Can a country be an "economic power" without having military power to back it up? Brazil seems ready to give it a try.
In the U.S. and the EU, economies are struggling to return to growth, and defense budgets face the chopping block. Meanwhile, "BRIC" economies are booming, with predictable results. Russia's revived the Red Square military parades, with a defense budget to match. India is busily crunching numbers for a $10 billion tender to modernize its air force. And you know all about China.
Brazil, meanwhile, seems content to sit out the party.
As recently as a few months ago, Brazil was marching in lockstep with its fellow BRIC-ers. It placed orders to buy four submarines and 50 military helicopters from France, bolstered local defense contractor Embraer (NYSE: ERJ ) with a reciprocal deal to sell the transport aircraft to the French, and invited Dassault to bid on a $7 billion contract to upgrade the local air force with state-of-the-art fighter jets. (Boeing (NYSE: BA ) badly wants to win that last contract.)
But Brazil recently changed residents at the Palacio do Planalto, and new President Dilma Rousseff is taking a different tack from her predecessor. She's upending the FX-2 fighter competition, and inviting both Boeing and Lockheed Martin (NYSE: LMT ) -- and EADS, Saab, and Sukhoi as well -- to submit new bids. In so doing, she throws Dassault's preferred position into question, and delays purchase of any planes at all.
And it gets worse. On Monday, Rousseff announced that she's rethinking plans to spend $6 billion on new warships to beef up the Brazilian navy. This won't affect U.S. contractors, who aren't bidding on the contract, but BAE, DCNS, and Thyssenkrupp can't be pleased by the development.
Tanks on the yellow BRIC road
However, I suspect another offended party may demand a re-rethink of Rousseff's rethink. Brazil's national oil company, Petrobras (NYSE: PBR ) (NYSE: PBR-A ) , is in the midst of a multibillion-dollar effort to tap oil wealth off the Brazilian coast. As a major contributor to Brazil's tax coffers, Petrobras can't be pleased to learn that the government is skimping on the spending necessary to keep its wealth secure from interlopers and terrorists.
Take Petrobras and Brazil's intertwined interests; add some lobbying dollars from ExxonMobil (NYSE: XOM ) and Anadarko (NYSE: APC ) , both of whom have significant interests in the Brazilian oilfields; and I'm guessing that Brazil will ultimately spend what it needs to spend to defend its oil wealth. It's expensive, yes, but such economic power and military power go hand in hand.
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