After the Labor Party's candidate Dilma Roussef was re-elected resident of Brazil in Sunday's election, the Central Bank of Brazil increased the benchmark interest rate by 25 basis points to 11.25 percent, marking a three-year high.
The Labor Party has been in power in Brazil since 2003, starting with former President Luiz Inácio Lula da Silva, who was succeeded by Roussef in 2011. What underlie this 12-year success are the policies to prevent poverty and major steps taken on the way to democratization. During the Labor Party governments, Brazil has pursued a political path, which is similar to the understanding of domestic and foreign policies adopted by Turkey's ruling Justice and Development Party (AK Party). A good example for this was Roussef's recent address to the U.N. General Assembly, which was more or less in the same ballpark with that of Prime Minister Erdoğan. Just like Erdoğan, Lula and Roussef are criticized by media outlets and academic institutions, which are under the thumb of monopolist capital holders, due to their populist approach in economy. However, oddly enough, there are also some governmental figures and party members who implicitly oppose Lula and Roussef and take up a position toward global capital.
Just like Erdoğan again, Roussef was re-elected by the votes of the poor and middle class, and Brazil is experiencing the same things as Turkey has experienced since Erdoğan was elected president. Thinking that a large amount of funds will outflow from the country with Roussef's re-election, the Central Bank of Brazil immediately raised interest rates, as global capital holders considered her re-election as a risk, as they had when Erdoğan was elected president.
Since the authoritarian military dictatorship that ruled the country from 1964 to 1985, Brazil has taken major steps in democratization and has introduced the longest-term structural solutions to fight poverty and to eliminate inter-regional income inequality during the Labor Party governments. However, global capital circles collaborated with monopolist capital holders in the country and instigated uprisings in the largest cities of Brazil last year, aiming to remove the Labor Party administration or at least to dethrone Roussef. This was the same case as in Turkey; the same circles did not want to see Erdoğan for similar reasons.
The U.S. Federal Reserve has recently terminated asset purchases; however, contrary to popular belief, this does not mean that interest hikes will occur at an earlier time. The perception that the Fed will launch an interest hike at an earlier time is fabricated to push up demand for the dollar. This, beyond any doubt, is the U.S.'s attempt to kill two birds with one stone. First of all, it does not want to allow countries, such as Turkey and Brazil, to leave the framework of the Washington Consensus. It also wants to deter these countries from their invest-oriented and industry-oriented paths and to make them pursue the path of global financial oligarchy. Secondly, the U.S. wants to maintain its self-financing system by pushing up the demand for the dollar in the short term, as the fall in the growth of Asian countries brings down these countries' demand for dollars and U.S. treasury bills.
It goes without saying that this decision of the Fed does not necessarily mean an earlier interest hike, as the U.S. economy cannot go on with a strong and excessively precious dollar in the medium- and long-term. Even if countries like China start to grow at high speed once again, they cannot finance the U.S. as much as before by buying dollar and U.S. treasury bills. Now, Asia has started to export capital, which marks the beginning of quite an important change.
All moves of the Fed, including interest hikes, cannot disturb developing countries as much as before; quite the contrary, the fact that the dollar is constantly kept precious will relegate the U.S. in global competition and highlight Europe and Asia. Countries should abandon using the dollar in their trades and should form clearing unions with their own currencies, which will bring an end to the U.S.-led Bretton-Woods system. Due to all this, countries like Brazil and Turkey should not be discouraged by such moves by the U.S. As the governments of these countries do not want to give rise to a global financial attack, they cannot so easily get out of conventional monetary and fiscal policies. Therefore, resolute leaders such as Erdoğan and Roussef are isolated or marginalized most of the time, and they can raise their voices only when interest rates escalate to intolerable levels, but this time it may be too little, too late.
I would also like to dwell upon the mining accidents that were experienced in Turkey last year. These accidents are occurring because of the aforementioned persistent neo-liberal policies. If Turkey had been able to completely escape from neo-liberal boundaries and switch to the economy policy that Erdoğan wanted to implement during his incumbency as prime minister, Turkey would not have experienced these occupational accidents. Neo-liberal economy policy, which means intensive exploitation of labor, prioritizes higher profit rather than humans. Turkey, which has paid a heavy price for neo-liberal policies, should immediately switch to the new growth model that has been highlighted by Erdoğan since 2008.