Brazil's Neighbors Try to Cut It Down To Size

Latin Americans have a long record of directing their often tempestuous nationalism at one prime target: the United States. But with Washington increasingly entangled in more volatile latitudes, regional battle lines are being redrawn. These days, the imperialistas speak Portuguese. Yes, Brazil, the onetime continental underachiever and now Latin America's economic pacesetter, is increasingly becoming target No. 1.

The loudest anti-Brazilian rumblings have come from the Andes, where populist leaders marching to the drumroll of Venezuelan strongman Hugo Chávez's "Bolivarian revolution" are trying to remake their nations by redistributing wealth and empowering long-neglected indigenous groups and minorities. Over the past two years, the leaders of Venezuela, Ecuador and Bolivia have hurled invective at their dominant neighbor, and lately the mood is getting ugly. In September, a power outage at an Ecuadoran hydroelectric plant built by Brazilian construction giant Odebrecht blew up into an international incident when Ecuadorean President Rafael Correa ordered the army to circle all four Odebrecht projects, froze the company's assets and insinuated he might stop payment on a $243 million loan from Brazil's national development bank. Despite high-level negotiations with Brazil, Correa finally kicked Odebrecht out of the country last month, charging the Brazilians with "disrespecting national sovereignty." Correa is also threatening to oust other Brazilian firms, including the state-owned oil giant Petrobras.

Now the contagion is sweeping south. In Paraguay, President Fernando Lugo took office in August under the banner of "energy independence"—populist code for squeezing concessions from the "imperio" just over the border. He is charging that Brazil is underpaying for the power it imports from the giant Itaipu plant and wants a free hand to sell half the total to any country he chooses. The Brazilians have tried to negotiate, but Asuncíon seems unmoved. In September and October, angry peasants vowed to seize plots owned by resident Brazilian farmers. "BRAZILIANS, GO HOME" read the placards in San Pedro, the municipality where peasants are circling Brazilian farmers.

Ironically, Brazilian President Luiz Inácio Lula da Silva remains popular in Latin America. Before nationalizing two Brazilian oil refineries in 2006, Bolivian President Evo Morales reverentially referred to Lula as his "big brother." Chávez rarely misses a photo op with Lula, even as he lashes out at the country's business executives (he just slapped Odebrecht with $282 million in "extra" taxes) or the Brazilian Congress, which he once dismissed as "Washington's parrot." The first international trip Lugo took as president was to Brasília.

But while leaders trade bearhugs with Lula, they seem just as ready to stick it to their neighbor—a direct response to Brazil's emergence in the region as a powerful economic player. With a $1.4 trillion economy and a global political agenda, Brazil stands out in a region hobbled by poverty and poor governance. Its industry eclipses that of its neighbors, assuring Brazil a fat regional trade surplus. Odebrecht is just one of a score of Brazilian multinationals prowling Latin America and beyond for opportunity. And as Brazil's fortunes soar, it casts a harsh spotlight on the shortcomings of its neighbors. The result: increased animosity from across its borders. "Vilification is part of the price of success," says Roberto Abdenur, a former senior Brazilian diplomat.

Making Brazilians the new gringos may play well to the gallery, but it is risky politically and economically. Until now, Brazil has been Bolivia's largest foreign investor, while Paraguay has become the world's fifth-largest exporter of soybeans thanks to Brazilian technology and the 300,000 "Brasiguayos" tilling Paraguayan soil. Their harvests have been a precious source of hard currency for this mostly poor, landlocked nation. The demonizing hurts Brazil, too. When Bolivia nationalized two oil refineries built by Petrobras two years ago, it forced the state-controlled oil and gas company to rewrite a key part of its energy strategy, scrap plans to double the gas pipeline and plow money instead into domestic exploration. The company is on safer ground because of the revamping but lost time and money in the process. Ecuador's ouster of Odebrecht interrupted four construction projects, worth $650 million. São Paulo is also highly dependent on the hydro plant in Paraguay, and some 300,000 Brazilian farmers now live in fear of having their land confiscated or invaded by Paraguayan peasants.

Yet for all its clout, Brazil seems almost penitential before its undersized neighbors, who increasingly play the Lilliputians to Brazil's Gulliver. While the Lula government has been quick to stand up to the rich countries—suing the United States and the Europeans before the World Trade Organization over trade barriers on ethanol, cotton and sugar—offending hermanos in the hemisphere get little more than a scolding. Rather than firing off a rebuke and invoking international law against Morales's attempts to seize Petrobras assets, Brasília basically turned the other cheek. Morales is only exercising his country's "sovereign right," officials said at the time. "What do you want us to do, invade Bolivia?" Lula asked rhetorically, in answer to critics. Big nations like Brazil, he argued, "must show solidarity with the poorer countries." Many Brazilians are now clamoring for Lula to assert himself, with sterner diplomatic protests or by filing suits in international courts over the confiscated property and broken contracts. "We're getting our butts kicked by mice," says Brazilian political analyst and foreign-policy expert Amaury de Souza.

Brazilian tolerance may finally be ending. In October, the national Defense Ministry, which has not always seen eye to eye with the olive-branch-wielding Brazilian diplomats, drafted a bold plan to regulate a new National Mobilization Strategy. Signed by Lula, the decree beefs up the country's rules of engagement with rogue nations and bluntly warns of a more energetic response to "actions that damage national sovereignty." No target countries were named, nor were possible actions spelled out. But as Brazil's military engaged in exercises along the border of Paraguay last month, the message was hard to miss. Don't expect a tropical version of pre-emptive war. But it may be a sign that the Latin Gulliver is no longer willing to take things lying down.