Late last year, Ruchir Sharma wrote a short essay for Foreign Affairs in which he said, "no idea has done more to muddle thinking about the global economy than that of the BRICs." Sharma meant that too many pundits were buying growth extrapolations as gospel, when it turned out that the state capitalism model embraced by some of these countries might have a few flaws in it. And indeed, the announcement this week that China has decided to, "conduct a broad audit of debts incurred by government agencies" is a data point in Sharma's favor.
There's a related point about the BRICs that gets lost in the mist, however -- they're also behind the curve when it comes to their diplomacy. Now, part of this is because, Russia excepted, they are latecomers to a lot of these international institutions, so they still need to move down the learning curve. Part of it is that others believe that they're rising faster than they actually are, which can lead to a mismatch in expectations. In Foreign Affairs a few months ago, Manjari Chatterjee Miller noted:
Other observers fret about the pace of India’s rise, asking whether New Delhi is living up to its potential, whether the country’s shoddy infrastructure will hold it back, and whether it is strong enough to counter an increasingly ambitious China. All of this frenzied discussion, however, overlooks a simple fact: within India itself, the foreign policy elite shies away from any talk of the country’s rising status. As a senior official who has worked on India’s relations with Western countries recently told me, “There is a hysterical sense, encouraged by the West, about India’s rise.” A top-level official in India’s foreign ministry echoed the sentiment: “When do we Indians talk about it? We don’t."
Sometimes the two phenomenon combine to some curious BRIC behavior in international institutions... which leads to today's intriguing Financial Times story from Samantha Pearson and James Politi:
Brazil reversed its hardline stance on Greece’s bailout on Thursday, saying it had not authorised its representative to the International Monetary Fund to withhold support for the latest aid to Athens.
Guido Mantega, the country’s finance minister, said it was a “mistake” for Brazil’s representative, Paulo Nogueira Batista, to abstain on the €1.8bn tranche of aid. Mr Mantega said he fully supported the IMF’s efforts to supply financial aid to Greece.
“[Mr Nogueira Batista] did not consult the government, nor was he authorised by us to vote in this manner and the finance minister has ordered him to return to Brazil immediately to explain himself,” Brazil’s finance ministry said....
Mr Mantega’s statement was met with some disbelief among political consultants in Brazil, given that the finance minister has been among the most vocal of the IMF’s critics.
As well as leading efforts to create a rival development bank funded by the Brics – Brazil, Russia, China and South Africa – emerging economies in March, Mr Mantega has frequently complained about the damage that US stimulus measures have done to emerging economies.
Paulo Kramer, a political scientist with the University of Brasília, said Mr Mantega’s latest position may be a sign of his political weakness after almost three-years of subpar growth and amid calls for him to resign.
“He knows he is hanging by a thread,” Mr Kramer said. “Probably someone warned him to tone it down, to change his rhetoric about the first world always taking actions that damage the developing world.”
Do bear all of this in mind the next time someone says "The BRICS are coming!!!"
As I noted previously, compared to his GOP rivals, Mitt Romney has some actual foreign policy thinking going on. On the other hand, as Dan Trombly points out, doing better than Herman Cain or Rick Perry is a really low bar. So, looked at objectively, what's my assessment of Romney's foreign policy white paper?
I could go through it line by line, but James Joyner already did that for The Atlantic. As it turns out, I'm reaching a course called The Art and Science of Statecraft that will require students to write a grand strategy document. Sooo.... if Mitt Romney was one of my students, how would I grade him? See below:
You and your study team have clearly put a lot of work into "An American Century." It's cogently written and organized. Your basic statement of purpose -- "advance an international system that is congenial to the institutions of open markets, representative government, and respect for human rights (p. 7)" -- fits perfectly within the mainstream of American foreign policy thinking. You've done an excellent job of demonstrating an awareness of the complexity of threats that face the United States in the 21st century. I liked it on p. 6 when you noted that:
In the highly dynamic realm of national security and foreign policy there are seldom easy answers. Discrete circumstances in disparate regions of the world demand different kinds of approaches. There is no silver bullet for the problem of securing the United States and protecting our interests around the world.
You've also demonstrated an appropriate awareness that American power rests on more than a strong military. When you note that a Romney administration would "apply the full spectrum of hard and soft power to influence events before they erupt into conflict (p. 8)," I caught myself nodding along.
Some of the details are intriguing as well. I need to look more into these "Reagan economic zones" that you mention a lot, but applying them to Latin America and the Pacific Rim make a great deal of strategic and economic sense. I'm not fully persuaded that your notion of creating regional envoys to organize all "soft power resources" is all that different from the foreign policy czars or special envoys of administrations past, but this kind of argument fits well with your management background.
That said, there are some logical flaws and major gaps in this draft that will have to be corrected if you want to earn a better grade. The first problem is the style. I recognize that you've written this as a campaign document, so you're never going to completely eliminate the
unadulterated horsheshit allegations about the current president going on an apology tour. Maybe you could do it a bit more subtly in the future, however?
Secondly, there's a lack of historical awareness in some parts of the document. For example, on page 7 the paper says:
[A] Romney foreign policy will proceed with clarity and resolve. The United States will clearly enunciate its interests and values. Our friends and allies will not have doubts about where we stand and what we will do to safeguard our interests and theirs; neither will our rivals, competitors, and adversaries.
Now, reading this, I kept thinking back to the Bush administration and its repeated assetions that that there would be no hypocrisy in foreign affairs. Much like Bush, reality turned out to be trickier. I suspect you know this, from the other excerpts noted earlier. So get rid of this fluff: I'm sure statements like this play well in a management consulting boardroom, but it's not going to cut it in the real world.
Similarly, for someone who says that, the Obama administration is "undermining one’s allies (p. 3)" in contrast to you, who will "reassure our allies (p. 13)", you don't actually talk about America's treaty allies much at all. True, you do talk about expanding America's alliance system to include India and Indonesia. Mexico gets some face time. Israel gets a lot of face time. On the other hand, NATO is not mentioned once in this entire document. Neither is the European Union. Japan and South Korea get perfunctory treamtment at best. Turkey is a major treaty ally but you treat it like a pariah state. For someone who's claiming that the U.S. will reassure its major allies, you didn't seem to give them much attention at all. This is a really important problem, because Japan and Europe have been crucial allies in a lot of major American initiatives -- and they're getting weaker. Even in discussing new possible allies, I'm kind of gobsmacked that Brazil is never mentioned.
Another big problem is that your approach to China is so shot full of contradictions that I don't know where to begin. Do you seriously believe what you wrote on p. 3:
The easiest way... to become embroiled in a clash with China over Taiwan, or because of China’s ambitions in the South or East China Seas, will be to leave Beijing in doubt about the depth of our commitment to longstanding allies in the region.
Really? See, I'd say the easiest way to get embroiled in a clash with China is to write Taiwan a blank check on their defense needs. The second easiest would be to publicly bluster on about Taiwan to a Chinese leadership that feels increasingly insecure and will be tempted to stoke the fires of Chinese nationalism by creating another Quemoy and Matsu crisis.
Furthermore, you talk explicitly about supplying Taiwan with "adequate aircraft and other military platforms (p. 18)" in supposed contrast to the Obama administration. You also talk about strengthening relationships with other countries that neighbor China in an effort to preserve American dominance. Now, this might be a bit provocative, but I get the rationale. Here's the thing, though -- you can't simultaneously do this and assert that you will "work to persuade China to commit to North Korea’s disarmament (p. 29)." Really? How exactly are you gonna persuade them on this point? Do you really think that arming Taiwan to the teeth and blasting its human rights record will do the trick?
If the section on China is contradictory, then your discussion of Pakistan is worse. You state on p. 31-32:
It is in the interests of all three nations to see that Afghanistan and the Afghanistan/ Pakistan border region are rid of the Taliban and other insurgent groups.... Pakistan should understand that any connection between insurgent forces and Pakistan’s security and intelligence forces must be severed. The United States enjoys significant leverage over both of these nations. We should not be shy about using it.
There are at least two assertions in the quoted section that are highly dubious -- I'll let you find them on your own.
One final point, should you choose to revise this draft strategy -- you need to prioritize the threats you discuss in the paper. You list a whole bunch of them -- rising authoritarian states, transnational violence, failing states, and rogue states. If you have to prioritize, which threats merit greater attention? This should actually be pretty easy, since you absurdly overhype the threats posed by some of these countries (Venezuela, Cuba and Russia in particular).
I look forward to reviewing your later work.
Earlier this week Treasury Secretary Timothy Geithner went to Brazil as part of a long-running effort to get that country to pressure China on its exchange-rate policy. This effort had yielded some marginal successes in the past, but it had also yielded comments like Brazilian Foreign Minister saying: "I believe that this idea of putting pressure on a country is not the right way for finding solutions. We have good co-ordination with China and we've been talking to them. We can't forget that China is currently our main customer (emphasis added)."
The mild surprise is that Geithner's plea appeared to find a receptive audience in Brasilia. From the Financial Times' Joe Leahy:
Any alignment with the US on the issue of China’s currency would mark a fundamental shift for Brazil. Luiz Inácio Lula da Silva, Brazil’s previous president, had pursued a trade policy that was partially dictated by his vision of a grand “south-south” alliance among developing countries.
His pragmatic successor, Dilma Rousseff, is more concerned that Brazil exports primarily commodities to China while its domestic manufacturing industry is being undermined by a strong exchange rate and cheap imports.
Ms Rousseff has also toned down her predecessor’s criticism of US monetary policy, which Mr Lula da Silva’s administration blamed for exacerbating global capital flows....
One person familiar with the government’s stance said Brazil was considering a public declaration on global imbalances and China’s undervalued currency during Mr Obama’s visit.
“The idea is we might issue a communiqué in which maybe we can work in common language to try to stress this matter,” the person said.
What's going on? A few things. First, it's probably true that this shift won't amount to all that much in terms of affecting China's policies. Second, this is an effective way for Rousseff to distinguish herself from Lula, and she's backing up the rhetorical shift with action items. Third, Lula's foreign policy on this point was always based more on old-fashioned third world solidarity than anything approximating Brazil's national interest. Not that Lula's foreign policy was all that bad, mind you, but this seems more like a return to Brazil's equilibrium set of interests.
If the Obama administration was smart, they would capitalize on this newfound friendship with Latin America's largest country with some big, meaningful and yet highly symbolic foreign policy initiative. If only there was some moribund-yet-highly-useful foreign policy initiative that would cement the relationship. But that's just crazy talk.…
According to Bloomberg, Brazilian Finance Minister Guido Mantega would like the real to stop appreciating and for the rest of the world to cooperate on currency matters:
Brazil's real dropped the most in two weeks after Finance Minister Guido Mantega raised taxes on foreign inflows for the second time this month to prevent appreciation and protect exports from what he called a global "currency war."
Brazil, Latin America’s largest economy, raised the so- called IOF tax on foreigners' investments in fixed-income securities to 6 percent from 4 percent. It also boosted the levy on money brought into the country to make margin deposits for transactions in the futures market to 6 percent from 0.38 percent…
"This currency war needs to be deactivated," Mantega told reporters. "We have to reach some kind of currency agreement.” …
Mantega cited the Plaza Accord of 1985, when governments agreed to intervene to devalue the U.S. dollar against the yen and the German deutsche mark, as the kind of agreement that might be required. International policy makers failed to narrow their differences on intervention in currency markets during the International Monetary Fund’s annual meeting this month.
Hey, you know, I bet the G-20 would be a decent forum for Mantega to foster this kind of cooperation. It's a good thing that there's a G-20 Finance Ministers meeting this weekend in Seoul.
Brazilian Finance Minister Guido Mantega will not attend a meeting of Group of 20 member-country finance officials in South Korea this week, a Finance Ministry spokesman said Monday.
The spokesman said Mantega would remain in Brazil while the government studies possible introduction of foreign exchange policy measures to curb the strengthening of the country's currency, the real.
Brazil's government will be represented at the meeting by Finance Ministry International Affairs Secretary Marcos Galvao and Central Bank International Affairs Director Luiz Pereira.
Is this rank hypocrisy by Mantega? Not entirely. It's something worse -- a judgment by Brazil's policy principals that more will be accomplished by staying in Brasilia to stem the tide of inward capital flows than to go to Seoul to seek a multilateral solution to the current lack of macroeconomic policy coordination.
There's plenty of blame to go around on this, but if Brazil thinks the G-20 is not going to accomplish much… then the G-20 is a dead forum walking.
A few days ago Brazil's finance minister mentioned the phrase "international currency war." The Financial Times' Jonathan Wheatley and Peter Garnham are all over it.
An “international currency war” has broken out, according to Guido Mantega, Brazil’s finance minister, as governments around the globe compete to lower their exchange rates to boost competitiveness.
Mr Mantega’s comments in São Paulo on Monday follow a series of recent interventions by central banks, in Japan, South Korea and Taiwan in an effort to make their currencies cheaper. China, an export powerhouse, has continued to suppress the value of the renminbi, in spite of pressure from the US to allow it to rise, while officials from countries ranging from Singapore to Colombia have issued warnings over the strength of their currencies.
“We’re in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness,” Mr Mantega said. By publicly asserting the existence of a “currency war”, Mr Mantega has admitted what many policymakers have been saying in private: a rising number of countries see a weaker exchange rate as a way to lift their economies.
A weaker exchange rate makes a country’s exports cheaper, potentially boosting a key source of growth for economies battling to find growth as they emerge from the global downturn.
The proliferation of countries trying to manage their exchange rates down is also making it difficult to co-ordinate the issue in global economic forums.
South Korea, the host of the upcoming G20 meeting in November, is reluctant to highlight the issue on the gathering’s agenda, also partly out of fear of offending China, its neighbour and main trading partner.
On the other hand, South Korea is putting together an awesome ice sculpture for the summit. Seriously.
The FT's Alan Beattie details the abject lack of policy coordination and its implications in further detail:
Aside from China, whose intervention is one of the main causes of the global currency battle, several big economies have been intervening for some time. Switzerland started unilateral intervention against the Swiss franc last year for the first time since 2002 and did not sterilise it by buying back in the domestic money markets what it had sold across the foreign exchanges.
In common with several east Asian countries, South Korea, host of the Group of 20 summit, has been intervening intermittently to hold down the won during the course of this year. Deliberately weakening a currency while running a strong current account surplus has raised eyebrows in Washington.
Recently it was revealed that Brazil itself, which has been expressing concern since last year about inflows of hot money pushing up the real and unbalancing the economy, had given authority to its sovereign wealth fund to sell the real on its behalf.
The resort to unilateralism bodes ill for US hopes of assembling an international coalition of countries at the forthcoming G20 meeting to put pressure on China over its interventions to prevent the renminbi rising. While most of the countries currently intervening would be likely to welcome a revaluation of the renminbi, few emerging market governments seem to want to stand up to China publicly – barring sporadic criticism such as that from Brazilian and Indian central bankers earlier this year.
Last week Celso Amorim, Brazil’s foreign minister, said that he did not want to become part of an organised campaign. Following a meeting of the Brics countries – Brazil, Russia, India and China – in New York, he told Reuters: “I believe that this idea of putting pressure on a country is not the right way for finding solutions.”
Mr Amorim added: “We have good co-ordination with China and we’ve been talking to them. We can’t forget that China is currently our main customer.” Brazil exports commodities to China. (emphasis added)
It's also possible that Brazil and others fear a security dilemma kind of response from China. Either way, this demonstrates that, on the economic front, China's deterrent power is formidable (even if its compellence power has been exaggerated).
Now, there are some who argue that this kind of beggar-thy-neighbor policy could be a blessing in disguise, because it might amount to massive monetary easing. I tend to side with Michael Pettis, however:
[W]e know how that game ends. In 1930, following France’s very successful 1928 devaluation and Britain’s tightening of trade conditions within the Commonwealth, the world’s leading trade-surplus nation passed the Smoot-Hawley tariffs in a transparent attempt to gain a greater share of dwindling global demand. This would have been a great strategy for the US had no one noticed or retaliated, but of course the rest of world certainly noticed, and all Smoot-Hawley did was accelerate a collapse in global trade which, not surprisingly, hurt trade surplus countries like the US most.
We seem to be following the same path, and in a beggar-thy-neighbor world any country that does not participate in retaliatory policies will suffer. The only question is which retaliatory policy. I suspect that countries that can intervene in the currency and manipulate domestic interest rates will select those polices as the most efficient way of intervening in trade. Countries that cannot will almost certainly resort to trade tariffs. And it is probably too late for global policy coordination to make much of a difference.
To be fair, the demand for global policy coordination since 2008 has been much higher than normal. That said, it seems that on this issue, the G-20 has fallen flat on its face.
Developing … in a very depressing way. Literally.
So, in the past 36 hours there has been news about two deals involving Iran. The first one involved an arrangement brokered by Turkey and Brazil:
In what could be a stunning breakthrough in the years-long diplomatic deadlock over Iran's nuclear program, Tehran has agreed to send the bulk of its nuclear material to Turkey as part of an exchange meant to ease international concerns about the Islamic Republic's aims and provide fuel for an ailing medical reactor, the spokesman for Iran's foreign ministry told state television Monday morning.
Whether this was really a breakthrough or just a last-minute dodge by Iran to fend off sanctions, commentators mostly agreed on two things: A) This showed how Turkey and Brazil were new heavyweights in international relations; and B) This would complicate and delay a new round of United Nations sanctions.
All well and good, except that now there's another breakthrough.... on a new round of Security Council sanctions:
The United States has reached agreement with Russia and China on a strong draft resolution to impose new United Nations sanctions on Iran over its uranium-enrichment program, Secretary of State Hillary Rodham Clinton announced Tuesday.
Appearing before the Senate Foreign Relations Committee in a scheduled hearing on a new strategic arms reduction treaty with Russia, Clinton shrugged off a surprise deal announced Monday in which Iran would swap a portion of its low-enriched uranium for higher-grade uranium to power a research reactor that produces medical isotopes. The deal, brokered by Turkey and Brazil during a high-level visit to Tehran, was meant in part to assuage concerns over Iran's nuclear program and discourage new U.N. sanctions.
"Today I am pleased to announce to this committee we have reached agreement on a strong draft with the cooperation of both Russia and China," Clinton said in an opening statement. She said the United States has been working closely for several weeks with five other world powers on new sanctions and plans to "circulate that draft resolution to the entire Security Council today."
Well, this is an interesting development. What's going on?
I think the key is that Russia was not persuaded by the Turkey-Brazil-Iran deal:
Sergei B. Ivanov, the deputy prime minister of Russia, was similarly skeptical at a lunchtime speech in Washington. He said he expected the sanctions resolution to “be voted in the near future,” and said that the new Iranian accord should not be “closely linked” to the sanctions effort. “Iran should absolutely open up” to inspectors, he said. That statement was significant because Russia had been reluctant to join sanctions several months ago. China, which has also been hesitant, issued no statement.
With Russia firmly on board, and China apparently unwilling to ge the lone P-5 holdout, Monday's Iran deal had no effect on the calculus of the Security Council.
Why was Russia unpersuaded? To date, Russia and China have taken advantage of any Iranian feint towards conciliation as an excuse to delay sanctions. What's different now?
I'd suggest three possibilities, which are not mutually exclusive:
1) Russia is genuinely unpersuaded that Monday's deal is anything more than marginally useful;
2) Russia is just as annoyed as the United States at the
young whipperrsnapper countries rising powers of the world going rogue in their diplomacy. Russia is, in many ways, more sensitive to questions about prestige than the United States;
3) Cynically, there's little cost to going along with the United States on sanctions that will have very little impact on the Russian-Iranian economic relationship.
Commenters are encouraged to provide additional explanations below.
In the New York Times, Alexei Barrionuevo has a long story on Brazil's renewed oil nationalism. Some highlights:
Faced with the world’s most important oil discovery in years, the Brazilian government is seeking to step back from more than a decade of close cooperation with foreign oil companies and more directly control the extraction itself.
The move is part of a nationalistic drive to increase the country’s benefits from its natural resources and cement its position as a global power. But it could significantly slow the development of the oil fields at a time when the world is looking for new sources, energy and risk analysts said....
For Brazil, the stakes are high. Many here see the oil as a magic bullet for tackling the country’s biggest social challenges. Luiz Inacio Lula da Silva, Brazil’s popular president, wants to alter energy laws to funnel more revenue from the undeveloped fields to government coffers and set up funds to improve education and health care. His proposal will be delivered to Congress sometime next week, one of his aides said Monday.
Despite its recent economic boom, Brazil still struggles with extreme poverty, inequality and an illiteracy rate over 10 percent.
Government officials here insist Brazil will not be swept up in the sort of nationalistic fervor that has washed across Latin America in recent years. As Mexico did in the late 1930s, Venezuela, Bolivia and Ecuador have reduced the presence of foreign energy companies, only to have their production of oil and natural gas stagnate or decline....
With Brazil’s green and yellow flag draped over the stage, oil union members watched a new documentary here last month, “The Oil Must be Ours — Ultimate Frontier.” In the film, geologists, union leaders and even a 92-year-old physician, Maria Augusta Tibiriçá, discuss how the new fields could generate “trillions of dollars” and transform Brazil’s future.
A dozen union members led off the evening with a rendition of Brazil’s national anthem, then “It Will Happen,” a song written for the movie that blends bossa nova and samba rhythms.
If oil “is very deep under the sea,” they sang, “will we play to win?”
The new nationalistic fervor recalls the 1970s and 1980s, when Brazil’s military government declared that “the Amazon is ours” to ward off foreign encroachments on the rain forest.
Hmmm..... it is certainly possible that Brazil can avoid the Bolivarian conundrum. Many national oil companies (NOCs) are as well-run as private oil companies and with strong anti-corruption controls.
Those NOCs are the exception rather than the rule, however -- and the history of Brazilian governance does not fill me with confidence (the fact that Lula's choice to succeed him is also "the chairwoman of the Petrobas board of directors" could cut both ways as well).
The use of nationalism to gin up support for this strategy is also worrisome. Nationalism is a powerful force, and to be fair to Lula, there's no evidence that he's whipping up nationalist fervor to support aggressive foreign policy actions. In my experience, however, nationalism provides excellent political cover for all kinds of institutional and economic chicanery. Which means that the odds of the best-laid intentions going awry in this oil project seem pretty damn high to me.
Daniel W. Drezner is professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University.