Girish Gupta



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Obama's Trip Through South America Fails to Impress as Brazil Looks to China
Mar. 25, 2011

Published by Minyanville

As warplanes flew over Libya and scientists grappled with a looming nuclear disaster in Japan, President Barack Obama touched down in Brazil this week to begin a five-day trip to Latin America aiming to boost trade, create jobs, and generally bolster the US economy.

The trip comes at a time when many Latin American countries are looking to China, which receives Brazil’s largest share of exports. The visit is not thought to have been a major success by many analysts, who complain that Obama “came, saw [and] said nothing,” according to Jose Pinera, former labor minister and brother of Chilean President Sebastian Pinera.

The President's tour stopped in Brazil, Chile, and El Salvador. Brazil is seen as the highlight of the trip, with growth there hitting 7.5% last year. The country is one of the biggest in the hemisphere and in a good position to buy up US exports, primarily aimed towards the energy and infrastructure sectors. These are likely to see up to $200 billion investments as the country prepares for the 2014 World Cup, the Copa America in 2015, and the Olympics in 2016.

"As the United States looks to Brazil, we see the chance to sell more goods and services to a rapidly-growing market of around 200 million consumers," Obama said. "For us, this is a jobs strategy."

The president held a meeting with President Dilma Rousseff before addressing US and Brazilian business leaders.

There are a number of concerns between the leaders, however. US tariffs on the import of sugar and ethanol from Brazil, US subsidies on cotton, as well as the Latin American giant’s repeated defense of Iran’s nuclear program are sore points that do not appear to have been ironed out. “Mr. Obama's reputation as a protectionist precedes him,” says Mary Anastasia O’Grady in the Wall Street Journal. “If he believes otherwise, our silver-tongued president has a tin ear.”

Brazil failing to become a permanent member of the United Nations Security Council was at the top of many Brazilians' checklists for the trip. A joint statement between the countries’ leaders said only that Obama "expressed appreciation for Brazil's aspiration to become a permanent member of the Security Council." This fell vastly short of Obama’s pronouncements on India in November, when he said that adding that country to the Security Council would elevate India to “its rightful place in the world.”

“For many South Americans, the United States is no longer the only game in town,” reads an editorial in the Economist. It refers to China which has secured at least $65 billion in deals throughout Latin America since 2010. These are expected to translate into at least a million barrels of oil a day for the Chinese, adding to the country’s influence in traditionally US trade regions.

“The Chinese yuan,” says Andrés Cala of Christian Science Monitor, “is contesting US hegemony by funding stadiums and dams and investing billions in strategic sectors.”

Colombia enjoys cordial relations with the US, yet it was China that proposed a $7.6 billion dry canal through the country to compete with the Panama Canal. The Colombian canal would bypass long trips around South America, through the Magellan Straits for large oil tankers, and so cut oil prices (shipping costs specifically) to Asia. It would also allow easy import of Chinese electronics to Latin America.

With visits to the City of God slum -- made famous in the 2002 film of the same name -- Obama’s trip left the media with the pictures and videos it needed to report a warm relationship between Brazil and the US. However, much more needs to be done if US business wants to keep China from winning over Latin America.

New Developments in Brazilian Business

  • With newly found deep-water oil and natural gas reserves -- which the Brazilians are working hard to explore and utilise -- state oil company Petrobras’ (PZECEO Jose Sergio Gabrielli has said that the US must “create the conditions that attach importance to [a] strategic alliance.” "Brazil today is the world's best development frontier for new oil production. With the pre-salt discoveries, Brazil is a country with enormous potential for boosting production over the long term," Gabrielli said.

  • Domestically, the Brazilian government is pushing for a change in management at Vale (VALE), as it attempts to align the interests of the world’s biggest iron ore miner with Brazil as a nation. The company is thought to owe the government $3 billion in royalties, though disputes this claim. More and more iron ore is being exported to China and many ships are built in Asia rather than Brazil, which the government claims is damaging industrial growth.

  • Spanish telecommunications behemoth Telefonica (TEF) this week announced a $14.6 billion, four-year investment plan for Brazilian operations -- more than 50% larger than the previous four years. The company has operated in Brazil since telephone services were privatized there in 1998.

  • Inflation in Brazil is slowing slightly in the month to mid-March with the IPCA inflation index rising just 0.6%, much less than the previous month’s 0.97%. Inflation was at 6.08% for the year through to February.


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© Girish Gupta