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Brazil's Approach to Shared Growth and Global Governance

By Luiz Inácio Lula da Silva, president, Brazil

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Brazil has been doing its part. It never succumbed to the dogma of the minimalist state, or abandoned social policy as a powerful stimulus to vigorous production

The meeting of the G20 leaders at Pittsburgh is taking place at a decisive time, a time when the world is eager for collective answers to an unprecedented challenge. Brazil has the gift of consensus building, an ability to unite differing perspectives, to draw solutions geared toward solidarity and diversity. That is why Brazil hosted the World Social Forum in January 2009, to discuss with civil society how best to deal with the impact of the global economic crisis on the lives of so many different people. Among the many areas of society important to these discussions, none is more so than the business community. Indeed, the private sector is a fundamental partner in facing the fundamental challenge ahead: how to create a more inclusive and sustainable model of development. The international community must develop a coordinated response to what has become a truly systemic crisis. Economic activity has declined, and international trade has fallen a steep 9 per cent. This year alone, 50 million people will lose their jobs. This is an economic earthquake at the heart of the developed world today. Yet it threatens to make its main victims those in developing countries.

The fast repatriation of capital and cutbacks in foreign investments have hit emerging economies. This is doubly unfortunate, for they are responsible for a large portion of the world’s economic growth. Emerging countries are keenly aware of the enormous expectation that the world places on us. It expects consistent and coherent answers.

The G20 summit at London in April took an important first step in recognising that there can be no long-term solution without bringing developing countries on board. Developing countries may not be part of the problem – but they are an important part of the solution.

Government-led measures to pump up economic activity already represent 2 per cent of world gross domestic product. Yet this remains far too little given the severity of the current recession.

The world economy needs to get back on the rails. In London, the G20 agreed to inject $1.1 trillion into the International Monetary Fund (IMF) and the World Bank.

That means $850 billion to increase countercyclical policies in developing countries. These resources will stimulate demand, restrain the decline in economic activity and help balance national foreign accounts. Above all, these resources will preserve existing jobs.

Another $250 billion will finance world trade. Priority will be given to the most vulnerable countries, namely those that have lost market share and access to foreign financing.

The world cannot simply wait for the next crisis. Flexible credit lines for immediate use, with no strings attached, are urgently required. This will act as a preventive policy, helping to strengthen these countries against the crisis before it takes root.

World leaders need to go beyond emergency measures that leave unchallenged the paradigms that led the world economy to the brink of chaos. The profound and structural solutions that are required must not be postponed. Credit and trade will only resume if trust is rebuilt through a robust and transparent financial system.

The new rules and structures must be reviewed to incorporate developing countries as indispensable actors in a world that is ever more interdependent.

The first step was achieved by approving the ambitious scheduled review of quota and vote distribution at the IMF and the World Bank. But this is not enough.

Much greater investment is required since our countries remain marginalised when it comes to fundamental decisions.

Crises are no longer restricted to developing countries. It is imperative that preventive mechanisms are established in every country, including the developed ones. This will only be possible when multilateral oversight mechanisms are in place in financial institutions that operate globally.

Restarting trade is fundamental to this strategy of returning to growth. Protectionism is like a drug that offers fast relief but, in the long run, drives its victim into a prolonged depression.

A quick conclusion to the Doha round of trade negotiations would be an extraordinary display of determination in reversing protectionism. At the same time, there must be solidarity with poorer agriculture-dependent countries that rely on trade as their passport to prosperity.

It makes all the sense in the world to come to the rescue of banks and insurers in order to safeguard deposits and social security. However, it is even more important to protect jobs and stimulate production. There is no more effective example of a countercyclical measure.

Therefore, the public bailout of private banks in difficulty, even as a stopgap measure, should not be discarded out of ideological prejudice. We must not let ourselves become hostage to paradigms that have collapsed around us.

Latin America and the Caribbean have all the credentials to put themselves at the forefront of calls to revamp the international financial system so that it ceases to encourage unlimited speculation, easy profits and the ensuing social turmoil that they spawn.

Through determined efforts and prudent policies, the countries of this region are stabilising their economies and creating the conditions for sustained growth. Through concerted policies, we are paying down the region’s enormous social debt.

We must find economically consistent solutions to the challenge of promoting growth, integration and development. The answers we provide must not, however, be at the cost of social justice and the fight against poverty and unemployment.

Our region faces major challenges and deficiencies. However, our power to overcome these is extraordinary.

We see the crisis as an opportunity. MERCOSUL, the regional trade association that brings together Brazil, Argentina, Uruguay and Paraguay, is engaged in developing innovative and creative solutions to the challenge of regional integration. Let us join forces to overcome these challenges.

Creating an integrated economic space in South America will allow us to confront, in unison, the impact of the world’s economic downturn.

The recent increase in the Inter-American Development Bank’s capital by $180 billion highlights the important role of regional finance mechanisms for stimulating production. The strengthening of the Andean Development Corporation and the launch of the regional Bank of the South will also contribute to a quick return to growth and to job creation.

Brazil is doing its part. Responsible and prudent economic and financial policies mean that today the country is better positioned to ride out the crisis. It has never succumbed to the dogma of the minimalist state, or ceased to implement social measures to stimulate vigorous production.

Brazil’s Growth Acceleration Plan (PAC) is the result of a partnership between the state – and its strategic vision – and the private sector – with its social awareness. Today the PAC faces a new challenge – to help Brazil overcome the crisis faster. In this, the private sector also plays an irreplaceable role.

All are called to renew their collective commitment to global governance rules and practices that will mould a more just and humane world order. We seek an ethical globalisation, with people at the core of our concerns and actions.

The world expects much from us. Our worst mistake would be to forfeit the required boldness and vision.

The above is adapted from an address to the World Economic Forum on Latin America in Rio de Janeiro on 15 April 2009.

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