Brazilian Minister Acknowledges Asymmetries in Mercosur

August 29, 2008

Text of report by Brazilian news agency Agencia Brasil website

["Minister Underscores Expansion of Brazilian Economy to New Markets" - Third and last part of an interview with Brazilian Presidential Adviser Marco Aurelio Garcia by Ivanir Jose Bortort and Yara Aquino, date and place not given.]

Brasilia: In this third and final part of the interview, Minister Marco Aurelio Garcia, special adviser to the President’s Office on international affairs, analyses Brazil’s agenda for negotiating with Paraguay regarding electricity from Itaipu.

He also discusses biofuel production and other projects geared to the agricultural sector.

According to him, the negotiation regarding Itaipu will be conducted by the Ministries of Mines and Energy and Foreign Affairs.

Garcia feels it is time to strengthen the institutional aspects of Mercosur and Unasur [Union of South American Nations], especially the Mercosur structure in Montevideo, which is considered very fragile, so as to create the conditions for strengthening regional trade.

[Agencia Brasil] Thanks to the strengthening of the Brazilian economy and currency, our firms are expanding their business into the South American countries and expanding their industries into new markets. How do you view that process?

[Garcia] I view it as a positive factor, especially since we have two problems here. We currently have very unbalanced trade relations in Brazil’s favour. We have a trade balance surplus with every country in the region except Bolivia (because of the gas imports). This shows that trade relations often do not resolve the asymmetries existing between the South American economies; on the contrary, they even make them worse. One way in which we can compensate for that – aside from the multilateral mechanisms such as funds, infrastructure programmes, and financing that Brazil has been providing for the construction of public works in those countries – is precisely in the area of investments. And to a large extent, Brazil is being sought out to stimulate the countries that need investments.

[Agencia Brasil] Are there specific areas preferred by Brazil and its partners?

[Garcia] That depends greatly on the country. There are investments in the areas of petroleum, gas, and mining. Petrobras is present today in Argentina, Colombia, and Peru. We have mining companies such as the Rio Doce Valley Company, and we have a strong presence in the industrial area, and that is in our interest because one way to establish a more balanced relationship with the countries in the region is to help them move forward with an industrialization process – whether complementary to our industries or those of Argentina or on their own. Brazil has been greatly stimulating the industrial and agricultural development of Venezuela.

[Agencia Brasil] Does the model being designed by the Brazilian Government involve greater economic integration?

[Garcia] That is at least the movement that we have been trying to encourage. Our economy is a market economy; it is possible for us to stimulate investments – to guide them – but not to say where a particular factory is going to go. But government policies are fundamental on that point.

[Agencia Brasil] How are the development institutions we have being used for that purpose?

[Garcia] They are being used basically in the case of infrastructure. We are financing a tripartite public works project by Brazil, Bolivia, and Chile that would make it possible to open a road from Porto Alegre through Argentina to Chile. That will completely alter Pacific-Atlantic integration. Brazil has also opened an extremely important line of credit for the Bolivia Northward project and is prepared to finance the power transmission line from Itaipu to Asuncion in Paraguay.

[Agencia Brasil] In the specific case of Paraguay, there has even been talk of a Marshall Plan (the principal US plan for rebuilding the allied countries in Europe in the years following World War II; it was named after Secretary of State George Marshall) – an economic development plan. You spoke to Fernando Lugo on Brazil’s behalf before the elections. What was decided?

[Garcia] We must be careful in discussing this so that it will not seem that we want to tell the Paraguayans what they must do – especially since they know very well what to do. I would say that we are going to have two major problems in that area. One is Itaipu, concerning which we expect to continue negotiating just as we have been negotiating until now. During the previous administration, under Nicanor Duarte, Brazil made a number of moves that completely improved relations between the two countries as regards that hydroelectric plant, which is of great importance to us from the standpoint of electricity. For Paraguay even more than that, it has great importance from the financial standpoint. A significant portion of the money Paraguay receives comes from Itaipu. So it is natural that they would want to improve the terms of their remuneration for electricity. We chose to conduct a calm and peaceful negotiation. I was there shortly before President (Fernando) Lugo’s inauguration, I spoke with him twice, I was with his team, and we agreed that we would negotiate not through the press but at the negotiating table. There are a number of demands that we consider plausible and others that we do not.

[Agencia Brasil] What will that negotiation be like?

[Garcia] They supplied an agenda that seemed good to us, although this does not mean that we are going to agree with everything on it. But it strikes us as an excellent list of topics for negotiation. At the same time, Itaipu’s Brazilian and Paraguayan directors have already held discussions a few times, and those conversations were very positive. In Brazil’s case, the negotiations will be conducted by the Ministries of Foreign Affairs and Mines and Energy, making them much easier. The second problem is linked to the idea for a larger development project for Paraguay. Paraguay is a country with sizable agriculture, and we can provide agricultural cooperation. I have the impression that in Paraguay, the essential thing is to know whether the Paraguayans want to develop an industrial programme for their country. They have a very important asset, which is electricity: they have the highest amount of electricity per capita in the world. A big share of that electricity is exported, but it could be shifted to Paraguayan industry. The Paraguayans themselves have told us that they want to change the country’s image – that of a country of forgers and counterfeiters. I am sure there would be interest on the part of Brazilian businessmen, and a number of Brazilian firms are getting ready to announce investments there in the area of capital goods. I feel there is a possibility of that being extended to other sectors such as consumer goods for the domestic market and also for export. Another subject we have been discussing there even longer is the biofuel industry. It would be perfectly easy for them to begin producing ethanol and biodiesel. Lastly, the inauguration of a new president creates conditions and possibilities enabling a country to rethink its economic calling and, as a result, to see where Brazil and other countries in the region can genuinely help.

[Agencia Brasil] Is that a process with the traditional model of private investment? And can Brazilian development agencies invest where necessary? A project shared by the two countries?

[Garcia] Yes. The Paraguayans will set the conditions, and to some extent, that model is the one we believe can be extended to other countries such as Uruguay. Another important point is that Brazil has signed a new automotive agreement with Argentina. For the first time in a long time, it is a six-year agreement, meaning that it creates stability. The previous agreements were annual, so they had little impact. Under this six-year agreement, one of the first effects we are noting is that Argentina has now resumed its automobile production, although it has lost many auto parts companies in recent years. It is possible, however, that the auto parts industry will come back because that agreement, being of six years duration, has a number of potential effects on the automotive industry. We accept that. The agreement will be extended to Paraguay and Uruguay. This means we would have the possibility of seeing to it that Paraguay and Uruguay also share in that division of labour.

[Agencia Brasil] What is the model for that agreement?

[Garcia] It establishes very favourable conditions for the process of reindustrializing Argentina. The Brazilian automobile industry has accepted it. To give you an idea, many companies that were in Cordoba (Argentina) moved to Brazil, but they may very well return. Moreover, we have the possibility of making Paraguay and Uruguay part of it. We were talking to the Argentine minister about the possibility of beginning a process of integration with the Argentine aeronautical industry based on very sizable purchases that Argentina will make from Embraer (Brazilian Aeronautics Company). Argentina’s aeronautical industry was very important in the past.

Originally published by Agencia Brasil website, Brasilia, in Portuguese 27 Aug 08.

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