The president of Brazil, winner of the Príncipe de Asturias Prize for lnternational Co-operation for the year 2000, talks here about the master strokes of his regional policy, and his view on the future of relations between Brazil and South America with the European Union.

FORUM: At the Rio Summit, which took place a year ago, important decisions were implemented in respect of the future of relations between Europe and Latin America...

CARDOSO: The relations between the EU and Latin America were at the top of the agenda. The decision was made, with an order for negotiation, to go ahead with an agreement, with Mercosur and Chile on one hand, and with Mexico on the other. The mandate collected together the central points and defined the schedule, working dates and a time limit for the attainment of full agreement. Spain proposed organizing the 2002 summit, although in the meantime, a series of working meetings will take place

FORUM: Following the events at Seattle, the new round of negotiations of the WTO seems to be going through a difficult phase...

CARDOSO: The so-called "Millennium Round" of the WTO is underway. Ignoring problems does not aid their solution. There is no doubt that there is a need for reflection on the relationship between globalization and solidarity. What concerns us now is the dialogue with Europe, bear in mind that in the year 2001 we will have the round on tariffs between the European Union and Mercosur.

FORUM: The discussion over the right time to negotiate about tariffs appears to have slowed down the negotiations for the ALCA (Latín American Free Trade Area)...

CARDOSO: True. The US wanted to open the discussion with the topic of tariffs. This is not the Brazilian point of view. We are going to negotiate the ALCA, but on the basis of what we cal!, in diplomatic terms, "single undertreatment", in other words, we are not going to allow the negotiation of the opening up of the Brazilian financial system or the opening up of the steel market, or any other. This must be discussed as a whole, and it must be accepted as a whole and by all of the countries involved. And the same principie has been adopted for our negotiations with Europe.

FORUM: Brazil put forward the possibility of developing a South American Free Trade Area (ALCSA), prior to progressing with the proposed ALCA...

CARDOSO: The issue is this: we have MERCOSUR – Brazil, Argentina, Uruguay and Paraguay – which constitutes more than a free trade area, it is a customs union; Chile and Bolivia will progressively be incorporated into Mercosur. Chile presents problems in respect of tariffs because its economy is much more open than that of Mercosur. Brazil proposed negotiations between the Andean Pact – Bolivia, Peru, Colombia, Ecuador and Venezuela – and Mercosur. At the moment we have opened negotiations between Brazil and each one of the countries of the Pact, always, however, regarding the same as a unit. This process is very advanced. Our idea is to open up to a joint dialogue between Mercosur and all these countries.

FORUM: It seems that you give priority to these negotiations, before confronting the ALCA...

CARDOSO: Our understanding is that it is essential for Brazil to achieve full economic integration in South America. We base this view on the belief that South America is too large, and its interests too varied. There's Mexico, but Mexico is integrated into the Free Trade Agreement with the US and Canada, and is oriented towards the North. Of course Mexico, culturally speaking, is Latin American, and is therefore interested, as we are, in maintaining a dialogue, but in reality, Mexico belongs to another world. Central America, in turn, is also deéply influenced by the US and Mexico. The Caribbean Community is another issue, even another economic culture. The area which does have more economic homogeneity is South America. On the basis of this concept we have shifted our focus and Brazil has taken as its axis its full insertion in South America. Europe began with the Coal and Steel communities, followed by Agriculture... if you see what I mean.

FORUM: How do you see future relations developing between Mercosur and the European Union?

CARDOSO: Of course! The whole energetics issue is being conceived on the basis of South American factors. In 1992, in my capacity as Chancellor, I called the President of Petrobrás, and asked him for the origin of our petroleum imports. Not one barrel carne from Argentina, Venezuela or Mexico. Almost all of our imports carne from the Middle East. I gave orders for this to be changed. We now buy petroleum from Argentina to a value in excess of two million dollars per year. Venezuela and Ecuador follow. Brazil meets two thirds of its petroleum requirements, the remainder is imported from countries in South America, although a small amount does still come from other areas. It may not appear to be the case, but this is the basis on which we began to build Mercosur. Strong foundations are always important for any construction.

FORUM: How do you see future relations developing between Mercosur and the European Union?

CARDOSO: My ideas go much further than a free trade area. The intention is to reach a trade agreement, but there are also plans for a mechanism of economic co-operation and for development and coordination at all levels in the areas of politics and security. AII this is on the agenda for negotiation. There is also an innovative process concerning European investments in Brazil and in some South American countries. Europe has in recent years recuperated much of its old presence here. Until recently, the only European country with a strong presence in Brazil was Germany. It still does, but now other countries have been incorporated, among them, and of particular significance, Spain. The first wave of investment arrived in the fifties, but in the following two decades, Europe countries forgot to invest here. Now they are doing so again.

FORUM: In the eighties there were no European investments and the trade balance with Europe was very favorable to Brazil...

CARDOSO: That's true. In the nineties the situation turned full circle. Significant investments carne in from Europe, but from Southern Europe, particularly from Spain... and the trade balance changed its sign, to show a considerable surplus for the European Union. Portugal, considering its size, has made significant investments. Also France, Italy, and now the UK, particularly in the petroleum sector. Although the US is still our primary investor, the times are past when all the capital carne in from the US. At a press conference, after the Rio Summit, I made public my wish that there would soon be talk of Brazilian investment in Europe. I don't know if I will live to see it, but the time will come.

FORUM: You said recently that there is no point in expressing an opinion on globalization...

CARDOSO: What I said was that globalization is a fact. The issue does not revolve around whether I think it is a good or bad idea, the issue lies in assimilating the facts, trying to understand them and getting the most from the situation... the best deal for my country and for Brazilians.

FORUM: The daily flow of world trade is estimated at 4.5 billion dollars, with the financial economy moving around 70 billion dollars...

CARDOSO: That is totally disproportionate. This is a new event, an event which shows the precedence given to this kind of virtual economy, which is the financial economy, over the real economy. This situation alters the balances and has an overwhelming influence on the development of national economies... now is the time to speak of globalization in the strictest sense of the term: the predominance of virtual financial capital. Now the people who take the virtual decisions are US housewives, pension funds... it's no longer the State who predominates.

FORUM: Is there any way of confronting this situation? Is it possible to build a real national economic policy under these conditions?

CARDOSO: You have to come to terms with the facts, live with it and, from this perspective, seek the mechanisms which will enable you to maximize the new conditions to the benefit of our country and in such a way that the living conditions of the citizens improves. Dictate the rules? That's no longer possible. It's over.

FORUM: In the past two years, Brazil has undergone two severe financial crises. In one case it was the Russian crisis which set off the alarm; in the other, South-West Asia... and even so, the indexes which measure the development of the real Brazilian economy have been in good shape for some time now...

CARDOSO: The real Brazilian economy, our production economy, shows firm, stable growth, beyond all the financial storms which shook the world. The only indexes which suffered violent fluctuations at the time were those linked to the financial economy. This is one of the hardest realities of globalization.

FORUM: At the height of the crisis, 30 billion dollars left the financial circuit, while Brazil received overseas production investments to the value to 24 billion dollars. Is there any explanation for this?

CARDOSO: The answer is straightforward: large companies have trust in Brazil, they know our economic reality and are aware that a bet on our future is a good one. This apparent paradox shows the dichotomy of the world today.

FORUM: To remind you of one of your own phrases: "Brazil is not a poor country, it's an unjust country". Do you accept this statement today?

CARDOSO: People didn't believe me. There are many who think that Brazil is still a poor country. Low morale is one of the worst vices. Everyone focuses on overseas investments and concludes, wrongly, that the national capital either does not exist or does not invest in the productive reality of Brazil. Once again, this is not the case. Only 11% of the increase in gross capital is of overseas origin, only 20% of the increase in the GDP is attributable to foreign capital investments. There is a false internal perception of the extent of the change which Brazil has undergone. By that I do not mean to say that all is well...there is still a world of things to change and improve. There is still injustice, the unfair distribution of wealth, poverty affects a quarter of citizens...

FORUM: If Brazil is a rich but unjust country, it would seem that the path to follow should include a redistribution of that wealth...

CARDOSO: Tocqueville maintained that the French revolution didn't come about because things were getting worse, but rather because things improved sufficiently for the people to realize how bad they were. It is a good thing that democratic culture, the improvement in education and freedom make the citizen more demanding. I don't need anyone to remind me that this is an unjust country. For many years now I have been fighting against this, . implementing structural reforms to enable the future to be faced with hope. The market is a reality, which does not mean that we have to just accept it, as the neo-liberals would have us believe. A while ago I heard a phrase by Carlos Fuentes which made a great impression on me: "The market is Darwinist, it kills". We cannot allow something so dangerous be ruled by simple natural norms; there must be ethical hooks and action, action to reverse situations of inequality. The market cannot be the axis of policy, nor can it emulate social action, nor know what should be done in the field of education or public health. These are not market issues, they are issues of ethics and justice. The market is a reality, the State cannot replace the action of civil society, although it is the duty of the State to correct this Darwinism of which we were speaking.