The Inflation Tiger – Rising

The announced inflation rate for China signaled again the emergence of inflation as a serious global economic issue.  At the moment it lies principally with large emerging market countries notably in China, India and Brazil.

The Chinese government has targeted 4 percent.  But China’s consumer prices rose at 5.4 percent on a year-on-year basis in March.  This level represents the biggest inflation jump since July 2008.

Meanwhile in India inflation rose at almost 9 percent in March after rising 8.3 percent in February.

Finally, in Brazil the consumer price benchmark rose to 6.44 percent, which is the fastest rate in 2 years.

These major emerging economies are responding with increases in interest rates.  Thus, China’s central bank announced recently its fourth increase in cash reserves for the large banks in China.  These banks must now set aside 20.5 percent  of their cash reserves representing an increase of half percent.  It is then hoped that banks in will reduce their loans to take account of the need to retain larger cash reserves.

Brazil raised its central bank rate to 12 percent representing a quarter point increase – this after two previous increases of a half percentage each.  This interest rate is the highest of any major economy.

All these emerging markets, and others, plus developing countries are experiencing significant increases in food prices as well as energy prices.  The interest rates and inflation rates appear to contrast with the traditional economies – the US core rate rose at 1.2 percent, though the CPI is at 2.7 percent and Europe with a 2.7 percent increase though this represents the highest rate in two years. This increase though significantly lower than the large emerging markets has prompted an interest rate rise by the European Central Bank.

The rising emerging market rates – have helped fuel the appreciation of their currency – the Real has risen some 40 percent since early 2009.  Yet this interest rate efforts  – to deal with inflation – have had the perverse effect of only further encouraging capita inflows precisely what the the Brazilian government, for example, has been trying to staunch since it only causes the currency to further appreciate.  China does not suffer from this vicious cycle only because its currency is managed – indeed presumably significantly undervalued – as argued by US officials and others.

Where does this leave the large emerging markets.  For China the rising inflation may encourage a more rapid appreciation of its currency. Wage and product price increases may likely follow and the virtual circle where China growth and lower pricing may come to an end.  China may well export inflation as well as goods.  India may do the same.

For Brazil there are strong voices urging that the Brazilians need to shift to their own form of managed currency (see Roberto Luis Troster’s  Feature of the Week at the Munk School Portal) to constrain the vicious cycle of inflation and interest rate hikes leading to further currency appreciation.

The Inflation Tiger is indeed dangerous.

Failing to Step Up

One thing I know my Brazilian colleagues are waiting for is a public commitment by President Obama – while in Brazil – to support Brazilian membership to the United Nations Security Council (UNSC).  Obama while in India gave strong vocal support to India’s bid for membership.  But it appears that he has yet to do so while on this current trip to Brazil.

Such a failure would not go unnoticed by Brazilian IR experts and policy makers.  And such a failure would not go unnoticed by IR experts more generally.  Why?  Simple.  The support for India would be support for a UNSC membership that would remain uniformly NWS – Nuclear Weapons States – while public support for Brazil would extend US support to a non-nuclear weapons state – NNWS.

It is therefore a public declaration that should come sooner rather than later.

Brazil and Global Leadership

Now my excuse on waiting to blog on the Brazil meeting (November 21st-22nd, “Global Leadership: The Role of Brazil and the US and the Agenda for the 21st Century) referenced in my blog post “Constructing New Leadership“, was in anticipation of the finaling of the meeting’s consensus document. Well the document is now out and you can review it at the Stanley Foundation website.

The Conference in Rio de Janeiro hosted by CEBRI , the Brazilian Center for International Relations,  lasted a day with Brazilian and US experts – yes, your right,  once again I was the interloper in the crowd – in Rio de Janeiro hosted at Cebri offices and focused on global governance leadership questions.  It was both a lesson for me in Brazilian motivations, attitudes and behaviors toward the United States and Brazil’s role in international relations.

Brazil feels highly satisfied by its emergence as a rising power.  Brazilians have always seen themselves as a great power but their domestic political and financial conditions in particular always seemed to get in the road.  But they believe that – finally – they have made it.  As one Brazilian expert pointed out Brazil always saw itself as “Greece upside down”.  The Greeks always look back to a golden age; but Brazilians always look forward.  Brazilians now believe they have gotten their democratic politics right; they have emerged as a multicultural/multiracial society; and their economics and finances have overcome the limitations and manipulations of earlier decades.  They are proud of President  Lula – who leaves on January 1st extraordinarily popular – leaving the presidency  to his PT party successor, Dilma Rousseff.

Brazil was – as one of the Outreach 5 (Brazil, China, India, Mexico, South Africa) and was most vocal in questioning the legitimacy of the G8.  Now, of course, with the emergence of the G20 leaders club it sits at the heart of global governance leadership.  But there is no sense that Brazilian experts feel that it needs to shoulder greater leadership responsibility.  While it is possible, even likely, that President Lula took on an animated role discussing issues in Seoul (he didn’t show up in Toronto), his countrymen seem less inclined to claim a visible leadership role.  Evaluate the following from the Report:

A Brazilian participant helped explain why his foreign policy expert compatriots are hesitant about new global political responsibilities when he noted that Brazil’s basic outlook is to be generally satisfied with its strategic position and lack of immediate threats. Conversely, in other words, the United States has not been totally convincing as it argues for urgent action and the unsustainability of the status quo. Naturally, all participants hope their countries join each other and the rest of the world for enough international cooperation to promote the steady spread of peace and prosperity.

The lack of enthusiasm for seizing leadership was sharpened by the difficulties encountered by Brazil with Turkey when President Lula tried to mediate the proliferation issues between Iran and the P6 (the permanent members of the Security Council plus Germany).   The rather harsh public dismissal by Secretary of State Hillary Clinton of the compromise offered by Brazil and Turkey certainly embarrassed President Lula – and did nothing to encourage the President or Brazil to continue his efforts.

But international leadership remains in flux.  The greater diversity of leadership seen most evidently in the G20 suggests a more-concert-like structure for global governance.  But how to move from American hegemony to a diverse concert of powers that may not reflect like-mindedness is not clear at all. As the Report identifies:

The task of integrating newer pivotal powers into the multilateral order and adapting its structure, norms, and policy frameworks involves intertwined challenges. The international system must make room for the new players to assume a bigger role— which calls for traditional powers to welcome political leadership and policy ideas from new quarters, support adjustments to multilateral decision making, and address their own leadership shortfalls. In return, the emerging powers must give tangible content to their new stature by shouldering some of the burden of leadership, bolstering key international norms, and adding their impetus and influence to resolution of major global problems.

Constructing New Leadership

An area of obvious difference between the Brazilian and American experts in Rio de Janeiro at Cebri was the question of leadership actions by the rising states.  Much like the Obama Administration, many US experts urged that Brazil  – as other rising powers – needed to step up and take greater responsibility for global governance.  The Brazilians were skeptical of the variously expressed views by US experts that Brazil needed to accept a “pay-to-play” approach to leadership.  Like the US Administration many of these experts urged that Brazil  needed to take responsibility first – to shoulder the burden of leadership – and receive leadership benefits subsequently.  As David Shorr, the Program Officer of the Stanley Foundation, co-host of the Brazil meetings, suggested in the “Discussion Summary” “… the United States has not been totally convincing in making the case for urgent action and the un-sustainability of the status quo.” – Yes I know I haven’t done a full review of the Stanley Foundation-Cebri conference, notwithstanding an earlier promise – and it won’t be done here. But I will tackle it – really.

In struggling to construct a new global governance leadership in the  contemporary circumstances there is no more frustrating calculation than understanding the nature of the relationship between the US and China.  Here is the quintessential traditional power-rising power  conundrum.  This is the power transition in ‘spades’. How should China and the United States interact and to do so in a way to move forward on some of the growing challenges to global governance?

In Sunday’s NYT (November 28, 2010) Helene Cooper in “Asking China to Act Like the U.S.” explores the complex nature of the US-China relationship.  As Cooper suggests, the critical question “turns on a question that is, at its heart, an impossible conundrum: How to get Beijing to make moves that its leaders don’t think are good for their country?” What is evident is that increasingly in the China-US relationship, but also more generally in the rising power relationships, the US is apparently asking the new and diverse leadership circle to take actions that fail to be in conformity with their national interests.

Among others, Cooper turns to some of the realists – possibly neo-realists – in the Washington circle.  And you won’t be surprised these folks are hardly supportive of the current Administration.  One of the identified critics is David Rothkopf a former US official in trade and a former managing director of Kissinger Associates – and now a strategic consultant in the Washington beltway.  For Rothkopf the problem is clear – and so is the answer for that matter.  As Rothkopf sees it this Administration is, as he says, “…still struggling with a post-unilateralist hangover.”  Rothkopf concludes:

… the United States is heading into a future in which countries like China, with independent sources of power, are not reliant on or easily influenced by the United States, and so are pursuing their own national interests.

Given this, what does Rothkopf and others offer up – good old fashioned balance of power? So whether its dealing with global imbalances and exchange rate regimes or the problems of North Korea and nuclear proliferation, it would seem that Rothkopf urges a return to the past.  As he says:

… the United States must first determine the areas where China won’t bend, and work with Beijing to find compromises so that America is not in the impossible situation of trying to tell China to act against its own national interests.  … We have moved from the cold war era of bipolar reality through the brief bubble of sole superpower unilateral fantasy into a world of a new multipowered system which requires old-fashioned balance-of-power diplomacy.

Why “Washington” is appealing to the nineteenth and twentieth century tools of international relations – which seldom worked then – and are even more unlikely to work in the complex contemporary global governance world – is hard to understand.  It is familiar but promoting renewed rivalry and competition with the China’s and Brazil’ of the world hardly seem the way to fashion a new leadership.  And I don’t think it will.

What will?  I promise – really – to examine and answer this conundrum in an upcoming blog post.

Moving to Sunnier – at least Warmer – Climes

Barely back from the Seoul Summit, I have had the good fortune to do a little temperature taking _ and I don’t mean the outside temperature – here in Brazil.  With the auspices of Cebri (Brazilian Center for International Relations) – one of the few policy think tanks in Brazil – and the Stanley Foundation from the US, Adriana de Queiroz and David Shorr led a lively dialogue session on Brazil.  The dialogue sessions went from Sunday afternoon through Monday late afternoon and covered a lot of ground.

And that will be the subject of the next blog post.

BRICSAM and the G20: A Week Later

The London G20 summit turned to be an unanticipated success. In the weeks and days before the event, signs were gloomy of any positive outcome. The French and Germans were saying ‘no’ to any major collective stimulus package. Gordon Brown as host was losing his personal bounce amidst increasingly pessimism about the UK economy. And even the Barack Obama phenomenon, as directed towards his trip to the London G20, appeared to be more about style than substance.

On the day, however, the G20 turned sunny like the actual weather in London. Although the tensions between the ‘Anglo-Saxon” stimulators and the Continental regulators were still played up the real agenda was playing out in other ways. As predicted by CIGI blogs in the past the trans-Atlantic tensions should increasingly be seen as the side show. The Continue reading

Brazil’s new Vision: Imagining a Great Power?

Brazil is thinking big.  I mean Big!  On December 19, 2008 President Luiz Inacio Lula de Silva – Lula in other words, released a new national defense strategy. This document called for: upgrading Brazil’s military forces and for remaking the defense industry.  And – contentiously for the Brazilian public, it called for Brazil’s mandatory military service to be enforced on all Brazilian classes.

As noted by Alexei Barrionuevo’s New York Times piece: “The new strategic vision, more than a year in the making, calls for Brazil to invest more in military technology, including satellites, and to build nuclear-powered submarine fleet that would be used to protect territorial waters and Brazil’s deepwater oil platforms.  The proposal also calls Continue reading

Brazil In or Out Part II

Just before I get to Brazil, I want to let readers know that through some technological blogging magic, we are able here at Rising BRICSAM to allow guest contributors to add blog posts. Look for my colleague Art Stein, Professor of Political Science, UCLA to guest contribute very shortly. Hopefully others will follow where appropriate. And now back to Brazil.

In an earlier blog post I examined the economic leverage that Brazil brings to the table. Looking principally at Denise Gregory and Paulo Roberto de Almeida’s Brazil chapter – “Brazil and the G8 Heiligendamm Process,” (I apologize to Paulo. In an earlier blog post I identified him with CEBRI where his co-author Denise is the Executive Director but he is formally, Diplomat and Professor at Uniceub, Brasilia) a research chapter in Andy Cooper’s CIGI Project on Economic Diplomacy and specifically on the Heligendamm Process and the O5. In addition, I took note as well of the Brazil Chapter from the Continue reading

Brazil: In or Out – Part I

It’s a persistent question – is this new large emerging economy a member of the group – Rising BRICSAM – and if so, how? Brazil is frequently subjected to this inquiry. Paulo Sotero and Leslie Elliott Amijo undertook exactly that inquiry in the formerly mentioned Asian Perspective on the BRICS. The article by Paulo Sotero and Leslie Elliott Armijo, “Brazil: To be or not to be a BRIC?” pp. 43-70. An equally insightful analysis on Brazil has been prepared recently for Continue reading