Brazil’s New President Stumbles In Terra Incognita

(Bloomberg Opinion) -- To rescue Brazil from its worst economic debacle in memory, and perhaps his own worst instincts as a career dirigiste, president-elect Jair Bolsonaro has called upon a market-friendly, University of Chicago-trained wunderkind. His pick for Justice Minister? Sergio Moro, of course, the federal judge who presided over the Carwash probe — Latin America’s biggest political corruption-busting case.

So who will be Bolsonaro’s foreign-policy whisperer, and shepherd the upstart former parachutist in an uncertain world caught between a new cold war and a potentially treaty-shredding trade conflict? Anyone please?

Yes, every new government needs time — and plenty of trial and error — to set its own course. Yet Bolsonaro’s bellicose rhetoric has already provoked many of Brazil’s global customers, slighted regional allies, and antagonized pivotal trade partners — and all this weeks ahead of actually taking office. Argentina, China, much of the Arab world: Bolsonaro’s outbursts offered a slap for almost everyone.

True, Bolsonaro no sooner lobbed those diplomatic grenades than he retreated to more measured, almost enthusiastically global positions. That tree-hugging Paris Agreement to contain dubious climate change? Too important to scuttle, Bolsonaro now says. And what about those Chinese economic imperialists who wanted not just to buy Brazilian but “buy Brazil?” Now all the talk is over locking in a fruitful relationship.

The pivot to moderation is a capitulation to reality. Consider Bolsonaro’s recent announcement that he intends to assign the foreign ministry to a diplomatic insider, with the respected World Trade Organization adviser and former Brazilian envoy to the European Union Jose Alfredo Graca Lima on the shortlist.

That could be a blessing. Even if world peace might not exactly hang on decisions in Brasilia, getting Brazilian foreign policy right means a great deal to the fortunes of Latin America’s biggest economy and the hemisphere beyond, while neglecting traditional friends could be costly.

For all his talk of upending the old ways, Bolsonaro comes to office with a formidable national legacy to protect. After years of retraction, the oil and gas industry is expanding, with foreign drillers scrambling for stakes in the country’s promising offshore reserves. Global demand is driving up prices for Brazilian soybeans, meat and wood pulp.

Brazil’s beef exports to Islamic countries have grown by 16 percent a year since 2000, reaching $4.7 billion last year, according to Marcos Jank, a Brazilian agribusiness expert. Bolsonaro’s vow to follow Donald Trump’s lead and move the Brazilian embassy from Tel Aviv to Jerusalem could jeopardize that bonanza. That much was clear when Egypt abruptly canceled Brazilian Foreign Minister Aloysio Nunes’s state visit last week. No wonder Bolsonaro now denies that any decision on the embassy has been made.

Nowhere are the economic stakes higher for Brazil than in its relations with China. China is Brazil’s biggest single investor and best customer, buying up everything from soybeans to iron ore. It imported nearly $30 billion from Brazil in the first half of this year, an 11 percent rise from the year before, according to Commerce Ministry data. Total bilateral trade reached $44.8 billion in the same period, with Brazil pocketing a $14.8 billion surplus.

 “China is growing at double the rate of the rest of the world and transitioning to a consumer-driven economy. That means it will drive world demand not only for food but increasingly for the manufactured goods that we produce,” former Brazilian ambassador to China Luiz Augusto de Castro Neves, who heads the China-Brazil Business Council, told me. “Snubbing Beijing for political reasons is shooting yourself in the foot.”

Nor is bending over backwards to Beijing the right policy. “If Brazil wants to act strategically, it needs to think about how to partner with China and to ensure diversification of trade, engage in cooperation initiatives and promote industrial capacity,” said the Inter-American Dialogue’s Margaret Myers, who has mapped Chinese infrastructure investments in Latin America. “To the extent that the new Brazilian government wants to privatize, China would have considerable interest in investment.”

It may be soon to say the yuan has dropped for Bolsonaro. “Like Trump, he is not a normal president, so it’s foolish to think of a normal foreign policy,” said Oliver Stuenkel, who teaches international relations at the Getulio Vargas Foundation in Sao Paulo. “He was elected as a disruptor and will have to deliver some disruption.”

Cozying up to Trump will likely be part of the script. Bolsonaro has never hidden his admiration for the hemisphere’s disruptor-in-chief, and hot talk of a joint Brazilian-Colombian invasion of Venezuela with a nod from Washington is fueling the regional rumor gin.

That may be a stretch. The problem, according to Stuenkel, is what price Brazil could pay for policy upheaval. “Brazil over the years built a reputation as a country committed to strong multilateral institutions like the World Bank and the World Trade Organization, and the United Nations, embracing them even when they were doubted by many,” said Stuenkel. “Countries will react quicker and more decisively against the Brazilians if the government abandons that tradition.”

Not all of Bolsonaro’s diplomatic eruptions are misguided. Behind the seemingly cavalier dismissal of Mercosur by his economic adviser is a gathering consensus that the underperforming South American trade pact needs a makeover. Mercosur has been dogged by mission drift, a dead-end negotiation for a deal with the European Union, and a 39 percent slump in total trade from 2011 to 2017.

To that end, Bolsonaro may find an ally in business-oriented Argentine President Mauricio Macri, who also wants to reform the languishing compact, encourage bilateral trade deals outside Mercosur, and end the regional indulgence of Bolivarian autocrats like Venezuela’s Nicolas Maduro.

“Economic and trade interests should guide Brazil’s foreign policy,” Graca Lima told me. “That means giving priority to the southern cone countries of South America, the United States, China and the European Union.”

External affairs may not be for amateurs, but neither is it an “occult science,” as Graca Lima put it.

Roberto Abdenur, a former Brazilian diplomat, agrees. “There’s sense in Brazil drawing closer to world powers and jettisoning its third-world leanings, and for that he should pick an experienced foreign minister as quickly as possible.”

The new minister’s first job? “Educating Bolsonaro about diplomacy.” The learning curve is sure to be steep.

To contact the editor responsible for this story: James Gibney at jgibney5@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mac Margolis is a Bloomberg Opinion columnist covering Latin and South America. He was a reporter for Newsweek and is the author of “The Last New World: The Conquest of the Amazon Frontier.”

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