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Interview

with Jorge D’Escragnolle Taunay Ambassador of Brazil to Peru Embassy of Brazil in Peru

28.04.2011 / Energyboardroom

Regional integration has been one of Brazil‘s major diplomatic priorities but the focus has mostly been on the Cono Sur region rather than the Andean countries. Could you briefly talk through the process of integration in these regions?

I would like to start by saying Andean integration is occurring and that this is the very best period of bilateral relations between Brazil and Peru. Integration is occurring along the frontiers particularly in regard to infrastructures. Three roads are under construction which link Brazil through the heart of Peru to the Pacific ports. There is one road going through the South of Peru from the state of Acre in Brazil to the port cities of Ilo, Matarani and San Juan de Marcona along the southern coast of Peru.
The construction of this highway is one of the most important achievements and will serve to integrate the North-West of Brazil with the South of Peru, which is the poorest area of the country. The Brazilian constructors finalising the construction of these roads inform me that in those parts of the road which are already completed and being used there is a level of economic activity which even now is far greater than what is projected for 2020. These roads therefore have a huge potential and one that we cannot actually foresee at the present time.
The other two highways have not yet been finished although one will pass through the centre of Peru from Cruzeiro do Sul in Brazil. This is the second most important city in the state of Acre, which is one of the best managed states in Brazil located in the Amazonian rainforest. The third road is the northern road from the harbour of Paita, running 900km to the future harbour of Yurimagua in the Ucayali River. The only element now missing for the completion of this project is the construction of the harbour itself as well as some work in the river to make it safer for sailing. It must be underlined that both Brazil and Peru will carry out all of these projects with great care for the environment.
The southern road is ready and in June 2011 we will inaugurate the bridge over the river Madre de Dios in Puerto Maldonado, in the city of Maldonado. In my view, it is a beautiful construction.

Brazil has used South America as a pillar to promote its trade with the rest of the world. Peru has taken a more international approach, implementing Free Trade Agreements with the USA, Canada and Japan. What is your view of integration and how Peru can play a part?

It is not entirely accurate to state that Brazil is simply using regional integration to get closer to other markets. The world has gigantic countries and several gigantic trading blocks. This makes it difficult for individual countries to present themselves alone. In my view, for the 12 countries of South America it is very important to unite and integrate trading policies.
No one is naive enough to think that we will agree on everything. However, on the main issues, these countries can come to some form of agreement and build consensus. It should be clear that Brazil is not seeking leadership in South America. The approach lies on the idea that in order to be prosperous one cannot be surrounded by poor countries. Others have tried the former approach in the 19th and 20th centuries and it did not work. This is the spirit behind the Summit of South American-Arab Countries (ASPA). Brazil and Argentina had good relations with Arab countries and we are aware that they are great importers and investors. We therefore want the countries on the other half of the continent to have these opportunities in order to be prosperous.
Mercosur is a union and if we sign a free trade agreement it is required that four countries agree: Brazil, Argentina, Uruguay and Paraguay. Mercosur is a necessary union allowing individual countries to negotiate on equal footing with the European Union. Peru is an associate member of Mercosur and between Brazil and Peru most of the items in the trade balance are tax free. Although it should be qualified that tax free imports are more from Peru to Brazil than from Brazil to Peru. As such Mercosur is hugely beneficial both in providing a platform for South American nations to negotiate with the rest of the world and as a mechanism of liberalising trade between nations, including Peru.

The energy agreements between Brazil and Peru are still mostly on paper. What is concretely happening in the oil and gas and electric industries?

My vision is to have the entire continent electrically integrated and I believe that one day this will happen. This is because it is necessary. If there is a problem in one country it is possible to take energy from another. This has happened between Argentina and Brazil. Peru needs energy and has an enormous potential. Hopefully the Peruvian government will decide that this potential must be used. 50% of Peru’s energy comes from one gas pipeline and if this breaks then it will be a catastrophe with the country 50% down in terms of energy. Brazil wishes to build a dam taking the utmost care for the environment and the people who live there. I cannot emphasise this enough as we cannot give any reasons to oppose the project. There are millions in the region who are in need of infrastructural development.
The treaty between Brazil and Peru concerning this dam provides that the Peruvians will export to Brazil only the energy they do not need. The priority is the internal market of Peru. The agreement is an umbrella treaty because each project will be negotiated on a case by case basis.

What support is there for Brazilian companies to invest in Peru?

Brazil has its own development bank (BNDES) to assist Brazilian companies to invest in Peru. However the Peruvians are also financing these projects. Regarding the highway projects, the Peruvians decided that they could get better financing from the financial market. In fact, Peru has such a good international credit rating that they could perhaps obtain financing cheaper.
It should be said that most Brazilian blue chip companies are present in Peru including all the major construction companies. This is therefore the best moment ever in commercial relations between the two countries. It is my responsibility as Ambassador to foster this trend.

After 3 years in Peru what would be your message to Brazilian investors?

Firstly, I would say that this is not a one way street. There are Peruvian companies which are investing in Brazil including mining companies. There is a Peruvian bank specialised in micro credit which has a joint venture with a bank in the state of Maranh£o. However, my message to the Brazilian investors is: Come quick and don’t miss the opportunity!

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