Rio Gringa

Interview with Kenneth Rapoza

I had a chance to catch up with Kenneth Rapoza recently, who told me about his time in Brazil and his thoughts on the Brazilian economy. Ken was a staff reporter based in São Paulo for Dow Jones, where he wrote daily for the newswire. He wrote for the Wall Street Journal and Barron's from 2005 to 2010. He currently manages and writes for Forbes' BRIC Breaker blog, covering Brazil, Russia, India and China.

Ken lived in Brazil for 10 years between 2001 and 2010. He lived in São Paulo, in the Higienópolis neighborhood. "For me, a gringo, it was totally exotic and the kind of glamour I could have never afforded in the U.S.," he recalls. He misses catching a glipse of parrots on his way to work. He has fond memories of the city, though he doesn't miss the traffic. He also remembers the excitement of living historic events, like Lula's election victory.

He had the opportunity to travel all over the country, and his favorite places were Rio de Janeiro and the Panatal. "The Pantanal was great for its natural beauty. I woke up at around 4:30 in the morning to large hyacinth macaws. I really felt like I was in a jungle there," he said. However, when asked about misperceptions foreigners have of Brazil, he explained: "Manaus has more people than the city of Boston and it is smack dab in the middle of the biggest rainforest on earth. Also, Brazil is home to Embraer and can actually make amazing jet aircraft, not just FIFA stars. I don't think people realize that when they are flying from New York to Boston they are probably flying something Made in Brazil." 

I asked how Brazil stacks up to the other BRICS in terms of the economy and growth. He said: "All four are so different from each other it is hard to compare. I think Brazil is way more diverse than Russia, and in this regard it is probably closer to India. China is more export-driven, but trying to turn inward. Brazil already has a decent domestic market and that is growing. Brazil has a lot of know-how; they're very innovative. It's just so hard to compare all four of them together." He also sees them differently in terms of culture. "Who has better clothing designers? Brazil. Who has better musicians? Brazil. But who has better filmed entertainment? India and China. Brazil still relies on Hollywood and Globo novelas."

He weighed the differences between the countries. "Is Russia more innovative than Brazil? Well, Brazilian aircraft are certainly better than Russian aircraft, and the market will tell you that. But Brazil doesn't have an international cyber security brand like Russia has in Kaspersky Lab, for example. Or an IT leader like Infosys or Wipro in India. What does China have that Brazil doesn't have? Well, it's created their own Twitter/Facebook hybrid called a Weibo, by SINA Corporation. Brazil doesn't have that. They adopt U.S. consumer technology, but they invent other kind of technology. Brazil does elections on line, and its banking IT infrastructure is incredible. So everyone is different."

He also believes Brazil benefits from having more ties and similarities to North America. "I think the advantage of Brazil over a place like Russia, China and India is that Brazil is way more diverse than all three. And it is more hospitable than Russia. Russia really is another world. There are zero American references there, which is fine. But Brazil is more gringo friendly." On Brazil's other development advantages, he pointed to low-cost electricity and hydroelectric power. But, he said, "the disadvantage is you have to build hydroelectric dams and there is really only one place to build them--in the Amazon."

He went on to share his thoughts on Brazil's oil sector. "Brazil also has this pre-salt deep ocean drilling capabilities and know how that could turn Rio into Oslo if they play their cards right. By that I mean that Rio can be a third center of oil services in the world, outside of Norway and Houston, Texas," he explained. He believes Brazil's oil wealth is an important advantage. "Brazil is raking in a lot of foreign capital because of the Santos and Campos basin discoveries by Petrobras. "There's a lot of know-how that is going to come from that on all fronts. It is going to be a very costly venture and everyone knows that. The disadvantage is that it is oil and oil can spill, and when it does off the coast of Rio, it could be a super mega disaster. Chevron is feeling this now and their November 2011 oil spill was miniscule (2,400 barrels with no oil on shore, no wildlife or human casualties) compared to BP's oil spill in the Gulf of Mexico. That is a disadvantage. Because God forbid something more severe happens. You will have a lot of money tied up to drill deep through the bedrock of the Atlantic and the political risk is that the government says, 'Okay, everyone just go home.' Petrobras can develop it itself, but not on the scale they could with partners."

This Week's Reads

There are a bunch of interesting Brazil stories and interviews from the past few days that are worth reading. Have a read:

• The blonde gang: a gang of young, middle-class, educated blonde women are being hunted by police after a series of express kidnappings to make luxury purchases at malls in São Paulo. English version, from the BBC, and Portuguese, from Último Segundo.

• Gun sales on the rise: Around 4.3 million Brazilian-produced weapons were sold in Brazil in the last five years, says a recent investigation. A Pública has a lengthy report on arms production and sales in Brazil. It's part of a series on weapons in Brazil, which also shows that Brazil exported 4.48 million light weapons from 2005 to 2010.

• President Dilma talks to VEJA: Since taking office, the president has given few lengthy exclusive interviews to the press, so it was especially interesting to see her give a ten-page interview to the popular right-leaning publication that is notoriously critical of the Worker's Party, as well as Lula and Dilma. In the highlights published so far, it seems it's a lot of reassurance about how things are going, defending her economic policies, and denying problems with her congressional coalition. She also said she agreed with business leaders that the country needs to lower taxes in order to help businesses grow. To read highlights, see VEJA and EXAME. The full interview should go up online soon.

• Romário talks to Valor: Former soccer star "bad boy" and Rio federal congressman Romário gave a very interesting interview to Valor, where he talks about his dedication to his new job. He discusses how "around 80 percent" of his fellow deputies don't bother to show up, about his dedication to promoting rights for the disabled, his role as a critic of Brazil's World Cup preparations and its relationship to FIFA (with some interesting observations on overspending on World Cup projects), and his upbringing in favelas in Rio's Zona Norte. He also mentioned a disturbing anecdote about the state of public health in Rio, since his brother had recently discovered his uncle at a public hospital, where he had been lying dead in a hallway for three days. Read the full interview on Romário's website.

• Brazil's pension system: The Economist explains in precise detail about how Brazil's pension system works and why it could be a major budget problem for the country. I also think it's interesting from a productivity perspective, but in general it's the best overview on the topic I've seen recently.

A Stately Visit

Brazil's president will visit the United States in a few weeks, and the Brazil mediasphere is all abuzz with news that the U.S. government will not receive her as a "state visit," meaning the highest honors given to a visiting head of state. Does it really matter if Dilma gets a black tie dinner, a week of cultural events, and a chance to address Congress? In theory, no, not really. But the symbolism behind denying her an official state visit does matter--not just for Brazil, but for Latin America, too.

The problem was that the U.S. told Brazil that it would not be a state visit because it wasn't allowed during an election year. The big mistake there was that it was obviously untrue: just last week, UK Prime Minister David Cameron visited Washington on an official state visit. To add insult to injury, three other major developing country leaders had state visits during Obama's administration so far: China's President Hu Jintao in 2011, Mexico's President Felipe Calderón in 2010, and Indian Prime Minister Manmohan Singh in 2009. Meanwhile, Itamaraty wants the visit to be "reciprocal" and to be a "mirrored" agenda from Obama's visit to Brazil. While Brazil rolled out the red carpet for Obama in a visit fit for a king, it doesn't seem that will quite be the case for Dilma in Washington.

Truthiness does not bode well to try to fortify what is arguably the United States' most important relationship in Latin America, nor does it promise to get the visit off on the right foot. Brazil is already on the defense after the U.S. suspended a big fighter jet purchase from Embraer (though there's a possibility it could still happen), throwing the Brazilians off guard. On Cartas de Washington, Denise Chrispim explains that with few "impactful" topics to discuss, Dilma will likely push her Science without Borders program, working on establishing more ties with the U.S. to send Brazilian students to study here.

There's been some theorizing about why the U.S. decided not to give Dilma a state visit. In TIME, Tim Padgett hypothesized that the Obama administration was irritated with Brazil's foreign policy, a combination of Lula's Iran (mis)adventures, Dilma's failure to criticize human rights in Cuba (she instead discussed Guantanamo), and abstentions at the UN on Syria and human rights issues.

There's also been some discussion about whether the semantics of a state or official visit really matter. Boz of Bloggings by Boz wrote in a blog post that he doesn't think it matters, and that practical, concrete results matter more:

I'd rather know the details to the next space and technology cooperation agreement than what was served with each dinner course. I'd rather know how Brazil and the US are going to cooperate on anti-hunger programs in Haiti and Africa than which chefs made the amuse-bouche and caipirinhas. I'd rather know how we're going to resolve our differences over military procurement and Iranian sanctions than argue over which dresses looked best and worst.

While symbolism matters, he argued, the U.S. should save symbolic events for China, which really appreciates them.

But Brazil really does appreciate symbolism, and takes diplomatic cues very seriously, not to mention its incredible sensitivity to how the country is perceived abroad. By not telling the truth about why it wouldn't be a state visit, the U.S. gave Brazil even less reason to create a basis of trust between its leaders, and established that the playing field between the two countries is in fact uneven.

This is another issue that Brazilians are sensitive to, even at the diplomatic level: as the country's power has grown and its international role has expanded, Brazil sees itself not only as a regional power, but now, as a world power too. It expects to command more respect and desperately craves to be viewed as an equal partner, rather than the stigma of a "poor" developing country on a lower tier. With the news that the UK, but not Brazil would get a state visit, the U.S. sent a clear message: Brazil is simply not as important a partner.

Sadly, that seems to be the reality of it from the administration's perspective. While Brazil is a critical regional partner for the United States, it's not a global strategic priority. In an op-ed for the Miami Herald, Andres Oppenheimer outlines some of the reasons why this is, and why the U.S. considers China and India as more strategic partners (he argues that Brazil should be treated more like India). Maybe this will change, particularly as Brazil becomes an even bigger oil power, but not yet.

In the end, the diplomatic saia justa sends a message not only to Brazil, but to the region, too: if Brazil isn't considered important enough for a state visit and the level of dialogue and respect it affords, what can other Latin American countries expect? On the eve of the Summit of the Americas, it's especially telling about U.S.-Latin American ties.

In the end, Dilma is the ultimate pragmatist, and she'll do what she has to do to cover her agenda. It also seems likely she'll travel outside of Washington to work on Science without Borders, possibly going to Boston to visit Harvard and MIT. But there doesn't seem to be much to expect in terms of game-changing policy announcements or really new developments in the bilateral relationship. It will hopefully be a constructive visit, with more commitments to education exchange, which is always exciting. But Itamaraty won't forget about the diplomatic snub, and if other Latin American leaders are paying attention, they won't either.

Photo: Blog do Planalto

Brazil Envy in Latin America

It seems that in much of Latin America, there's a growing sense of Brazil envy.

Latin American media, like the international media, is increasingly covering Brazil, as people look to Brazil as an enviable success story. But the other interesting trend is an expanding group of Brazilian political consultants selling "the Brazil model" and the "Lula way" to Latin American political candidates. Brazilian political consultants helped on the campaigns of Peru's President Ollanta Humala, El Salvador's President Mauricio Funes, and President Fernando Lugo, as well as Lugo's rival candidate. Brazilians are now working on the campaign for Henrique Capriles, the opposition candidate in Venezuela, a self-professed admirer of Lula and Brazilian social programs. Brazilians are also reportedly working for President Hugo Chavez, too. They're even working in the Dominican Republic, on Danilo Medina's campaign.

It makes sense that other countries are hoping to replicate Brazil's successes, particularly its social programs, poverty reduction and middle class expansion, political stability, and economic growth. Selling a market-friendly approach with Brazilian-style social programs is a no-brainer. It's also a given that left-leaning leaders would try to model themselves on Lula, who proved it was not only possible to keep business leaders happy and tackle poverty with cash transfer programs, but also do both with tremendous results and increase GDP at the same time. But Brazilians also offer Brazilian-style political campaigns, which are "more pragmatic, steered directly at voters, and [have] a certain dose of happiness," said a recent report on Brazilian political consultants. Ultimately, other countries hunger for Brazil's power and ascendance on the world stage, craving the newfound respect and clout the country enjoys abroad. There seems to be the impression, "If Brazil can do it, why can't we?"

Perhaps part of Brazilians' success at marketing their political approach is their incredible public relations abilities. After all, it's only recently that more countries are interested in the Brazil model, but Brazilian consultants have been around for over a decade, when they worked local and national political campaigns in Argentina. Now more than ever, Brazilians in the public eye are excellent at marketing the country's success, able to dazzle both foreign investors and politicians alike. Lula himself, of course, was the master of PR, of branding and rebranding, of befriending everyone and appeasing opposition, of tailoring Brazil's image abroad. For consultants, the overwhelming sense of optimism in Brazil makes it easier to market the county, but nevertheless, it's tempting to gloss over Brazil's shortcomings with plenty of good things to talk about. Plus, Brazilians can make it possible to forget about the country's problems with their awe-inspiring tales of growth and promise.

But I think Al Jazeera journalist Gabriel Elizondo put it best when he said this:

Everyone running for president in Latin America wants to follow "the Lula model." Easier said than done. Lula's secret weapon was: Brazil.

— Gabriel Elizondo (@elizondogabriel) February 17, 2012

Consultants can offer a guide for campaigns and policy, but there is no magic formula, not to mention very different economic and political realities and limitations in other countries. Brazil's rise has been inspiring for both Brazilians and people from developing countries, but it was also about time. Brazil is the largest country in Latin America in terms of geographic size and population, with a huge wealth of natural resources as well as large service companies and manfacturers. It was a story of success foretold. The combination of finally coming into its own and achieving its potential--no longer the country of the future--is something other Latin American countries crave, too. It's not as if Latin America as a region hasn't seen positive changes, including lower poverty rates and growing middle classes; there are plenty of success stories throughout the region in terms of economic growth, like Chile and Peru, for example. But there's still the reality that Brazil has become the regional star, and other countries hope to shine, too. (Don't ask the Mexicans about that, though. They may not want to talk about it.) If anyone can convince other Latin Americans that it's possible to achieve Brazil-style success, regardless of whether it's possible or not, it will definitely be a Brazilian.

Photo: World Economic Forum

Ten Things to Know About Brazil's World Cup

I'm a little hesitant to write about the World Cup--it seems to be one of the international media's favorite topics when it comes to Brazil, usually a report on Brazil's delayed preparations every month or so. But the latest development seems to be a tipping point in the relationship between FIFA and Brazilian organizers, and one that reveals many of the issues surrounding the event.

After ongoing tensions, FIFA's General Secretary Jerome Valcke finally lost his cool on Friday and vented his frustrations about Brazil's progress. It wasn't exactly a surprise, although he'd made very positive about Brazil's preparations during his January visit. Now, he had this to say:

On overall preprations: "I don't understand why things are not moving. The stadiums are not on schedule any longer - and why are a lot of things late? The concern is nothing is made or prepared to receive so many people. I am sorry to say but things are not working in Brazil. Our concern is nothing is made or prepared to receive so many people because the world wants to go to Brazil."

On comparing it with the last World Cup: "That's the big difference between South Africa in 2010 and Brazil. The people don't care about security, they don't care about the weather - it's amazing. In South Africa it was winter, it was dark. In Brazil the weather will be perfect. But I can tell you from the other side of the organization it is not exactly that."

On Brazil's possible motives: ''What is the World Cup for Brazil: To organise the World Cup or to win the World Cup? I think it's to win the World Cup. South Africa's priorities were to organize the World Cup not win it. It seems all Brazil wants to do is win it, and that must change."

On the World Cup law, the legal framework FIFA requires for Brazil to hold the event: "We should have received these documents signed by 2007 and we are in 2012."

His advice? "You have to push yourself, get a kick up the backside and just deliver this World Cup."

Naturally, that did not go over well in Brazil.

Sports Minister Aldo Rebelo said the Brazilian government would no longer recognize Valcke as a representative of FIFA, and demanded a new interlocutor. He said Valcke's comments were "unacceptable" and that the World Cup law, due to be voted on this week after innumerous delays, was coming along at a "responable pace." On Twitter, he said: "I still claim that FIFA are not above the sovereignty of Brazil and I will continue to fighting for the sovereignty of our country."

In response, Valcke dismissed the minister's anger. “I made one comment saying things are not working well and I for once say exactly what is happening in Brazil. If the result is they don’t want to talk to me anymore, I’m not the guy they want to work with, then that’s a bit puerile.”

It's unclear what will happen this week but evidently, the gloves have come off. FIFA has admitted that it has no Plan B, and that the games will be held in Brazil. But given that the Confederations Cup will be held next year and preparations are still behind, it seems possible that this sparring is not over.

With this in mind, I thought it might be helpful to keep some things in mind about what is really going on with the World Cup, and what's at stake.

10. Brazil was the only country to vie for the 2014 World Cup. FIFA had decided that it would be held in South America under its rotation system, but Brazil was chosen by default after being the only country to offer to host the games. Though Brazil had to meet FIFA's requirements in order to be chosen--ranging from stadiums to transportation to security--it also faced no opposition. So initially, it was easier to focus on celebrating the country's selection as host (especially after it was also chosen to host the Olympics), rather than be immediately held accountable for what it had actually agreed to do.

9. Brazil's selection as World Cup host came during the high-flying years of President Lula's second administration, just at the very beginning of Brazil's "emergence" on the world scene. It was a somewhat easier political choice to make because Lula was extremely popular and it was not something his administration would have to deal too much with; much of the responsibility would fall to the next president. (That's even more valid given the delays in preparations, since FIFA claims more could have been done as soon as Brazil was chosen). My sense is that the current government has felt that the Cup is an inherited responsibility that it will have to make the best of given the circumstances.

8. The Brazilian government is using billions of dollars in public funds to build stadiums and infrastructure for the World Cup. This essentially means that in theory, Brazilian taxpayers are paying for the event, though they never had a say in whether they wanted the event or not. Through 2013, the government estimates spending of around $100 billion on World Cup and Olympics construction, $258 billion on construction, and $477 billion on infrastructure. Depending on the aftermath of the Cup, this could become a tricky political issue during the 2014 presidential elections--or a potential boon, too.

7. One of the great potential legacies of the World Cup could be improvements to infrastructure. President Dilma Rousseff is heavily invested in focusing on infrastructure, though her bigger concern is infrastructure that aids long-term development, not the games (which for Brazilians is a good thing). But it's unclear what will happen in the next two years, with many projects already delayed. It seems possible that intracity transport could be finished in a number of cities. Airports across the country are undergoing renovations, and airport privatization has begun on three airports. But it's unclear if major airport reforms will be done before 2014, and a much-heralded bullet train between Rio and São Paulo has quietly been delayed until 2022.

6. The World Cup offers ripe opportunities for corruption. It happened during the Pan American Games in 2007, and it's already happening again with the World Cup. Overspending is the key issue, and it's been happening across the board. While Dilma's efforts to control corruption within her cabinet have offered hope, it's entirely possible that abuses are still happening from the local level all the way up to the federal level. The World Cup also has been an opportunity for abuses against favela communities located in areas slated for construction.

5. Brazil may have overextended itself by picking 12 host cities. It's not without good reason; since much of the country's big events are often concentrated in a few cities, it seemed more fair to spread the event throughout the country, giving less developed cities a chance at more investment and time in the spotlight. It's also a political opportunity for the chosen states and municipalities. But some of the smaller cities may really not be ready in time, and from a logistical point of view, it will be difficult for fans--even Brazilians--to attend games in multiple cities, especially cities like Manaus and Cuiabá. FIFA is aware of this and it seems possible it could cut one or two cities if they aren't ready in time, though it would be a big PR hazard.

4. FIFA and Brazil clearly have different expectations, at least in what's evident to the public. FIFA is a corporation that wants to make money and have a succesful event, and expects Brazil to live up to its legal obligations. Brazil also wants to use it as an opportunity to make money through investments and tourism, but also expects FIFA to play by its rules. In other words, both sides have unrealistic expectations about who gets to call the shots. Clearly, more compromise will be necessary, though neither side is happy about it.

3. Brazil must pass FIFA-approved legislation about the World Cup as a condition of hosting the Games. The so-called World Cup law has suffered delays for years, and problems with the bill have seen it stuck in the House of Representatives until now (another vote is expected next week). FIFA has made certain demands, including legalizing alcohol at soccer stadiums, only allowing FIFA-authorized sales of merchandise in and around stadiums, and making efforts to control piracy. Brazil, on the other hand, wants to ensure that discounted tickets are set aside for students, seniors, and other groups, something that FIFA has had to make compromises on. Overall, the most sensitive issue is if the bill violates Brazil's sovereignty, something that several politicians have complained about and an issue many Brazilians are sensitive to.

2. Brazilians are very sensitive to foreigner's perceptions of their country, and even more sensitive to outside criticism. One would assume that FIFA officials have realized this by now, and perhaps took advantage of this fact by hoping to embarrass and pressure the government with Valcke's comments last week. Still, it's not a very good tactic, and is only going to make the tense relationship even more acrimonious as the games draw closer. The international press has added fuel to the flames by constantly criticizing Brazil's preparations, and will continue to until the World Cup begins. FIFA officials should take note of Brazil's diplomatic techniques if they plan on better cooperation, and are going to have to accept the fact that whatever timelines were agreed upon will probably not happen, but that enough will be done in time to ensure the games can take place.

1. The World Cup is an incredibly important source of pride for Brazil. It represents Brazil's rise to power and its ascendance on the world stage, as well as celebrating its economic growth, reduction of poverty, and the resulting sense of optimism. It's an important part of the Brazil brand abroad, a stamp of approval from the international community. It's also a way to try to banish its demons; the last time the country hosted in 1950, it was also celebrating a new, post-war era, but lost to Uruguay in the last game, a devastating defeat still considered a national trauma. Pulling off a successful event with minimal conflict and scrutiny is just important to Brazil's sense of self-worth as trying to win the Cup. It's still unclear what the legacy of the games will be, but for both FIFA and Brazil, there's no turning back now.