The United States and Brazil - the two largest countries of the
Americas - have a strong mutual interest in building a more
economically integrated and politically cooperative hemisphere.
Brazil is potentially a vital partner for the US. It is not a
rival, competing for leadership among Latin American countries.
Brazil recognizes that the US will remain the dominant power in
the hemisphere for years to come. The US economy is, after all,
more than 10 times larger than that of Brazil. The US is the main
trading partner and source of investment capital for nearly every
Latin American country. Nonetheless, Brazil - with Latin America's
largest economy, land mass, and population - is important and
influential in regional affairs. What happens in Brazil matters a
great deal for the rest of Latin America.
Brazil's significance, moreover, has grown sharply in the past
few years, largely because of its high-quality leadership and the
success of its economic policies. Three years ago, Brazil's annual
inflation exceeded 7,000 percent; today it is less than 10 percent.
Although many trade barriers remain, tariffs on most imports have
been cut deeply. Privatization and infrastructure development are
proceeding, and there has been an explosion of foreign direct
investment to Brazil, expanding from $2 billion in 1993 to $9
billion last year and a projected $15 billion this year. The
Mercosur economic pact, led by Brazil and Argentina, has shown
extraordinary dynamism. On the political front, Brazil is also
demonstrating international leadership. It heads the four-nation
group that brought peace to the Peru-Ecuador frontier, and it
played a key role in stopping a military coup in Paraguay last year.
Brazil still has staggering problems to deal with. Its public
administration is bloated and inefficient; large budget and trade
deficits leave the economy vulnerable; poverty, inequality, and
social injustice are still endemic. Reform comes slowly in Brazil
because it usually requires amending the country's unwieldy
Constitution, which needs the approval of a three-fifths majority
in both houses of Congress. President Fernando Henrique Cardoso's
own authority to shape policy was strengthened recently when he
gained (through a constitutional amendment) the right to stand for
reelection - but, with elections now only 18 months away, the
prospects of any substantial new reform initiatives are diminishing.
While there are no deep conflicts in US-Brazilian relations,
serious differences have emerged, mainly over trade policy. The
development of hemispheric free trade arrangements is one point of
contention. Some US officials believe Brazil is an obstacle to the
building of the Free Trade Area of the Americas (FTAA), as agreed
at the 1994 Miami summit meeting of presidents and prime ministers.
Brazil is seen as trying to slow negotiations, make the FTAA less
comprehensive, and even postpone the accord beyond the agreed-upon
2005 start date.
This view is partly justified, although Brazil's decisions are
driven mostly by domestic political considerations, not by
international economic or political strategy. There is just not
much political support in Brazil for accelerating or deepening
trade liberalization. Opposition comes from many in the business
community (including US-based multinational corporations) who fear
international competition, as well as from labor unions and other
traditional foes of free trade. Indeed, trade politics in Brazil
are remarkably similar to those in the US preventing the passage of
new fast-track legislation. These problems are compounded by large
current account and fiscal deficits and an overvalued currency -
all of which threaten Brazil's anti-inflation efforts and the
credibility of its economic reforms. …