Brazil: Far-Right Foreign Policy Ahead?

By Gilberto M. A. Rodrigues*

John Bolton and Jair Bolsonaro

U.S. National Security Advisor John Bolton (left) and Brazilian President-elect Jair Bolsonaro (right). / Prensa Latina / Creative Commons

Brazilian President-elect Jair Bolsonaro appears to be moving ahead with promises to steer the country’s foreign policy in the direction of his own far-right ideology.  He has accused the Workers’ Party (PT) of former President Lula da Silva (2003-10) and Dilma Rousseff (2011-16) of pursuing a foreign policy with a partisan left-wing ideology, and now he wants to “liberate” Itamaraty, the Ministry of Foreign Affairs, from what he considers an inappropriate ideological bias.

  • Bolsonaro says that President Trump is his inspiration, his “model” of leadership, and he has made policy coordination with Washington a priority. After a congratulations call to Bolsonaro, Trump tweeted that he and the president-elect “agreed that Brazil and the United States will work closely together on Trade, Military and everything else!  Excellent call, wished him congrats!”  Bolsonaro met last week with Trump’s National Security Adviser, John Bolton, to discuss joint efforts to achieve regime change in Cuba and Venezuela, among other topics.
  • Even before that, Bolsonaro had ramped up his already strong rhetoric against Venezuelan President Nicolás Maduro and reversed a long-standing policy of cooperation with Cuba, taking aim first at the 8,300 Cuban doctors in Brazil’s Mais Medicos. “We can’t allow Cuban slaves in Brazil,” he said, “And we can’t keep feeding the Cuban dictatorship.”  Havana began withdrawing the doctors before Bolsonaro could expel them.
  • Bolsonaro has barely mentioned UNASUR and is downplaying relations with Argentina, Brazil’s main strategic partner in the region, while emphasizing relations with what he calls “developed nations.” In addition to the United States, he is focused on Italy, Hungary – due to leaders’ far-right political affinities – and Israel.  The evangelical political forces who backed his election are pressing him to move the Brazilian embassy from Tel Aviv to Jerusalem, respecting “a sovereign decision of Israel.”  The Trump administration will warmly welcome the move, but Bolsonaro will face a potentially significant loss of trade among Middle Eastern and Asian partners.  The president-elect has yet to show his hand on China – Brazil’s main trading partner – and the other BRICS countries.  The Trump administration’s increasingly tough criticism of China’s activities in Latin America may temper the new government’s enthusiasm for closer ties with Beijing.

Bolsonaro has taken positions that set him at odds with the rest of the hemisphere.  He has denied the excesses of Brazil’s past dictatorship, advocated the use of torture against criminals whom he classifies as “terrorists,” used aggressive rhetoric against minorities (LGBTI, women, indigenous peoples, Afro-Brazilian Quilombolas, and migrants), and promised to reduce certain social rights.  Brazil’s diplomatic capital as a leader on environment and climate change is also at risk due to his domestic priority to promote agricultural business and the need to preserve “total” sovereignty over the Amazon Basin at the expense of protecting the rainforest.  He has cancelled Brazil’s commitment to host crucial UN climate change talks (COP25) in 2019, a deal negotiated by the government of President Temer just months ago.

Bolsonaro’s choice of his new foreign minister may be emblematic of his approach to international relations.  He met his commitment to choose a career diplomat, but his choice was Ernesto Araújo, an unknown who was recently promoted without ambassadorial experience who is a self-declared anti-globalist, anti-communist, and Trump’s enthusiastic “intellectual disciple.”  This appointment violates the tradition, observed even during the military governments, of selecting senior, skillful, and experienced ambassadors not directly linked to any ideological trend.  Further questions are raised by the military’s influence in the cabinet.  Two retired generals, Vice President Hamilton Mourão and the future head of Institutional Security Cabinet, Augusto Heleno, are expected to be the president’s right-hand men.  They and an empowered Ministry of Defense certainly will exercise huge influence in promoting a military vision of foreign policy in addressing issues such as borders policy and the Venezuela crisis, and could become a “second track” on Brazil’s foreign policy.

December 4, 2018

* Gilberto M.A. Rodrigues is Professor of International Relations at the Federal University of ABC (UFABC) in Brazil, and was a CLALS Research Fellow in 2017.

Argentine Debt and the U.S. Dollar

By Leslie Elliott Armijo

Images Money / Flickr / Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic (CC BY-NC-SA 2.0)

Multiple economic and political challenges have called into question the future status of the U.S. dollar as the world’s dominant reserve currency, but backlash from Argentina’s recent spat with the United States over defaulted bonds appears to be fueling interest in reforms that may have beneficial implications.  According to the IMF, some 61 percent of the world’s known foreign exchange reserves held by central banks around the world remain in low-yielding dollar-denominated assets, mainly U.S. Treasury bonds.  The United Nations Conference on Trade and Development (UNCTAD), China, and heavyweights in the Global South, including Brazil, are calling for international trade agreements that would give emerging economies “policy space” – allowing national governments to impose capital controls, fund exports, subsidize local industry, and keep financial services national.  Private U.S. banks, however, claim that continued U.S. dominance of world capital markets – a crucial pillar of continued reserve currency status – requires ever more open trade in financial services.  The BRICS complain about the U.S. government’s “exorbitant privilege” as the reserve currency country, with some of the sharpest complaints coming from joint statements by Brazil, Russia, India, China and South Africa. Chinese officials, though, worried about their own large dollar investments and ambivalent about the implications of renminbi internationalization, more than once have pulled the group toward a softer tone.

Argentina’s ongoing sovereign debt negotiations provide a different window onto the dollar’s reserve currency status.  Like most countries, Argentina has held a large chunk of its government’s savings in the U.S. and hired private U.S. financial institutions as its international bankers.  Today it is trying to extricate itself from U.S. markets and do its saving and financial intermediation elsewhere. Iran and Russia are doing the same, but Argentina has no foreign policy quarrel with the Obama Administration – and is not subject to U.S. financial sanctions over nuclear or military adventurism.  Buenos Aires is among those who chafe at U.S. power through the dollar, but it is primarily motivated by the U.S. Supreme Court’s decision in July to let stand a lower court judgment in favor of investors holding bonds from Argentina’s $82 billion sovereign debt default in December 2001.  Although 92 percent of the original bondholders accepted the Argentine government’s restructured (lower value) bonds in 2005 and 2010, New York Federal District Court Judge Thomas P. Griesa ruled that Argentina’s failure to settle with the holdouts means that any U.S. financial institutions, or their international affiliates, that intermediate funds enabling Argentina to stay current on payments to the majority will themselves be in contempt of court.  This has sent Argentina into “technical default.” Argentina is suing the U.S. in the International Court of Justice (whose jurisdiction the U.S. refuses to recognize) and in the court of global public opinion – pushing, for example, a recent proposal for global financial reform before the U.N. General Assembly. It has also welcomed an $11 billion currency swap agreement with China, and Chinese state banks have since pledged $6.8 billion in new infrastructure loans.  Some observers speculate that the very first loan of the New Development Bank, newly organized by the BRICS countries, could go to Argentina.

The Argentine bond case harms the perceived fairness and credibility of U.S. financial markets and, by extension, the strength of the U.S. dollar because the recent legal judgments seem capricious to many.  Senior figures at the IMF have long supported the routine inclusion in all international sovereign bond issues of a so-called “collective action clause,” which would make any restructuring accepted by two-thirds of bondholders binding on all.  The European Union already has ruled that sovereign bonds issued within the EU, including many for troubled Eastern or Southern European governments, must contain such clauses.  Moreover, the International Capital Markets Association, representing more than 400 of the world’s largest private investment institutions, has just issued a position paper endorsing obligatory collective action clauses, placing it on the same side of this issue as non-governmental organizations advocating financial architecture reform such as the New Rules for Global Finance and the Jubilee Debt Campaign.  This would give taxpayers in emerging economies – the ultimate backstop of the creditworthiness of their governments – the same bankruptcy rights as firms and households.  It is not in the interest of Latin American and other emerging economies for U.S. currency and financial dominance to end anytime soon – a tripolar reserve currency system based on the dollar, euro, and reniminbi does not yet appear able to sustain the worldwide growth and prosperity of recent decades and may in fact entail significant risks – but fairer rules for sovereign financing would benefit everyone.

* Leslie Elliott Armijo is a Visiting Scholar at Portland State University and a Research Fellow at CLALS.  She has just published The Financial Statecraft of Emerging Powers: Shield and Sword in Asia and Latin America (London: Palgrave, 2014).

September 23, 2014