Lula Tries His Hand at Industrial Policy

Welcome back to Foreign Policy’s Latin America Brief.

The highlights this week: Brazil unveils its new industrial policy, the Dominican Republic trials a four-day workweek, and a music festival in Chile sparks international controversy.

Mission: Industrial Growth

A year and a half after the United States passed the Inflation Reduction Act, Brazil unveiled its own sweeping industrial policy package at a ceremony on Monday. Officials framed the announcement as part of a global trend, detailing $60 billion in grants and loans that Brasília aims to deploy to activities like green energy, drug manufacturing, and farming productivity by the end of 2026.

“International markets are very competitive. It’s a war,” Brazilian President Luiz Inácio Lula da Silva said at the event. “We need to get over—once and for all—this problem of Brazil not being a definitively great and developed country.”

The new policies are designed to make progress on six so-called missions, which include shortening urban commutes, cutting emissions in the manufacturing sector, and increasing domestic pharmaceutical production. The package also seeks to speed up patent approval times and includes requirements that the government buy some goods needed to carry out federal projects domestically.

The “mission-oriented” industrial policy strategy was developed together with Italian economist Mariana Mazzucato. She argues that public-private partnerships can help a government achieve societal goals by harnessing the work of multiple economic sectors at once—rather than targeting specific companies or sectors in isolation. In addition to consulting for Brazil, Mazzucato helped Colombia craft its own green industrial policy, as I explored in a feature last year.

Although Brazil has a long history of state intervention in the economy, many large-scale industrial policies implemented in the past failed to bear fruit. Brazil’s industrial output as a portion of GDP and its size relative to other world economies have shrunk over the past decade; today, a whopping near 40 percent of Brazilian workers toil in the informal sector.

Brasília’s latest stab at industrial policy features some key differences from earlier iterations. Lula’s policies were designed as collaborations across several ministries rather than being housed in just a few, as was the case for past Brazilian industrial policies, said Claudio Ferraz, an economist at the University of British Columbia and the Pontifical Catholic University of Rio de Janeiro. The mission of increasing pharmaceutical production, for example, requires actions from the ministries of health, industry, education, and justice.

While the Lula administration claims these kinds of partnerships can yield more effective policies, it’s a challenge to “make sure everyone is moving together, with objectives that are more or less aligned,” Ferraz said.

There are enough similarities with past industrial policies that experts remain skeptical. Critics of the previous policies pointed to the fact that they rarely included robust evaluation and adjustment mechanisms, even when it was clear the policies were not working. “Once you start giving extra support to certain sectors or companies, it’s extremely politically costly to take it away,” Ferraz said.

Uallace Moreira, a secretary within Brazil’s development ministry, told Foreign Policy that the Lula administration would be willing to change its industrial policies if they didn’t produce satisfactory results.

As part of a new scheme to promote the manufacturing of low-emissions cars, for example, companies would lose their tax credits if they didn’t meet certain requirements for energy efficiency, recyclability, and investments in research and development, Moreira said. “Some metrics will be evaluated annually and others quarterly,” he added. Brazil’s auto industry has long been protected by tariffs and generally lags at making products competitive for international markets.

Ferraz is cautious about Brasília’s pledges. Often, when a government agency claims it is evaluating a policy, it doesn’t do so in a robust way. “Impact evaluation doesn’t mean just checking if a company is performing better,” he said. “You need to see if it’s improving more than a comparison group,” such as similar firms that did not get government help.

Over the next 90 days, Brazilian officials will develop more precise metrics and road maps for the six missions, which the government hopes to achieve by 2033.

Upcoming Events

Sunday, Feb. 4: El Salvador holds presidential and parliamentary elections.

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What We’re Following

Papal diplomacy. News broke in recent days that detainees in Nicaragua and Haiti were released after Pope Francis made public appeals about both cases. In Nicaragua, the government of President Daniel Ortega released two bishops, two seminarians, and 15 priests to the Vatican. The clergymen were jailed over a period of months as Ortega cracked down on the Catholic Church, a key venue for political dissent in Nicaragua. In Haiti, gangs freed six nuns whom they had abducted on Jan. 19.

In Nicaragua’s case, the Vatican engaged in direct dialogue with the government to secure the release of the prisoners. Those freed included Bishop Rolando Álvarez, a well-known figure who had been detained since August 2022. Any “positive news like the priests’ release is welcome,” political scientist Kai Thaler wrote in the Conversation. “But it holds no guarantees of broader change ahead.”

While no direct contact between the Vatican and Haiti’s gangs was publicly reported, Catholic churches across the country spoke with their communities about the nuns’ kidnapping, reinforcing the pope’s position.

Casual Fridays. Some public and private companies in the Dominican Republic will begin trialing a four-day workweek in February. A local university will analyze the results of the experiment, with an eye to impacts on workers’ health. Firms expected to participate include the country’s national health insurance agency, telecommunications giant Claro, and heavy equipment company IMCA. Workers will be on the job for 36 rather than 44 hours per week without receiving a pay cut, the Dominican government said.

So far, large-scale experiments about four-day workweeks have mostly been carried out in developed countries. In the United Kingdom, which hosted one of the biggest trials, most companies that participated in the study opted to make the changes permanent. Their revenue largely stayed the same or grew while employees reported better health and satisfaction.

Elsewhere in Latin America, Chile passed a law last year reducing the workweek from 45 to 40 hours. The decrease is being implemented in phases. A 44-hour workweek is due to come into effect in April.

Peso Pluma performs onstage during the 2023 MTV Video Music Awards at Prudential Center in Newark, New Jersey, on Sept. 12, 2023.Theo Wargo/Getty Images for MTV

Forbidden words. Mexican singer Peso Pluma is an international superstar. So it’s no surprise that he was invited to perform at one of Latin America’s hottest music festivals in the city of Viña del Mar, Chile, set to begin next month.

Yet Peso Pluma sings about drug violence, and a handful of Chilean lawmakers and public intellectuals have called for his participation in the festival to be canceled. Event organizers want to keep the singer onstage, but a local business owner filed a lawsuit to block the March 1 performance that was accepted by a Chilean court this week. The suit argues that Peso Pluma’s set would violate the business owner’s right to “life and physical and psychological integrity.”

Calls to cancel Peso Pluma’s appearance came mostly from conservative lawmakers. But a left-wing political analyst was one of the first to object, underscoring how the fear of violence has seeped into Chilean society as the country’s homicide rate has ticked upward in recent years. The controversy has spilled across the pages of local newspapers and into the government. “Although we agree it is not good to incentivize or promote drug gang culture, we do not agree with censorship,” presidential spokesperson Camila Vallejo said.

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In Focus: China Focuses its FDI

A BYD-owned vessel intended to export Chinese automobiles departs from Yantai port in China’s eastern Shandong province on Jan. 10. Stringer/AFP via Getty Images

Chinese foreign direct investment (FDI) flowing into Latin America and the Caribbean shifted in 2022 compared with the decade before the COVID-19 pandemic, a new report from the Inter-American Dialogue found.

In 2022, Chinese FDI in the region was $6.4 billion, less than half of the annual average between 2010 and 2019, the study noted. The money was also channeled to more specific targets. In the past, Chinese investment in Latin America was spread across many economic sectors, including extractive projects such as oil refining. In 2022, Beijing’s FDI focused more on green energy and high-tech projects.

This trend may continue into 2024. Chinese firms are preparing to open a new electric car plant in Brazil and recently announced a $1 billion lithium investment in Bolivia.

So-called new infrastructure is the focus of some of Beijing’s industrial policies, and Chinese firms want to gain overseas market shares after honing their products at home. European and U.S. firms seek the same for their own green and high-tech firms, and Latin America is one arena where the two sides compete.

U.S. efforts to edge out Chinese tech firms in the region appeared to notch a victory this month, when Chile announced that it would hire Google to build an undersea internet cable to Australia. In 2017, Chile considered proposals from Chinese firm Huawei to build its first cable to the Asia-Pacific with an endpoint in Shanghai, prompting a U.S. lobbying campaign against the prospect.

Still, U.S.-China tech competition in Latin America does not have to be zero-sum, as evidenced by yet another deal announced this week in Brazil. After China’s BYD announced its electric car plant in Bahia state last year, U.S. firm General Motors announced that it would invest over $1 billion in its own plants in Brazil on Wednesday.