It began with England vs Portugal. But it was when the second final whistle blew later in the day that - instead of the expected rockets, car horns and the roar of a whole city cheering - silence descended on São Paulo like someone putting the lid on. Brazilians were not merely gutted. Television commentators struggled to suppress their fury as they registered “disappointment” at their team’s lacklustre, disjointed performance.
In election year, World Cup victories are said to be good for the incumbent administration. Does this suggest Brazil’s defeat may bear a silver lining for Geraldo Alckmin, the main challenger for the presidency? Heaven forbid the FT should suggest any such thing. Any Brazilian seeing the upside to Saturday’s performance would surely be too heartless even to enter politics.
A glimmer of hope for Varig
Another week, another series of extended deadlines for Varig, Brazil’s flag-carrying airline under creditor protection with at least R$8bn in debt.
Last week a Brazilian judge gave a green light to a rescue plan from VarigLog, the airline’s former cargo subsidiary sold in January to a group led by Matlin Patterson, a US distressed equity firm. VarigLog has offered to inject about $485m into Varig in exchange for 90 per cent of its shares. A rump company would remain holding most of the debt. A creditor meeting is scheduled for July 10 to approve or reject the plan. Approval would be followed by an auction.
The plan faces legal challenges from competing airlines and others and there is no guarantee that VarigLog would not find itself liable for a large slice of Varig’s debts. If Varig survives, many investors will question the “flexibilisation” of Brazilian law that made its survival possible. But for the thousands of Varig staff, there is now a glimmer of hope.
The line-up for Brazil’s elections in October is almost complete and the countdown has begun.
July 1: was the last day when political parties could advertise on television and radio. Candidates themselves are banned from advertising until campaigning begins.
July 5: last day for candidates to register.
July 6: campaigning begins with paid-for advertising.
August 15: free campaign broadcasting begins with saturation “electoral programmes” on television and radio.
October 1: election day. Brazilians vote for president, state governors, senators and federal, state and municipal deputies.
October 29: second-round run-off, if needed, for president and state governors.
Two polls released on Friday showed the campaign already starting to heat up. Luiz Inácio Lula da Silva, the president, had a seemingly unassailable lead in the most recent poll, with 48 per cent of the vote to 19 per cent for Geraldo Alckmin of the centrist PSDB. But then came a double dose of good news for the challenger. A Datafolha poll showed him rising to 29 per cent of the vote, up from 22 per cent a month earlier, while the president inched up to 46 per cent from 45 per cent in May. And a Vox Populi poll gave Mr Alckmin 32 per cent, up from 23 per cent a month earlier, with the president slipping from 49 per cent to 45 per cent.
The new Mercosur
There will much fanfare in Caracas on Tuesday when President Hugo Chávez and the presidents of Brazil, Argentina, Paraguay and Uruguay sign a treaty confirming Venezuela as a full member of the Latin America’s biggest trade pact. On the surface, the new grouping ought to be an even more powerful force in world trade. After all, it will now link up the hemisphere’s biggest oil producer with two of the world’s largest grain and meat producers in a block uniting some 250m people.
In fact though Venezuela’s accession to Mercosur signals the pact’s growing distance from the free trade principles that informed its creation. Only last week Brazil agreed a two-year deal that limits Brazilian exports of car and car parts of Argentina, ceding to continued protectionist pressure from Buenos Aires. (Exports of footwear and durables like washing machines are also limited, even though Brazil’s currency appreciation has put its exporters at a striking comparative disadvantage).
Sure, trade between Brazil and Argentina is flowing again. But Brazilian exports have only recently regained their levels of 1997, after the crises of 1999 and 2001-2.
There is certainly plenty of scope for the existing Mercosur members to increase trade with the new member. With the exception of Brazilian exports to Venezuela (which accounted for about 9 per cent of Venezuela’s total imports in the first three months of 2006) trade volumes are tiny at present. And judging by recent complaints from the Paraguayan soya industry actually selling anything to Venezuelan buyers will not be easy. Trade associations said last week that the difficulties in obtaining import licenses and the Venezuelan habit of imposing quantitative restrictions, made doing business there hazardous even though a zero tariff regime for these products is already in force
At the same time, the festering dispute about the installation of two paper and pulp plants near the border between Argentina and Uruguay has exposed the irrelevance of Mercosur’s pathetic institutional machinery. Indeed, discontent in both Uruguay and Paraguay about the agreement is palpable in political circles, with Presidents Tabaré Vázquez and Nicanor Duarte Frutos both questioning the point of it in recent months.
Mr Chávez and his left-wing apologists certainly like to see the expansion as confirming Latin America’s growing independence from US-inspired free trade plans. (“An accolade that will impel the economic integration and move (us) further away from US dreams of continental free trade” was how one pro-Venezuelan media described it last week). But if that is really the objective Mr Chávez is kicking against an open door. The chances of the US congress agreeing to any trade deal with Brazil or Argentina – even if the US Trade Representative – were to seek one, is zero.
Chávez in Africa
US policymakers seeking to scupper Venezuela’s bid to win a seat on the United Nations Security Council need to accommodate new developments. President Hugo Chávez opened up a new flank in Africa at the weekend, urging delegates from the 53 countries represented at the African Union summit in Banjul, Gambia, to march in tune with Venezuela and “sever the tentacles of US neo-colonialism”. Watch out for more of the same in the weeks ahead as Mr Chávez gears up for what State Department spokesmen will surely dub his 2006 “axis of evil” tour in late July, which will take him on official visits to Iran, North Korea, Belarus and Vietnam. Meanwhile, Venezuelan oil diplomacy took an especially unorthodox form last week when Venezuela sealed an agreement to supply 340,000 barrels of oil per year to the tiny Caribbean island state of Grenada. That oil can be paid for in bananas and a somewhat scarcer commodity: nutmeg. It’s not yet clear what Venezuela will do with copious inventories of the spice.
Notes by Adam Thomson, Jonathan Wheatley, Richard Lapper and Andy Webb-Vidal
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