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Congressman Jerry McNerney

Representing the 9th District of California

CODEL to South America: November 2015

Dec 22, 2015
Blog Post

One way that lawmakers develop new policy proposals is to look at how their counterparts in other countries handle similar issues. There can be much to gain from studying how other governments address some of their most pressing issues, whether it is providing health care, spurring technology innovation or promoting greater economic growth.

In that spirit, I recently joined some of my House of Representatives colleagues on a Congressional Delegation (CODEL) to South America. The CODEL was led by Marsha Blackburn (R-TN) and also included Anthony Cardenas (D-CA), and Bob Latta (R-OH).

Over a six day period, we visited Rio de Janeiro, Brazil; Buenos Aires, Argentina; and Santiago, Chile. The purpose of the trip was to discuss energy policy with U.S. Embassy officials, American business leaders operating in the area, and local government officials. In particular, we were interested in observing the relations between energy policies and energy production in the different countries. All three countries we visited are rich in natural resources but have differences in how those resources are utilized and the impacts on their national economies. We were also interested in having good bilateral relations with the three countries we visited, and how our visit could benefit those relations. As always, I would be alert to identifying any trade opportunities that could benefit the ninth Congressional District of California.

The CODEL departed Washington, DC immediately after votes on Thursday, November 5th and flew to Houston to catch an overnight flight to Rio de Janiero, arriving just before 11:30 a.m. Brazil is 3-time zones east of Washington, DC. At the airport, we were met by a State Department security officer and Brazilian security officers. We had been warned that Rio was a high crime city with potential for violence.

Brazil

One thing that was obvious in Rio was its dilapidated state of repair. Everything looked run down. The roads were rough, the buildings looked old, and the canals were filled with raw sewage slowly flowing to the ocean. Shanty-towns, called flavelas, named for a weed in northern Brazil, were everywhere. These flavelas sprang up in any vacant space. Moving up hillsides, these dwellings are basically lawless areas without city services. The government is trying to establish a police presence in some flavelas, but as we often heard, a lack of resources makes establishing a police presence, let alone basic city services, quite challenging.

We had a number of meetings on our first day that began after another long, bumpy, jerky ride. These meetings continued throughout the day and extended late into the night. Our first meeting was a roundtable at EMC Computer Systems, Brazil, and included some discussion about the relationship between our two countries and how the United States could be helpful to Brazil.

Starting with this meeting and with every meeting in Rio, we heard common themes. Brazil feels that it should be the leader of South America, while at the same time, it feels isolated in the region by language (the people of Brazil speak Portuguese, while the people of all other Latin American countries speak Spanish), and by geography.

Brazil has the largest population of South and Central America with 200 million people. The single biggest idea discussed by the regional leaders we meet with is that Brazil has enormous unmet potential, largely because of the political environment. Although Brazil is a democracy, corruption is rife and there is a deeply engrained feeling that the natural resources belong to the people and should not be available for free market exploitation.

Of course, without a free market, the government must exploit the resources, which has contributed to major inefficiencies and a lack of capital. The biggest natural resource is offshore oil with deep underwater and under salt formations reserves said to be worth a trillion dollars or more. Any private oil developer would be required to pay 30 percent of its revenue to the government, and there is the possibility of nationalization of that resource.

No private investment is possible under these conditions. The current government is strongly left-leaning and deeply unpopular but seems to be entrenched, according to the people we spoke to. The oil resource example is symptomatic.  As a result of high taxes and government-owned businesses (in Brazil, this is referred to as regulation), private businesses are deeply pessimistic about the economy improving any time soon.

The next meeting was hosted by FIRJAN, a consortium of businesses. The people we met were very energetic and proud of what they had accomplished. There were Brazilian researchers – representing significant intellectual property – who feared that market conditions would cause them to reduce their research capabilities. One theme that emerged was how the United States should continue to lead by example. The Brazilians greatly admired our can-do attitude in the face of obstacles, which is evidenced by the development of fracking technology to exploit shale reserves in the face of dwindling conventional oil resources in the United States.

The last meeting of the afternoon was with Vale, the third largest global mining company in the world. The meeting started out on a very somber note. A mine tailings dam had ruptured in Brazil the day before, flooding two towns and resulting in an unknown number of deaths. The vice president feels passionately about Brazil’s future and has the tools to really make a difference, but he was clearly affected by the disaster that had befallen the day before.

The next morning we went to the U.S. Consulate, Rio de Janeiro, where we were given briefings on relations between our two countries, including military interactions.

We then went to the new Hilton Barro de Tijaca near the site of next year’s Olympic Summer Games, and discussed the major challenges of Olympic preparation; including, housing the athletes, media, security details, and spectators, transportation, venue preparation, establishing sanitary water conditions, and security protocols. It isn’t clear that all these systems will be ready in time, but one thing is clear – Rio’s infrastructure will improve.

We wrapped up the meetings and departed on an evening flight to Buenos Aires. It was a long ride from the airport near Buenos Aires to the hotel, but the streets were relatively clear and the streets in good repair. We then walked to a nearby restaurant for a late dinner and got back to the hotel by midnight. Argentines typically eat late and in general stay out very late compared to Americans.

Argentina

Argentina has been experiencing just below 30 percent inflation as a result of the economic policies of the Peronist government. The policies give the public many benefits and tax businesses, including an export tax, to keep prices in the country low. While these policies have some benefit for the poor, they also stunt the economy; growth in Argentina has been poor to negative over the past decade or two. We were told by a State Department security officer that crime was a growing problem in Buenos Aires because the economy was so bad, but that the crime was not usually violent.

Argentina is a country rich with natural resources, but long beset by bad economic policies. It was mentioned to the CODEL participants more than once that Argentina had one of the world’s top economies in the 1920’s, but is now struggling. Despite this, there was great optimism ahead of an election proving the people want, and insist on, change. The Argentines are well educated and have great entrepreneurial spirit but need good economic policies to turn the country around. The Argentinian people recently elected a free-market politician that could bring sweeping changes to the country, in addition to fostering better relations with the United States. My concern is that the transition, if too fast or jarring, could fuel a resurgence of Peronism.

Between our meetings in Buenos Aires, we took a tour of the cathedral where Pope Francis presided as cardinal before his elevation to the Vatican. We also visited the Recholeta Cemetery, a vast cemetery of mausoleums. There isn’t much to say about this place other than it is amazing. The units look like small cathedrals and most have a basement where the caskets are stored. We visited the resting place of Eva Peron, a tragic figure in 20th Century Argentine history.

The cemetery visit was followed by lunch with the U.S. Defense attaché to Argentina. There is little military cooperation between our two countries. The current President has had a very cool relationship with our country, and he has never met with our ambassador who said that he had to be particularly careful to not become involved in their domestic policies because he did not want his office to be an issue in the Presidential campaign.

In the evening, we met the U.S. Ambassador, along with business leaders who were anxious for the country’s presidential election and possible new direction for the country. The ambassador spoke of his vision for Argentina and for the relations between our two countries. He is a big proponent of renewable energy.

The next morning we met with the American Chamber of Commerce, known as AmCham, whose members include American companies doing business in Argentina. We then met briefly with two Argentine federal legislators from the party that would most likely be in the ruling coalition after the election. They have a strong vision for how the country of 60 million will change in the next decade. They were full of optimism about the future, but understand there will be a rough transition.

Our last meeting was with the City of Buenos Aires Economic Development Agency’s leader, who is a close friend and economic advisor of the likely incoming president.

Chile

We then rode to the airport and departed for Santiago, Chile, where we met with the U.S. Defense attaché to hear about Chile’s military relations with the United States, relations that are very close. Chile has a very market-oriented economy, like that of the United States. Consequently, the unemployment is low, at about 6 percent, and poverty is much lower than most, if not all, other Latin American countries. Chile also has a long tradition of democracy, interrupted by the Pinochet government several decades ago.

We had a nice luncheon at Ambassador Hammer’s residence with a mixture of local business and political leaders that were selected to mesh with our individual interests and histories. The lunch conversations were very interesting and encouraging. Chileans feel that one problem they face is that they have a national lack of risk-taking and entrepreneurship.

Chile has a program to encourage entrepreneurs from around the world, but especially Silicon Valley to set up shop in their country for six months with an equity-free grant of about $30,000. This is a part of a larger program to encourage citizens of Chile to become more entrepreneurial so the country will become less dependent on commodity exports to drive their economy. Our last meeting was with the agency tasked to implement that entrepreneurial vision. It was then time to head to the airport to return to the United States.

This CODEL was an example of bipartisanship at its finest. We acted as statesmen and stateswomen, trying to understand how to best exercise our bilateral relationships to the mutual benefit of each country. It reflected well on our work as members of the House Energy and Commerce Committee and on our country. Paul Nagel was a great source of help and our military liaison couldn’t have done a better job keeping things running smoothly. The embassy staff in each country was warm and welcoming and did a great job in coordinating the visit. They represent our country well overseas.