Country of the future

Friday, 01 October 2010
D R Sambrook looks at Brazil's ascendancy, questions around the absence of trust law in Brazil

What a pity Brazil does not have a trust law. If it did, however, the perennial problem of reconciling civil and common law precepts would be encountered by foreign trust practitioners steeped in the principles of equity venturing into this civil code country. Perhaps common ground could be found in the foundation, which exists in Brazil although (for now) not for the private interest purposes found in Panama and now being replicated in several offshore common-law jurisdictions. Although American lawyers feasting their eyes on this potential (and huge) market would find no common ground in the case of trusts, the two countries do share something else in common: the perception of being special.

Brazil’s democratic development is unique in Latin America. When Napoleon Bonaparte invaded Iberia it was the British who arranged for the Portuguese king and his entourage to be sent to Rio de Janeiro. This transplant of titular sovereignty meant that Brazil was instantly endowed with an administrative infrastructure that included courts, a national bank and schools of both medicine and law. Once hostilities in Europe were over, King Joâo VI returned to Lisbon, leaving behind his eldest son as regent following which Brazilian independence was declared in 1822, a year before President Monroe made his own declaration that henceforth the US would protect all territories south of its border from threats against their sovereignty from nations outside the hemisphere (later to become known as the Monroe Doctrine). The monarchy remained intact for some time to come and it is perhaps because of its exclusive history that Brazil shares with America a similar sense of exceptionalism. Many Brazilians don’t even feel part of Latin America and this feeling of separateness from the continent (besides language) and proud independence has led Brazil to believe that it is entitled to a permanent seat on the United Nations Security Council. To have been selected to host the Olympic Games in 2016 is a triumph that Brazilians will speak about for many years to come.

Perhaps common ground could be found in the foundation, which exists in Brazil although (for now) not for the private interest purposes found in Panama

“No nation is fit to sit in judgement upon any other nation”. US President Thomas Woodrow Wilson’s sentiment is certainly one shared by Brazil. The North American Free Trade Agreement signed by Mexico and the US is not seen by Brazil as a unifying step for all of the Americas; quite the opposite and it prefers to encourage unity within South America itself. That is why, back in 2000, when Fernando Henrique Cardoso was the Brazilian president, he hosted the first summit of South American presidents. The inspiration for this was Simón Bolívar, South America’s iconic figure of the 19th century. Subsequently, in November 2004, when 11 South American countries (including Guyana and Suriname) met in Cusco, the former Inca capital in Perú, a South American Community of Nations was proclaimed. The ultimate goal is to have both a common passport and currency and whether or not this European Union ideal is achieved is not the issue: it is this declared desire for an independent identity, encouraged by Brazil, which is significant.

Brazil’s attendance at meetings in Yekaterinburg in Russia last June, along with the leaders of the six-nation Shanghai Co-operation Organisation, an alliance which includes Russia and China, should not come as any surprise. The intention of the gathering was to discuss mutual aid which would lead to trade between the countries being conducted in their own currencies; pointedly, US officials who had wanted to attend as observers were not allowed to. In 2008, please note, China’s total trade with Latin America increased by a significant 40 per cent and reached USD143 billion. This growth continues

Brazil’s central bank and aides to President Luiz Inácio Lula da Silva have announced that Brazil and China will move towards using their own currencies, rather than the US dollar, in future trade transactions. There are several reasons why the greenback’s prominence should be questioned, a status that was established from the remnants of the Bretton Woods system created after the Second World War. Today the dollar isn’t fixed to gold and the US is no longer the world’s largest creditor (China is); there are those who argue that it is an empire that can only maintain the upper hand by military, rather than economic, strength.

Changing world structure

As we perhaps come out of The Great Regression, as I call it, Latin America by its proxy, Brazil, is taking its place at the head table. There will be other new faces as well, as the structure of world economies and strongly-held beliefs (up to now) are radically altered. Even though the shadow of America remains cast across Latin America, countries such as Russia, India and China will continue to become more vocal and influential. Latin America will do well to bear this in mind as its economic and political thinkers project 50 years or so ahead.

What can the US, the world’s superpower, do for Latin America that will be constructive? It can leave it to experiment on its own, letting it learn by trial and error; although to do this the US will need to change some ingrained habits. It can be done, perhaps, by finding its source of inspiration from one of its own countrymen, Mark Twain: ‘Habit is habit and not to be flung out of the window by any man, but coaxed downstairs a step at a time’.

It is America’s sense of vulnerability in these harsh economic times that has made it adopt a war on taxpayers akin in fervour to the one on terrorism. Tax is a subject unavoidably connected with offshore financial services and, in the wake of new stringent fiscal controls being introduced in the US, international financial institutions may look to alternative markets, such as Latin America, where none of the (increasing) burdens of doing business with US taxpayers exist.

America’s economic Twin-Tower moment probably happened in August 2007, which saw the wealth on Wall Street start to evaporate leaving the country debt-ridden and its government penniless. This sense of vulnerability (whether physical or fiscal) has pushed to the forefront tax evasion and much of the fury this has generated was initially directed at Switzerland, for reasons I readily understand.

In the last world war, when surrounded by the Axis Powers, the Swiss made plans to dynamite bridges and tunnels to defend themselves from invasion but they quickly realised that this time, such a strategy wouldn’t work against a superpower not reliant on a land army storming ramparts. Some Swiss banks have simply decided to exit the US market and seek business elsewhere. Wegelin & Co. established in 1741 (more than 30 years before America’s war of independence), and reputed to be Switzerland’s oldest private bankers, has pointed out the gradual global shift of power and influence from the US in a long goodbye (eight pages) to its US clients entitled ‘Farewell to America’. There are certainly lots of opportunities for the bank to explore, especially in emerging markets such as Latin America, and which the US and other developed countries will need to turn to themselves as they struggle to get out of the economic mess they now find themselves in.

Greece, which influenced both the Roman and Byzantine civilisations, has recently had its influence on world stock markets with its economy, like the Acropolis, crumbling. This comes at a time when the shape of the global economic recovery is unknown (described in January at the World Economic Forum as ‘fragile’ followed in July by the Chairman of the US Federal Reserve, Ben Bernanke, saying that the US economy was ‘unusually uncertain’). A group of artists chose ice to stage what was described as a ‘literal meltdown’, by placing a 1500lb ice sculpture of the word economy in New York’s Manhattan Foley (should this be Folly?) Square. Pundits, gurus and various experts, on the other hand, have frequently relied on the visual effect not of ice but the alphabet to express how this (eventual) world recovery might look by using the letters U, V and W. Optimists see a V, cautious optimists a U and others see a double-dip W. Will Greece and other countries contribute to some seeing the letter M this year?

Brazil’s promise of prosperity was always in the future, one which never seemed to arrive. What a turnaround there has been. Stefan Zweig, the Austrian author famous for the quip that Brazil was the country of the future, (to which wags added at the time, and it always will be) knew something about how things can change. In his sobering biography ‘The World of Yesterday’, he recalled a golden age of security as a child during the beginning of globalisation which prefaced the tragedy and violence of two world wars. He describes how people in Vienna before the First World War had ‘little belief in the possibility of wars between the peoples of Europe as there was in witches and ghosts’. Fathers then, like his, believed that boundaries between nations would eventually disappear, but ‘now that the great storm has long since smashed it, we finally know that the world of security was naught but a castle of dreams; my parents lived in it as if it had been a house of stone’.

In a lecture that I delivered at Oxford University last month at a symposium I reminded those present that Brazil has had its own world of yesterday and as its economic fortunes change it must be mindful of the past and not become over-confident. Humility rather than hubris will be the best policy and with its presidential elections taking place soon a realisation, too, that uncertainty abounds on all fronts would be wise. Ask Europeans or Americans about that last point.

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D R Sambrook

D R Sambrook TEP is Managing Director, Trust Services SA, Panama.

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