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April 18, 2012

folha

Dilma is Right to Fault Obama for the "Tsunami of Money," says American

By CLAUDIA ANTUNES, Rio de Janeiro

President Roussef raised a "valid point" and a "legitimate question" when she requested her colleague Barack Obama take action against the "tsunami of money" created by rich countries printing money, which can lead to the appreciation of the real, according to former Secretary Defense of the United States William Cohen.

For Cohen, the U.S. has a "double standard" when it criticizes the devaluation of the Chinese currency (the yuan), while simultaneously supporting the devaluation of the dollar in order to combat the economic crisis.

"In my opinion, it's hard to blame the Chinese," he said. "When we question whether they are deliberately devaluating their currency yet implement our own monetary easing policy, they say, 'What's the difference? Philosophy or economics?'"

The former Congressman, Senator and Secretary of Defense during the Clinton Administration (1997 – 2001) is here in Brazil as CEO of The Cohen Group, which advises companies interested in doing business abroad and has offices in the U.S., India and China.

The company represents 14 clients who operate or want to operate in the country in sectors such as energy, defense, security, aviation, architecture, agriculture, and pharmaceuticals. Other executives from the company here with Cohen agreed that there are many opportunities for construction and security-related preparations for the 2014 World Cup and the 2016 Olympics. They were not willing to disclose the names of the companies they represent.

Below is the full interview, in which Cohen also discussed the relationship between the U.S. and China, asserting the Asian power benefits from the U.S. military presence in Asia, and new negotiations for Iran's nuclear program: he fears that the deadline for an Israeli agreement may be shorter than the American timeline.

Folha - How do you see Brazil today, compared to when you were Secretary of Defense?

William Cohen - I came to Brazil for the first time as Secretary of Defense in 1997. At the time, President Clinton decided that our relations with Latin America were not what they should be.

Our focus had always been the Soviet Union and, after the fall of the Berlin Wall, he decided that we should have a more balanced foreign policy. I started taking at least two or three trips a year to Argentina, Chile and Brazil.

At the time, I talked a lot with President [Fernando Henrique] Cardoso about what he was trying to do, which was to structure the economy so that it was more in line with free market principles. It was a turning point for Brazil. When President Lula came, everyone was surprised – stunned – because they felt he would reverse Cardoso's initiatives; but instead, he strengthened them.

Now, your president is even more committed to building a strong economy. In 1997, it was impressive to see how Brazil was trying to take control of its budget, something that we haven't been able to do in the U.S., and we are now seeing the results.

Brazil has emerged as a country with real power, not only for its recent oil and gas discoveries, but as a force to be reckoned with in the future. Much has been written about the "rise of the rest", and you are part of the rest, of the BRICS (Brazil, Russia, India, China and South Africa). It has been the most dramatic transformation we've seen in recent times.

For some analysts, the bilateral relationship between Brazil and the U.S. is not as strong as it could be. What is your assessment?

This is true. The relationship can and should be much stronger. However, there was a distraction. In the Clinton years we were trying to make relations with Brazil more solid, but after September 11 the focus shifted to Afghanistan and Iraq. Now, President Obama's global vision has enabled him to understand the need to strengthen the U.S. relationship with Brazil.

It's evident that no country on its own can fulfill the role we've had over the years, as a source not only of power projection, but of stability around the world. It's a multipolar world, and Brazil stands to play a big role in world affairs.

When President Dilma was in Washington, there were complaints from U.S. companies on measures taken by Brazil, such as an established requirement of minimum domestic content in the oil or naval industries. Dilma, in turn, criticized the "tsunami of money," the dollar glut caused by the policies of the Federal Reserve, among others. How do you analyze these differences?

In any country there are problems with laws and regulations that make doing business complex. The Cohen Group helps companies navigate these intricacies. Although not unique to Brazil, some of its rules and regulations inhibit foreign direct investment.

We raise these issues with the chambers of commerce that in turn are able to work with bureaucrats and diplomats to arrive at a compromise. This happens in all bilateral relations.

Your president raised a valid point in Washington. It is very difficult to put the blame on the Chinese. The Cohen Group has two offices in China, and I've been going there since 1978. We question whether they are deliberately devaluating their currency yet we implement our own monetary easing policy. They ask, 'What's the difference? Philosophy or economics?'"

We cannot have a double standard, so I think that the issue raised by the president is legitimate. Monetary easing increases the value of the Brazilian currency, which makes it difficult to sell exports. It's legitimate to raise these issues.

We were with Dilma in Washington. She spoke for almost an hour to an audience of almost a thousand people [at the Brazil-US: Partnership for the 21st Century Conference] and she was very firm. In a private meeting with 12 of us, she spoke in detail of what she called "regulatory safeguards."

I had the chance to ask her what she meant by that. She said that if Brazilian companies compete for a project in the U.S. and meet all standards and regulations, there should be a guarantee that the normal procedure won't be changed in order to accommodate political matters. I mentioned that I served 24 years in Congress and four years in the Executive Branch and said that she was absolutely right.

You cannot have a stable relationship if you establish rules for a competition and then allow them to be distorted. I know that she was referencing Embraer [which won a bid to supply U.S. reconnaissance aircraft thatwas then canceled].

The U.S. Air Force has since expressed their embarrassment about the situation, and indicated that it was an internal problem unrelated to external pressure. They said that they are rushing to amend the process in order to secure a new result as quickly as possible, and that they will do so in a proper fashion.

I am confident that they will not allow external forces to undermine the legitimacy of the program. I've also spoken with the president of Embraer, who expressed frustration with the process, and I think he was completely justified.

The upshot here is that this can affect Boeing's position in Embraer's fighter jet competition. It's a matter of trust, right?

It is a matter of mutual respect. If we do not respect our own process and allow it to be changed, we cannot expect other countries to commit to a stable set of rules either. It doesn't help either side. If you want to compete fairly in Brazil, you have to guarantee that Brazil will also be treated fairly in our country.

What are the most promising areas for investment in Brazil?

Energy, telecommunication, aerospace, internal security, food security, defense, architecture, design, and pharmaceuticals. We have 14 clients with interests here in various sectors. We also have had the opportunity of doing business with Brazilian companies.

Are you optimistic that new UN Security Council negotiations with Iran will result in an end of the Iranian nuclear standoff?

Knowing how the Iranians operate, negotiations will not be easy. It will be a drawn out process, and they will negotiate every single detail of an agreement. They conduct their foreign policy with the same sophistication that they dedicate to weaving their rugs. Those who expect a quick fix are deluding themselves.

I'm encouraged by the fact that there are negotiations, but not by the time and deadlines that surround them. I think the Israelis have a different timeline than perhaps the Americans do. My concern is that if the Israelis feel that we are negotiating an agreement that does not assuage their safety concerns, they may be tempted to take military action.

In my opinion, the key to prevent this from happening lies with the Chinese. I would submit that the Chinese are able to influence the Iranians the most. But neither they nor the Russians have been willing to impose the kind of sanctions that will give a concrete signal to Iranian leadership that they're serious.

Only when the Iranian leadership sees that it cannot divide the UN Security Council, it will say that even though it believes it has the right to develop nuclear capabilities, it will choose not to do so.

If this doesn't happen, I think that a military operation will become the most likely scenario. And the consequences will be unpredictable and devastating: an increase in oil prices affecting the global economy, the Iranian people coalescing around a regime with which it may have genuine differences, Arabs uniting against Israel and the U.S., which will share the blame even if doesn't take part in the action.

The Iranians have said they may give up enriching uranium to 20%, but they will retain the ability to enrich. The fact that Israel has established very ambitious goals created a problem for the U.S. government, right?

Each party enters into a negotiation by setting out strict conditions, but if negotiations are successful, the two sides compromise. Of course, we will need to have substantial, intrusive inspections in places that have yet to be revealed. The level of enrichment determines whether inspectors can enter an installation.

And might Brazil have a role in the negotiations?

I hope Brazil will help convince the Iranians. For me, the problem with Iran having a nuclear weapon is not that they might attack Israel or us, the United States. Missiles have a return address and as soon as Iran would launch one, you can respond by levelling the country. This is not in the plans.

I think the real problem is that if Iran crosses the line, so will Saudi Arabia and Egypt. And that situation will eventually lead to disaster because someone will get his hands on nuclear materials and use them in Europe, in America.

It's our worst nightmare. I wrote a novel on precisely this situation, when such a terrible weapon is used, you are politically pressured to do something, which may mean attacking a country that has nothing to do with it.

In this regard, we welcome the fact that Brazil has decided to voluntarily give up seeking nuclear weapons. In the end, power comes not from showing off weapons, but a diversified economy, with a population that believes in the future. This is the basis of power. North Korea has nuclear weapons, yet it is not powerful.

When China began expanding trade and investment in Latin America, some people in the U.S. perceived this as a threat. Should American companies fear Chinese competition in the region?

No. No one should feel threatened if there's equal treatment. China has become very rich in a very short period and sometimes it can invest in countries that others don't reach. But that's part of the game.

If they have money to invest, then the U.S. and other countries will have to come up with innovative financing in order to compete. I do not think there's a fear of Chinese competition, the rules are transparent and equal for all.

Was there a change in conditions for U.S. companies acting in China, now that Beijing is no longer so dependent on foreign capital?

It's a little more difficult because the Chinese government is also implementing policies that tend to favor domestic companies using state money. I'm on the Boards of the U.S.-China Business Council and the U.S.-India Business Council, through which we ask for transparency and fairness.

We say that if you start talking about promoting endogenous innovation and pour tons of resources into these companies, we can't come and compete. If you want us to stay out, it's your choice, we can leave.

Every country that tries to do this is making a mistake. If you really want to have free and open trade, you can't create barriers and give domestic industry special treatment. If you do, you won't attract foreign direct investment.

There are also rules in the U.S. that protect U.S. companies, like the Buy American program and the government procurement policy.

We have a complex procurement policy, which is one reason why Brazilian companies should seek to contact us - so we can explain it. On this trip, we're representing 14 companies that are doing business or are interested in doing business here.

You are a Republican who served in a Democratic administration. In recent years, the polarization between the two parties has increased, and it is affecting the prospects for economic recovery. What are the consequences?

The Republican Party has shifted far to the right, in my point of view. I think in the beginning the Tea Party was right to focus on the need to address the size of our debt, which is nearly $ 15 trillion.

We need to control our finances, something that you have done here throughout the last three administrations. We need to decide to exercise fiscal responsibility – if you don't, you will eventually become a country in decline. The integrity of a country's tax system and monetary policy becomes key to generating wealth, supporting a variety of industries and being able to defend itself.

But Republicans also have a social agenda that I don't support. I am much more liberal, moderate on social issues. Turns out they have shifted far to the right and the Democrats to the far left. People in the center, which are the vast majority, are disenchanted with both parties.

There is a group called Americans Elect that is trying to circumvent the partisan process and nominate bipartisan tickets on the internet. Soon, they may be on ballots in 50 states. This might attract the powerful 40% of Americans who are dissatisfied with both parties and cause the parties to return to the center.

Yes, we want fiscal responsibility, but we do not want to shift far to the right or left. Today's polarization prevents us from reaching a consensus to do something. We are stagnating, while the rest of the world is practicing what we preached and stopped practicing.

In the book "It Used to be Us," Thomas Friedman shows that the rising powers, the BRICS, are doing things we were doing – focusing on education, investing in infrastructure. Today we don't have the political will to do so. This will be the real challenge in November and beyond.

Seeing as the new U.S. military strategy stipulates a focus on the Pacific, on China, won't the U.S relationship with Brazil become less important again?

I do not see it that way. I do not think the strategy was articulated in a way that reflects reality. They talk about going back to the Asia-Pacific, but we never left. We have had a significant presence in the region since the end of World War II. We consider ourselves a Pacific power.

What the Obama administration has said is that, ok, we don't expect Russia to invade France, Germany or any European country in the near future. The Soviet Union fell, and it's no longer a major concern.

We know we have a problem in the Middle East. We're out of Iraq now, and we hope to be out of Afghanistan in two years. We're going to keep focusing on terrorist groups without a maintaining a substantial military presence.

We are now turning the focus towards the Asia-Pacific, home to 50% of world population, 50% of global commercial traffic, five of the nine nuclear powers, and five of our [military] treaties.

The countries of ASEAN (Association of Southeast Asian Nations) want the U.S. to remain engaged. I just wrote a study with Maurice Greenberg of the Center for Strategic and International Studies, under commission from the State Department, to examine how we can strengthen our relations with Asia.

Why? Asian countries are doing a lot of business with China, and want to do more, but they don't want to be dominated by China. They know that our presence ensures that no one will dominate completely. We're going to keep the sea lanes and lines of communication open.

They also want to make sure that we are not there to provoke the Chinese, as they are in the same neighborhood. China is already an economic powerhouse and is sure to be a military power. The question is how we should conduct our politics in the region in order to send the right signal to the Chinese: look, we're not here trying to contain you, because we don't think you can be contained.

You could say this, but the best way is to make it clear that no country, neither they nor we, will dominate the region, excluding others. Yes, we will increase our physical presence a bit, with 25,000 Marines in Darwin, Australia. Does this change the balance of power? I think not. We will have more naval bases in Singapore and have more exercises with some countries.

I suggested that each time we have a military exercise with the Philippines or Thailand, we invite the Chinese. They may decide not to come, but the invitation is important because we are trying to find ways to cooperate. It's a region that suffers large natural disasters. Who will be there to provide aid? The military. We can find ways for our militaries to work together, train together. That way you help break down barriers that feed suspicions. I think our role in Asia will continue, but it must continue in a way that is not seen as aggressive or provocative, but as one that promotes stability.

I've made many speeches in China. Ten or twelve years ago, essays were published that indicated it was time for the U.S. to leave Asia, that Asians could take care of themselves. I spoke with the Chinese military and asked: Do you want us to leave tomorrow? I was told it would be the worst thing that could happen to China because, as a result of our presence, the area has maintained stability and this has benefited China.

Geopolitics, like nature, abhors a vacuum. If we leave tomorrow, who would fill the void? If it were China, would Japan just do nothing? There would be instability.

And the Chinese agree with that?

Yes. They cannot say so publicly, but they have been the ones that have benefited the most from stability. Investors only put their money in stable areas. Capital is cowardly. When there is confrontation or instability, it leaves. Money is flowing into the region because of its stability.

Would you like to add anything?

I hope that Brazil and the U.S. continue building a true partnership for the 21st century because we have many common interests. There's also a history to overcome, we must be able to acknowledge disagreements.

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