Obama Gets Warm Brazil Embrace From Lula Successor Rousseff

Brazilian President Dilma Rousseff’s efforts to distance herself from her predecessor give President Barack Obama an opportunity to deepen ties with Latin’s America’s biggest economy in a visit that starts today.

Rousseff won election last year pledging to continue the work of her popular mentor, President Luiz Inacio Lula da Silva. Since taking office three months ago, her moves to rein in spending, take a tougher stance on China’s controlled currency and end Lula’s friendly relations with Iran have surprised both friends and foes.

Her shared sense with Obama that China is harming the economic interests of both their countries by undervaluing the yuan creates an opening for the U.S. leader, who arrived for two days of meetings with Brazil’s first female president and sightseeing in Rio de Janeiro with his wife, Michelle, and two daughters, Malia and Sasha.

“For her, Lula is a tall act to follow,” said Jim O’Neill, the London-based chairman of Goldman Sachs Asset Management, who coined the term BRIC to describe the large, fast-growing emerging markets of Brazil, Russia, India and China. “But it’s important for Obama to understand her; she’s a different person and has a different style.”

‘Historic Opportunity’

Obama, speaking alongside Rousseff in Brasilia, said he chose Brazil to kick off his first-ever visit to South America in recognition of the country’s economic ascendancy. Obama said Brazil is increasingly a global leader and the two countries have a “historic opportunity” to deepen cooperation for decades to come.

“The United States doesn’t simply recognize Brazil’s rise, we support it enthusiastically,” Obama told reporters alongside Rousseff after a meeting at the presidential palace in Brasilia.

Prior to the trip the Obama administration said both leaders would take questions by journalists. Those plans were scrapped at the insistence of Brazil, said a U.S. administration official.

While both of Obama’s immediate predecessors also visited Brazil, his decision to meet Rousseff so early in her presidency reflects the country’s growing clout. Its $2.2 trillion economy grew 7.5 percent last year, the fastest pace in more than two decades. Brazil is now the fourth-biggest U.S. creditor, holding $198 billion in Treasuries, and one of four Group of 20 members with whom the U.S. had a trade surplus last year.

‘Time to Engage’

Brazil’s Bovespa stock index slipped 3.5 percent this year, compared with a 1.7 percent gain for the Standard & Poor’s 500 Index of stocks in the U.S.

“It’s time to engage because it’s a 200-million-people economy with all the things going right,” Eike Batista, Brazil’s richest man, said in a March 14 interview at Bloomberg’s New York headquarters. His Rio de Janeiro-based EBX Group Ltd. controls companies in businesses ranging from oil to iron-ore mining.

The two leaders must make up a lot of ground to improve ties. Relations reached a nadir last year when Lula, pushed by anti-American elements of his and Rousseff’s Workers’ Party, voted against tighter United Nations sanctions on Iran’s nuclear program. Obama said in his 2010 State of the Union Address that Iran has violated international agreements in pursuit of nuclear weapons. Lula also embraced Venezuelan President Hugo Chavez, who is Washington’s fiercest critic in the region.

‘Currency War’

Guido Mantega, Lula’s finance minister, who continues under Rousseff, blamed the U.S. last year for a “currency war” that has fueled a 36 percent rally by the real the past two years. The U.S. has also rebuffed calls to eliminate barriers for Brazil’s farm exports, including sugar-based ethanol.

Rousseff, 63, has said she admires the 49-year-old Obama and has compared her victory to Obama’s historic election as America’s first black president. She’s said she wants to forge closer ties with the U.S. by helping Brazilian engineers study in the U.S., exchange technology and promote development together in Africa.

A former student activist who was tortured while jailed by Brazil’s 1964-1985 military dictatorship, Rousseff criticized Iran’s human-rights record after Lula hosted Iranian President Mahmoud Ahmadinejad in 2009 and visited Tehran in 2010.

She also postponed a decision to purchase 36 fighter jets, breathing new life into a bid by Chicago-based Boeing Co. after Lula said he favored awarding the contract, valued at as much as $7 billion, to Paris-based Dassault Aviation SA.

Shared Concern

Obama and Rousseff’s biggest shared concern may be China, which surpassed the U.S. as Brazil’s biggest trading partner in 2009. Brazil considers China’s dollar peg a “priority,” Trade Minister Fernando Pimentel said two days after Rousseff’s government took office. The real has strengthened 33 percent against the yuan since the start of 2009, more than all 24 emerging-market currencies tracked by Bloomberg, hurting manufacturers that compete with Chinese-made goods.

“There is increased recognition, as trade with China has grown, that it’s not only a cooperative relationship but also a competitive one,” said Albert Fishlow, a former deputy U.S. assistant secretary of state who has written a book on Brazil that was published this month. “There is clearly a degree of similarity in the U.S. and Brazilian positions.”

Chinese Windfall

China’s demand for Brazil’s iron ore and soy beans has been a windfall for Brazil. Trade with China jumped 53 percent to $56 billion last year, compared with $45 billion for the U.S., which can tap into Rousseff’s desire to expand beyond commodity exports.

“Brazil isn’t going to tag-team with the United States and gang up on China,” said Christopher Garman, director for Latin America at Eurasia Group, a Washington-based political risk group. “But I think it’s going to be a more nuanced and balanced relationship.”

When Rousseff met with Treasury Secretary Timothy F. Geithner in Brasilia last month, she described Brazil as a Western country that shares a common set of values and interests with the U.S. and wants to increase cooperation, according to an Obama administration official who spoke on condition of anonymity.

‘Take Advantage’

Geithner, who is returning with Obama and four other members of his cabinet, said the U.S. wants to “take advantage of this moment” to improve cooperation within the G-20. The delegation will be joined in Brasilia by the heads of Atlanta-based Coca-Cola Co. and Motorola Solutions Inc. of Schaumburg, Illinois.

They are among 10 business leaders seeking to profit from Brazil’s recent oil discoveries, the largest in the Americas since 1976, and $200 billion in road, airport and hotel improvements needed before the 2014 World Cup and 2016 summer Olympics.

There are limits to closer ties. Brazil this week abstained from the UN Security Council decision to authorize air strikes against Libya, saying it was concerned they could exacerbate tensions in the country and the Middle East.

Obama expressed appreciation for Brazil’s aspiration to become a permanent member of the council, though did not endorse its bid like he did India’s on a trip to New Delhi last year. Instead, the two leaders agreed the council needs reform and expressed their support for a modest expansion that improves its effectiveness and efficiency, as well as its representation.

“It took a very deep economic crisis to overcome conservative thought that blocked the reform of financial institution,” Rousseff said. “In the case of UN reform, we have the opportunity to act preemptively.”

Trade Tensions

Long-standing trade tensions are unlikely to be resolved during Obama’s visit, said David Fleischer, an American-born political analyst at the University of Brasilia. Among them are U.S. farm subsidies, the 54 cents-per-gallon tariff on imports of Brazilian ethanol, which Congress renewed in December, and Brazilian duties on consumer goods such as electronics.

“We want a commercial relationship that is fairer and more equal,” Rousseff told Obama. “For us it’s fundamental the removal of barriers to our products” including ethanol, beef and orange juice, she said.

Rousseff, while recognizing the “great” effort by Obama to restore American economic growth, took issue with policies that she said are generating global imbalances.

“Everyone knows that strong measures provoke important changes in the relationship of currencies throughout the world,” she said. “This erodes good economic practices and pushes countries to take protectionist and defensive actions.”

The two presidents signed 10 agreements deepening cooperation in areas ranging from the development of aviation biofuels and the promotion of educational exchanges for scientists and scholars. The two governments also agreed to help Brazil prepare to host the 2014 World Cup and 2016 Olympics.

“The trip is basically a photo-op in Brazil for Obama,” Fleischer said. “The main thing coming out of it is that if one of them wants to call the other up on the phone, they can do it because they’ve already met in person.”

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