Brazil x Mexico: Bad but Some Good

Brazil and Mexico, the two largest economies in Latin America, are forever sites of great potential and some disappointment. In sociology, we used to speak of arrested development.   The fact is that while both countries get pumped every few years or so by the international press, they also seem to never quite take off.

We might blame the current administrations. In Mexico, Enrique Pena Nieto is now half way through his six-year term and usually expectations are lowered as the tenure in office shrinks. At the outset, there was great hope for reforms in education, violence reduction and lessening the impact of the drug cartels, plus a major effort at reforming and renewing investments in the energy sector. The assassination of the 40 plus students in Guerrero state, the tragic-comic escape of Chapo Guzman, the ongoing deaths of journalists and the economic stutter have all sapped presidential legitimacy. And, as with Brazil, there has to be the waif of scandal and corruption at the highest levels.

Brazil faces a similar litany of maladies. The corruption scandal at Petrobras drained perhaps $3 billion directly from the company’s income but more importantly the repercussions have come close to shutting down major economic players. The presidents of leading construction companies – Andrade Guttieriez and Odebrecht – are imprisoned. Many other companies are forbidden from bidding on public contracts. As the wheels of justice turn exceedingly slowly in Brazil, it’s virtually impossible to predict when there might be legal resolution and relief from scandal fatigue. All of this comes with the collapse of commodity prices, increased inflation, rising unemployment, street protests calling for impeachment, lack of water in Sao Paulo and no entertainment until the Olympics a year from now. Brazil also faces a two-year recession, a first in its history.

So is there anything good that can come out of the current situation? In Mexico, the government seems more determined to pursue the opening of the energy sector and this should bring in foreign investment and could possibly have a positive effect in shaking up PEMEX. While still dependent upon oil, Mexico has also successfully promoted the automobile assembly industry and has surpassed Brazil in the production of vehicles thanks partially to its proximity to the US but also to the 40-plus free trade agreements Mexico has in place. The rising cost structure in China has also helped Mexico become a bit more competitive in manufacturing and logistics. If Brazil continues to stagnate and remain over dependent on basic commodities, it is likely that the Mexican economy will outstrip Brazil’s.

One good thing about Brazil’s strong economic contraction is that it may have the unexpected side effect of strengthening the country’s institutions. The threat of Dilma’s impeachment seems to have receded. Municipal elections are coming up and the millions of people who have demonstrated in the streets have done so peacefully. There is no guarantee that the current set of mostly self-serving and bought off congressmen will be soon replaced, but each election offers the opportunity to learn and participate. The complexity of Brazilian society, the demands of the population and the relative sophistication of its productive structure are all ahead of the political class and the governing bodies. Dilma announced belatedly cutting 10 of the 40 plus cabinet positions, which in principle might eliminate some expense. Those in civil society find this laughable, as they know the whole bureaucracy could be halved with no loss of functionality.   Still, Brazilians have a strong state driven heritage, which is only slowly being called into account.

Another positive effect is the salutary debate on the type of economic model that Brazil desires. Brazil is a capitalist society tied to a broken down state capitalist system. The country is being forced to decide on its economic model.

Both Mexico and Brazil move by lurching, stumbling and repeating mistakes. Still, they are both too integrated and too sophisticated not to be part of a global political and economic system.   They may not be leaders but both are significant regional players that can use the free flow of information, people and goods to offer their population a bit more than token opportunities. This will depend on the demands and articulations in civil society as much as it will rely upon the slow change to effective governance.

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