Lula’s Brazil

8 January 2004

Lula’s Brazil

By Gwynne Dyer

“All the hallmarks of an impending default are visible: a soaring public sector debt burden; high short-term interest rates; low growth; a rapidly depreciating currency; and an international loss of confidence. At current market rates, even an optimist would admit Brazil is insolvent.”

That was the verdict of the ‘Financial Times’ on Brazil on the eve of the election that brought ‘Lula’ (Luiz Inacio da Silva) to the presidency just a year ago. The prospect of the first-ever socialist coming to power in Latin America’s largest country had spooked international investors, always a panic-prone lot, and created a self-fulfilling prediction of financial crisis. But a year later, none of the FT’s predictions have come to pass.

Short-term interest rates have dropped from 20 to 12 percent; the Brazilian real, which had plunged 40 percent against the US dollar, has stabilised; public debt has been contained by draconian borrowing curbs; international confidence has returned; and economic growth is predicted to run between three and a half and four percent this year. Lula must be doing something right.

When I first interviewed Lula twenty-five years ago, he was a genuine horny-handed son of toil: an ex-lathe operator from the poverty-stricken north-east who had left school after only five years and migrated south to Sao Paulo in search of work. He had lost a finger in an industrial accident, become a union organiser, and was then in the midst of founding the Workers’ Party (PT), an avowedly socialist organisation, in the teeth of the military regime’s disapproval.

Now he has trimmed his beard and started wearing suits in deference to the image consultants, and he didn’t even mention the word ‘socialism’ in the last election. As a man of the left, however, he still has an image problem with one key group. Even well-informed investors are in the business of guessing where the ignorant herd will stampede to and getting there first, so any politician with the label ‘left-wing’ must be ultra-responsible about budgets and deficits.

This is true even in the United States, where right-wing politicians can run up vast deficits without panicking the markets — consider Ronald Reagan’s ‘voodoo economics’ in the 1980s, or George W. Bush’s astounding fiscal indiscipline today — whereas those on the left have to bring in balanced budgets or face market revolt. It is doubly true outside the US, where foreign investors, mostly from the United States and Europe, hold a much bigger share of the total debt but generally know only three facts about any given country. They panic very easily.

That’s what trapped Lula, and he has spent the past year working himself out of the trap at some considerable political cost. There was no financial crisis in Brazil until foreign investors panicked at the thought of a socialist president, but $6 billion fled the country in the three months before the election in what his closest adviser, Luiz Dulci, called “an act of financial terrorism”, so he had to devote the past year to calming the markets. The price was stagnant growth, rising unemployment, and a lost year on his ambitious programme for creating jobs and fighting poverty.

Lula kept his core supporters loyal through this ordeal by a high-profile foreign policy that included successfully standing up to the United States and Europe at the World Trade Organisation talks in Cancun and visiting Third World icons of another era like Cuba’s Fidel Castro and Libya’s Colonel Muammar Gaddafy. But now, with the currency stabilised, a new agreement with the International Monetary Fund in place, and the Brazilian stock market soaring, he is ready to end the damage-control phase and start governing.

“We’ve cleared the iceberg from the Titanic and welded the holes where she was taking water,” he said last month. He has three years left until the next election to deliver on promises like eight million new jobs (half a million old ones disappeared last year), and programmes like Zero Hunger (“If every citizen is able to eat three times a day, I will have fulfilled my life’s mission”). If the global economy stays reasonably healthy he can probably keep enough of his promises to win another term.

Even now, after a year of disappointment and austerity, Lula retains the support of over two-thirds of Brazilian voters: his transparent integrity inspires trust even when the performance leaves much to be desired. And his first year in office has already established something of great long-term importance: the normal democratic alternation in power between parties of the left and right will not again be a reason for panic in Brazil.

In the same week that I first met Lula 25 years ago, I also spent a day with Fernando Henrique Cardoso, then a leading academic figure in the liberal opposition to the military regime and subsequently Lula’s predecessor as president in 1994-2002. The two men’s personalities and circumstances were hugely different, but what struck me then and still strikes me now is that the long night of the generals had forced them both – and maybe their entire generation — to move away from simplistic ideologies and start grappling with the human realities of Brazil.

Lula berated Cardoso as a ‘neoliberal’ when he was in power, but Cardoso actually did more for the half of Brazil’s 182 million people who live in poverty than any previous president of Brazil. Lula is still vilified as a wild-eyed leftist, but in fiscal and financial matters he has been the very model of responsibility. Brazilian politics has grown up at last.


To shorten to 725 words, omit paragraphs 6 and 9. (“This…easily”; and”We’ve…term”)