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As Brazil's Economy Grows, So Does Its Geopolitical Ambition

Monday, 25 Apr 2011 | 11:44 AM ET

China had the Olympic Games, South Africa had the World Cup.

Brazil will soon host both — within two years of each other.

Now that's ambition and recognition.

US President Barack Obama and Brazilian President Dilma Rousseff
Pedro Santana | AFP | Getty Images
US President Barack Obama and Brazilian President Dilma Rousseff

As far as economies go, the world's seventh largest has been one of the BRICS for a decade, but when it comes to its geopolitical role, Brazil wants to be seen as a rock.

"The symbolism is huge," says Shannon K. O'Neil, who follows Latin America at the Council on Foreign Relations. "All of a sudden the world will see Brazil beyond pictures of carnival. For Brazilians, it means they will finally be at the center of the world stage."

And what a long, strange trip it's been.

After a century of a coffee economy, the 20th century brought revolution, protectionism, an economic miracle amid a series of military juntas, a debt crisis, a decade of hyperinflation and the impeachment of a civil president.

"In the past, Brazil's reach has always exceeded its grasp," says Eric Farnsworth, VP of the Council of the Americas, and a former Clinton administration official. "It always saw itself as a leader, but has been frustrated that the world saw it another way. The Brazilian economy is developing to the point where it does have the global heft that people have to take it seriously."

Access: Brazil - A CNBC Special Report
Access: Brazil - A CNBC Special Report

That development has already brought a quadrupling of GDP since 1993 to $2.09 trillion, right before the 1994 introduction of the now famous Real Plan, a group of measures meant to snuff out inflation and stabilize the economy.

"That was the turning point," says Carlos Pereira of the Brookings Institution and Michigan State University, who calls the Real Plan one of two catalysts for the the geopolitical ascent of Brazil.

The other — a 1988 constitutional change that delegated greater powers to the president —was exemplified in Luiz Inácio Lula da Silva, aka Lula, who promoted and advanced Brazil's transformation into a global power until the end of his presidency in January.

"Brazil is definitely benefiting from the the right policies, and regaining international credibility and more recognition," says Pereira.

Stepping Up

In recent years, Brazil has stepped up in a number of diverse areas, say analysts, from leading the UN peacekeeping force in Haiti following President Aristede's exit — a very tough assignment — to providing generous financial aid around the world, especially in Africa, something of a counterbalance to China's efforts, to shaping the debate on climate change.

"You've seen under Lula the vindication of democratic capitalism." -Former Bush Administration Official, Roger Noriega

That aid — also in the Middle East and Caribbean — has been matched by commercial endeavors, notably ethanol production, an area where Brazil has been a market leader.

"In some ways they're competing with China for influence and economic opportunity," says O'Neil.

More recently, Brazil — which survived the financial crisis better than most — played an important role in post-crisis G20 initiatives on banking regulation, currencies and other financial issues. It's also been more involved in World Bank and IMF initiatives and policies.

"This is a role the rest of the world would not have ceded to Brazil in the past," says Farnsworth.

"Whether it's in G20 and multi-lateral architecture or climate change, Brazil is now one of those in the room at the end," adds Shannon

Lula — though a committed Socialist, oddly enough had a very positive personal relationship with President George W. Bush — also played a role in mitigating friction between the U.S. and Venezuela's populist president Hugo Chavez.

"You've seen under Lula the vindication of democratic capitalism, when it was under fire by some, as it was in Venezuela," says Roger Noriega, a former Bush administration official who specialized in Latin America.

Role In The UN

Yet, for all of his domestic and foreign policy accomplishments, Lula, who was succeeded by his former chief of staff, Dilma Rousseff, fell short in one key goal: securing a permanent seat on the UN Security Council.

Brazilian army soldiers acting as U.N. peacekeepers in front of the presidential palace in Port-au-Prince, Haiti.
Thony Belizaire | AFP | Getty Images
Brazilian army soldiers acting as U.N. peacekeepers in front of the presidential palace in Port-au-Prince, Haiti.

Brazil has been seeking inclusion for years, but, unlike India, has yet to receive explicit U.S. support. President Obama's visit to Brazil in mid-April once again raised, and then dashed, those hopes.

Inclusion, more than anything, say analysts, is the fulcrum of Brazil's global status.

Brazil's handling of the recent UN vote on the Libya no-fly zone is an excellent example, say analysts. In keeping with its general opposition to military intervention, Brazil abstained.

"Leadership comes with obligations," says Farnsworth. "I think it [voting yes] would have been a positive signal."

Brazil's move was reminiscent of its abstention in the case of sanctions against Iran several years ago. Washington and Brazilia also differed on the Honduran coup of 2009.

Analysts also say Brazil has also not done enough in tackling cocaine trafficking. Though the country is not a producer, Bolivian cocaine is transported through its territory. (Brazil is second only to the U.S. in consumption of of the drug.)

"If they're going to stand up and be a leader they'll have to take some responsibility in these areas," says Noriega, who was Ambassador to the Organization of American States. "What is their role with drug trafficking, Chavez and Iran?"

China And Oil

Another complicated issue is Brazil's relationship with China, which President Russeff recently visited.

Beijing and Brazilia are cooperating in space exploration. What's more, although the two compete in many markets, China's hunger for commodities has pushed it past the U.S. as Brazil's biggest trade partner. (Some 12.5 percent of Brazil's exports go to China, vs. 10.5 percent for the U.S., according to the CIA World Factbook.)

Brazil is a major producer of soybeans, wheat, rice, corn, sugar cane, citrus and beef. It also boasts bauxite, gold, iron ore, platinum, rare earth elements, uranium, timber and petroleum among its ample natural resources.

Farnsworth sees a "strong vision of cooperation with China that is not necessarily in the U.S. interests."

World Cup, Global Stage

Brazil's trade prowess, as well as its choice of customers, will only become more pronounced, as it yields results from a major crude oil discovery off the coast of Rio de Janiero. The country already produces more than 2.5 million barrels of oil a day.

Petrobras Oil Rig
AP
Petrobras Oil Rig

"The fact that they have that vast resource will be an important bit of leverage for them," says Noriega.

And that could include the U.S., assuming Washington wants to rely less on crude oil from the Middle East.

Navigating that challenge, however, is probably still many years away.

More pressing is the build up and hosting of the FIFA World Cup in 2014 and the summer Olympic Games in 2016, which will cost tens of billions of dollars in infrastructure. Other countries have stumbled in the execution of one or the other event, never mind both.

"It says an awful lot that they took this on," says Noriega, now with the American Enterprise Institute. "And the international community was eager for [the events] to be there. It's a real vote of confidence."

And a test of Brazil's economic stewardship.

Access: Brazil - A CNBC Special Report
Access: Brazil - A CNBC Special Report

"It doesn't mean a blank check for the president — the government can spend too much," worries Brookings' Pereira, who also teaches at São Paulo School of Economics and School of Business, Getulio Vargas Foundation. "It will generate huge pressure and runs the risk of [the economy] overheating."

Temptation will be great.

By the time of the Olympics, Brazil is expected to be the world's fifth largest economy and the new oil petroleum field will be producing.

"Yes, the resource curse," says O'Neil. "We've seen how it hasn't turned out so well for other countries. Brazil has to be cognizant of that."


Watch our special coverage, "Access Brazil," Monday-Thursday, April 25-28. Maria Bartiromo and Michelle Caruso-Cabrera report from Brazil on Squawk On The Street, 9-11am ET, Power Lunch, 1-2pm ET and Closing Bell, 3-5pm ET on CNBC.