Opinion: rethinking Latin America based on Brazil

By Clemente Ruiz Durán, Mexico

(Opinion) Last Sunday’s elections gave victory to Lula da Silva, who obtained 50.9% of the votes over the outgoing president, Jair Bolsonaro, who achieved 49.1%.

This very close margin shows the great division in Brazil, the largest economy in Latin America, with a GDP of US$1,609 billion; followed by Mexico, with US$1,298 billion, and Argentina, with US$487 billion.

The victory was by a very narrow margin, just two million votes out of 124 million casts, with a population of 214 million.

According to World Bank figures, the volatility of Brazil’s growth is very similar to that of Mexico, and the average growth in the last 25 years coincides, as we have been slow-growth economies.

Between 1997 and 2021, the average GDP growth was 2.1 percent in both countries; however, with divergent development models.

While Mexico opted to maintain an industrialization process linked to exports, Brazil chose to consolidate a model based on exploiting natural resources.

Manufacturing in Mexico today accounts for 18 percent of GDP due to maintaining export industrialization; Brazil, on the other hand, only accounts for 12 percent, as it opted for a process of deindustrialization and consolidating a model of raw material exports.

The adoption of this route was based on the growing demand for raw materials from Asian countries; thus, Brazil’s leading trading partner is China, with 32 percent, and the United States, with 10 percent, while in the case of Mexico, the top trading partner is the United States.

Mexico’s export model has been based on North American countries; we are the main partner of the United States.

As a result of the Free Trade Agreement, three-quarters of our exports are destined for the U.S. economy, and this year we have remained its leading supplier.

The above contrasts with what is happening on the import side, where the main supplier is China.

At the close of 2021, Mexico’s imports reached US$101 billion, and we only exported 9.255 billion dollars obtaining a record deficit.

The difference with Brazil is that Mexico’s foreign trade with the Asian giant has been mainly manufacturing.

These differences show two regional development models; the Mexican case is oriented towards industry, while Brazil is more oriented towards exploiting raw materials.

This opens a space for reflection.

What is the development path that the region should follow, and what are the balances that need to be maintained to promote faster growth in the region?

As mentioned above, Brazil and Mexico have been slow-growing countries in recent years, which has deepened social differences and kept large groups of the population marginalized, in addition to the significant regional differences in both countries.

Lula da Silva’s victory provided an opportunity to rethink the economic model. In his previous administration, he showed his sensitivity in establishing policies to reduce poverty, which was recognized by international society as an outstanding achievement.

However, today, the South American colossus faces a more complicated situation: to transform the productive model to achieve greater growth.

From this perspective, it is time for the region to reflect on how to achieve more significant economic growth.

The new government in Brazil will need to quickly show that the victory brought with it an economic program that will allow the Brazilian economy to accelerate its growth to establish new social welfare goals.

After the victory, the problem is one of governance, which will not be easy to achieve as Bolsonarism has found a stronghold in Brazil’s most prosperous state, São Paulo, the country’s economic engine.

This state has become a mirror of polarization, as the former Minister of Infrastructure, Tarcísio Gomes de Freitas, the big winning bet of the defeated far-right president, has achieved a resounding triumph by distantly beating Fernando Haddad, Lula’s political heir.

Bolsonaro will also leave a Congress with conservative majorities and critical allies in the most populated states, counterweights that will make governing difficult.

From this perspective, it is time for significant initiatives.

But at the same time, understanding that the population is highly divided and that policies that achieve conciliation and advance in economic and social restructuring are required is a tremendous challenge for Brazil.

A perspective of change is opening up, but with very narrow margins. Latin America needs to analyze and learn lessons on implementing a program with thin margins for transformation.