia (more populous than Mexico) or Australia (larger economy than Mexico) would feel about supporting India?  Of course, not.  Because powers in Asia are already automatically viewed by U.S. policy specialists as more sophisticated global players than most of those in Latin America.

This report, whose signatories include former Undersecretary of State Nick Burns, former Clinton Latin policy official Nelson Cunningham, former U.S. Ambassador to Brazil Donna Hrinak, and former National Intelligence Council Chair Robert Hutchings, represents the latest rumbling in a tectonic shift with regard to how the United States views the role of emerging powers.  As such, it is a big step forward and it was a privilege to be associated with the effort.

David Rothkopf

The craziest guy in the room at global debt talks is heard from…

On Monday, there was some throat clearing in debt crisis discussions in Washington and in Europe. The theatrics came from the one participant common to both discussions, one who had been omni-present but comparatively quiescent for the past few weeks.

This participant hasn't made headlines in the way that Barack Obama, John Boehner, Jean-Claude Trichet, or Georges Papandreou have recently. In fact, the participant has been virtually silent compared to the loudest, most flamboyant participants in the budget debates, the Eric Cantors and the Silvio Berlusconis. But yesterday, this participant said in its unmistakable, firm, monied accent:

I am here, I have been listening, I have watched your one-step forward, two-steps back, approaches, heard your ideological posturing, listened to your threats and I have one thing to say, none of you powerful men and women are as powerful as I am, none of you will have the last word on this. You will produce the outcome that I want or I will produce an outcome that you dare not contemplate. And I am not a politician. This is not empty rhetoric. I have no constituents to report to but myself. I have a long-term perspective that lets me absorb short-term pain. And, one more thing, I'm the one character that you don't want to tangle with in the fight. Make no mistake about it. I am the craziest guy in the room. I will move so fast, respond with such fury to what you may see as a casual throw-away comment or just another minor delay, that you won't know what hit you. But you will all be gone, out of work, forgotten or worse, remembered badly. Remember, I am the guy who made Herbert Hoover who he is today. And then you will ask yourself, why didn't we listen to him? "

This previously relatively soft-spoken guest didn't have to raise his voice to send this message … but the other participants really did have to listen to hear it. What we all should fear is that some ignored it, were too entranced with the sounds of their own voices to get the message.

The player who spoke out was, of course, the markets. The sharp drop in world stock markets and the spiking of the rates at which countries like Italy could borrow may have come primarily as a result of the concerns that arose late last week about the ability of Italy's political "leaders" to manage that country's debt burdens. But it was a message also to the participants in U.S. debt discussions. It said:

You toy with deadlines at your peril. Today was 150 points. But at some moment between now and August 2 if I see this coming off the tracks, I will speak much more loudly and remind you that I am the biggest narcissist among all of you preening narcissists. I am the market. You think it is about you and your politics and your sound bites and your next tweet. But it is always about me."

The message sent was that the next intervention of this cigar-chomping fat cat to the budget talks may come at any moment and it may feel like a sharp-right to the kisser. It could be 450 points that time. Or it could be 700. And it could say, in no uncertain terms: "Remember that Lehman Brothers moment? That was nothing."

And for all the talk of "Lehman Brothers moments" -- the point in the 2008 crisis in which Washington realized it could dither no longer and had to act -- it sadly seems this one will be necessary to drive home the message that this time around it's different, this time around it's much worse. This not a mere housing crisis -- although there is still one suppurating in the United States and one brewing in Spain and real estate bubbles ready for the popping from China to Brazil. This is not a mere banking crisis -- though the exposure of international banks to serious sovereign debt risks measures in the trillions and yesterday's down day for financial stocks carried a message that the markets are worried about them. It is not a crisis with roots in just country. The U.S., Europe, Japan, China, Brazil, and other major markets are all at risk now, all interconnected. It is not a crisis that comes after a period of expansion but instead it comes after a period of severe weakening in the developed world.

No this time, say this market rumblings if you listen carefully, the price of dithering and delay will be different, the costs incalculably higher, the challenges dramatically more complex and sweeping. The biggest economic disaster of the past 75 years, that of 2008 and 2009, will suddenly seem only to have been a prelude, an overture, a foreshadowing.

It's also not a crisis where the solution is as simple as governments writing a big check to restore market confidence. Because this crisis is not just about saving banks or countries that are "too big to fail" (but seem to be at risk of failing fairly constantly these days). It's also about fiscal mismanagement and the piling up of huge debt burdens. Which means the markets will want two conflicting signals to get out of it. The first will be a sign that the governments are getting serious about fiscal soundness. The second will be that the governments will do something to stop the free-fall that is the looming risk. That means that this time the only way to placate the markets will be coordinated, global intervention that offers both the promise of savings and serious stimulus. Spending and cutting.

You can feel the next intervention coming. It might be at the next breakdown of talks among Eurozone finance ministers. It may be after the next walkout for the cameras in Washington. It may be when a trial deal is floated that seems too small, too short-term, to narrowly conceived. And, because this participant in the talks really is the one with the shortest fuse, it may be because months of pent up anxiety will have no place to go.

But rest assured, if the negotiations lag further or continue to produce unsatisfactory responses or suggest an appetite for nothing but stop-gaps and punting, the message will come … and the this one player will, as always, have the last word.

Yesterday, in Pamplona, they were running with the bulls for a sixth straight day. And the inevitable happened as it has a habit of doing. Two people were impaled on the horns of the beasts thundering through that city's streets. It's a worthwhile lesson to politicians toying with the markets. Run with the bulls and you will get gored. And that's nothing compared with what happens when, to borrow an image from a recent post, you run with the bears.