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Brazil's Silva: Cementing BRIC with China

05-15 11:16 Caijing

Brazil's President Luiz Inácio Lula da Silva paused while preparing for a May trip to China to speak with Caijing on deepening Sino-Brazilian relations.

By staff reporter Ye Weiqiang and intern reporter Shao Lige

(Caijing.com.cn) His meteoric rise, from factory worker with little formal education to winner of the biggest landslide presidential election in Brazilian history, is the stuff of legends. President Luiz Inácio Lula da Silva, who was re-elected to a second term in 2002, is currently the only head of state with higher approval ratings than U.S. President Barack Obama. Under his leadership, Brazil has risen from a debt-ridden, inflation-plagued country to become an economic and political powerhouse in Latin America. In recent years Brazil joined the likes of Russia, India and China – now dubbed BRIC economies – as influential, increasingly active global players.

The left-of-center Worker's Party leader fostered economic development in Brazil by balancing free market policies with targeted social spending. Now unemployment is down, foreign exchange reserves are up, and ratings for Brazilian government bonds have been raised to investment grade status. Through extensive welfare programs, Brazil narrowed its infamous income gap by more than any other South American country this decade – a Pareto improvement that helped the poor without hurting the rich.

Building diplomatic strength on economic stability, Silva's government has pursued what many observers consider an independent, flexible and pragmatic foreign policy, not allowing Washington to serve as its spokesmen. Brazil's Ministry of Foreign Affairs has more than doubled the number of its departments, increased staff by more than 50 percent, and opened new embassies in 35 countries and regions.

Brazil's newfound strength during times of global disarray has afforded the country increasing influence in world affairs. Silva has been an outspoken critic of the world's rich countries for undoing the prosperity of the past few decades, dragging down with them developing countries that had only played by the developed world's rules. He has taken staunch anti-protectionist – in particular, anti-G8 protectionist – stances, such as during the recent G20 Summit in London. He has urged the international community to continue the Doha Round of trade talks and commit more to stimulus packages. He may be the first Brazilian leader to lend money to the International Monetary Fund, rather than the other way around. Beyond economic matters, he has made a determined but thus far unsuccessful bid for a permanent seat on the UN Security Council. He's also been a champion of energy conservation while advocating the use of new bio-fuels.

Silva's efforts have paid off, earning him esteem from fellow world leaders and sealing his position as the most influential leader in Latin America.

"Love this guy," Obama said of the bearded Brazilian at the London Summit of world leaders in April. "The most popular politician on Earth. It's because of his good looks."

For all his charisma and achievements, the 62-year-old still has many old and new problems to grapple with at home, from declining industrial output and rising unemployment amid the financial crisis, to an ailing education system and government waste, and to corruption scandals that threatened his presidency. With only two years left in his second and final term, time is running out for Silva to accomplish his goals. And now, building a strategic partnership with China is a crucial component in his lofty game plan for the country.

Silva sat down for an exclusive interview with Caijing Magazine in Brasilia just before traveling to Beijing for scheduled meetings with Chinese leaders in mid-May. It was to be his second trip to the country he regards as a key international partner.

China has similar social and economic needs, as well as a shared interest in gaining influence within multilateral organizations such as the United Nations and World Trade Organization. Even before Silva first visited China in 2004, the two countries voiced mutual opposition to the American invasion of Iraq and worked together to launch the G20 with developing nations as a counterweight to the wealthy G8.

Since then, the relationship has deepened. Just this year, China surpassed the United States to become Brazil's largest trade partner. The Asian and South American economic giants are poised to emerge from the financial crisis relatively unscathed, and ready for larger international roles. He's traveling with an entourage of 180 business leaders, the government's ministers of mines and energy, industry and commerce, agriculture, health, and the space agency, as well as a number of state governors, all of whom have either visited or worked with China.

Silva said he aims to "intensify" relations, both economic and strategic, cementing bonds of trust and cooperation between the world's third and 10th largest economies. Here are his comments to Caijing's questions:

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Caijing: How has the economic crisis brought new meaning to your second trip to China?

Silva: China and Brazil must maintain optimistic and proactive relations. In times like these, we cannot sit back and complain. We have to think big and look at what changes the economy needs. At meetings of the G20 and WTO, we have had many more agreements than disagreements; most of our positions have been held in common. When we bring together Brazil, China, India and Russia -- as well as Mexico and Argentina -- we represent significant weight in political decision-making.

What happened at the London G20 Summit was an important step. Many people did not think we could come out with important decisions, and we did. The first thing in a crisis is for us to recover credibility, especially that of the state and the role of the state in normalizing an economy. That was the first time I've ever been at meetings where rich countries, who in the past knew it all, knew nothing. Today, we can discuss on a more equal footing the important decisions that previously excluded Brazil and China.

Caijing: During the trip, what agreements do you expect to sign?

Silva: First, we are launching satellites and sharing images. We already have an agreement with the Chinese. We launched CBERS-1 and are about to launch CBERS-2 and 3, all of which were built in Brazil.

We hope to sign an agreement between Brazilian financial institutions and China Development Bank. We're working on an agreement for cooperation in trade and civil law, for ports and waterways. We will probably be signing a protocol to fight transnational crime, and possibly another agreement between China Development Bank and Petrobras. We also hope to show the Chinese the current stage of development in Brazil – the current public investment situation in Brazil, the main infrastructure works we are building – to try to sign an agreement between China and Brazil to participate in these infrastructure projects, airports, oil, gas, and so on.

Caijing: What strategic issues will you focus on?

Silva: We will focus on renewable fuels, especially ethanol and bio-diesel. Brazil has the technology; it's already been tested and used for many years. Brazil's energy blend is very diverse and we'd like to share that knowledge with the Chinese. Brazil is the only country in the world where nearly 90 percent of all cars sold are flex-fuel – they can run on gasoline, 100 percent ethanol, or a blend. Now we are working on bio-diesel fuels to replace or be mixed with diesel, and therefore diminish the impact of greenhouse gases.

When I talk about promoting bio-fuels, I know about China's need to produce food. We don't want anyone to be replacing their food production with bio-fuel production. But what we do want is for countries like China to establish partnerships with Brazil and Africa, for us to produce bio-fuels and generate more jobs and income, and at the same time, meet the needs for a new energy blend, which we will all have to adopt. We cannot simply continue taking things out of the planet and not replace them. A clean energy model is an obligation for all of us. If you don't have land to produce but you need energy, you can finance other countries that can produce to meet your market needs. But what we cannot do is to continue to burn diesel, oil, gasoline, coal and firewood, while ignoring the damage we are doing to the planet.

Caijing: What investments does Brazil plan to make in China?

Silva: We already have a lot of investment in China. Brazil has more JVs in China than China has in Brazil. We have major companies like Embraer that are manufacturing things in China. We hope the planes in China's domestic airline market will be produced by Embraer in China. Just to give you an idea, by the end of 2007, Brazil already had 431 JVs operating in China. China had 94 JVs in Brazil. That means we are being more audacious with our investments in China than China has been in Brazil. We need to share on a more equal basis for the two countries to grow together.

Also, Brazil has just discovered major new oil reserves, and we want to build partnerships. We can use this oil as collateral. We hope that in these pre-salt oil wells there will be a lot of gas as well, which we can use to renew our energy supply.

In terms of other investments and other major infrastructure projects, in September we will be going up for bids on a high speed train that will link Sao Paulo and Rio de Janeiro. That will be a major investment, and we will be looking for partners around the world to make the investment. We must be open to discussing complementary projects, that is, how Brazil can help China and China can help Brazil to help our people, grow our economy and allow us to participate more actively in the world community. That's my objective for going to China.

Caijing: Brazil and China have made pledges against trade protectionism. You've already made a significant contribution to push forward world trade talks. How do you evaluate such efforts?

Silva: The Doha Round was not concluded due to a disagreement between the United States and India, which had a lot to do with elections in each country. Now that those two electoral periods are behind us, President Obama personally expressed interest in re-launching Doha. We need to struggle against protectionism because it will only make the economic crisis worse. We need to understand that trade relations are a two-way street. It has to be balanced between the countries. For example, for some time, Brazil has had a big surplus with China. In more recent years, China has had a trade surplus with Brazil. Now once again, Brazil is a little bit of out in front. So we have to be careful, to maintain that balance. China can't run a major deficit with Brazil, nor can Brazil run a major deficit with China. That's why strategic partnerships are important, to maintain the balance.

Caijing: What else can be done to prevent global protectionism?

Silva: Protectionism often depends on sovereign decisions made by independent countries, and we cannot control that. That's why the WTO is important. It's important to strengthen the WTO. That's where we'll achieve balance, both to avoid protectionist practices and to avoid dumping. That's what will make trade more fair and balanced.
One important thing – I want to bring this up with President Hu Jintao – is that between Brazil and China, we need to establish a trade that is paid for in our own currencies. We don't need dollars. Why do two important countries like China and Brazil have to use the dollar as a reference, instead of our own currencies? We've already started doing this with Argentina. Our trade is taking place in our own currencies. Otherwise, we'll be in an absurd situation, where the country that caused this crisis will be the country that gets the most dollars. It's crazy that the dollar is the reference, and that you give a single country the power to print that currency. We need to give greater value to the Chinese and Brazilian currencies. The governors of our two central banks and our ministers of economy need to put their intelligence to work.

Caijing: How do you think both countries can contribute to a global economic recovery?

Silva: I think we're already doing the things we need to. We're investing more in our domestic market. We're trying to strengthen demand in our domestic market with a lot of investments. It's true that the economies of Europe, the United States and Japan, which are the world's biggest consumers, need to recover for us to be able to go back to a normal situation.

When we return to normalcy, the financial system has to play a different role. It has to be linked to production, rather than to speculation as it was before the crisis. That's what caused the crisis. China and Brazil have a great responsibility. That's why we're going to have a meeting of BRIC countries in Russia on June 16. One important thing that President Obama said at the G20 meeting was that 50 years ago, or a little more, it was very easy to make decisions. He said Roosevelt and Churchill would sit down and made decisions for the world. But today, there are more people that want to be in on the party. It's very difficult now to make decisions without listening to the BRIC countries.

Caijing: You've been pushing for emerging markets such as China and Brazil to have stronger voices in international organizations. How likely is this?
Silva: It's unavoidable. It's just a matter of time. Today, it's very difficult for the G8 to be as important as it was, say, 10 years ago. It's very difficult to set up a forum, to discuss politics or economics, without considering the existence of the emerging countries, the BRICs. Our economies are more solid than their economies. But this will depend very much on our willingness to take action because, in politics, nobody gives up any room to anyone else. We have to win that room, and that's our challenge – demanding a leading position that we have a right to in global decisions.
We already have the G5 group, which started meeting before the G8. That had two effects. First, the G5 wound up being invited to participate in G8 meetings. Second, some things that we've thought about are now being considered by the G8. Previously, the G5 members were just called in for tea and coffee. Now, we're called in for lunch and dinner. If you look at the global politics of 10 to 15 years ago, everything happened only for Europe and the United States. But that's not the case now. Now, whenever there is a meeting in the world, people want to know what China thinks and how Brazil feels. People begin to perceive that we're no longer supporting actors; we're leading actors now. This creates a new, real possibility for a new global politics. It's precisely at this moment that China, Brazil, Russia and India need to be very humble and very calm, but at the same time very audacious.

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