Brazzil
Politics
March 2003
In the pre-election debates, the candidate aimed for clarity. Via spin-doctor genial, Duda Mendonça, Lula da Silva painstakingly briefed Brazilian voters on the restrictions and realities facing the country. The political and economic platform of the party he was leading, the Brazilian Workers Party (PT), would have to be considerably different from what any of its staff had upheld years earlier. As a whole the party could no longer live in the comfort of opposition politics and utopian daring. The only problem was that few voters believed any of it.
Conservatives and liberals, rekindling Lula da Silva's rabble-rousing days as a post-Trotskyst trade union leader, jittered at the thought of what the party would usher in upon taking office. Their economic wing, the Brazilian banking sector, made a fortune in 2002 by speculating on their fears. While Brazil's economy grew by a weak 1.52 percent in 2002, and the non-financial sector (industry, trade and services) expanded by 5.6 percent, Brazilian banks on average leaped by a walloping 24.5 percent, according to Austin Asis consulting.
These results may be "a demonstration of competence", as the president of the Brazilian Federation of Banks, Gabriel Jorge Ferreira, hastened to add. It is still remarkable for this historical record to have occurred in a fiercely speculative year, hedged as it was on the outcome of the fall election. Banks may have upped the ante for the PT, which did not exclude many from remaining unimpressed by Lula's past. The peculiarities of their profession had long ago taught bankers to expect a quick about-face once Lula confronted economic reality. It's a kind of impassive wisdom reserved for the powerful.
As for progressive voters, they listened uneasily at the alliances anticipated in the speeches of Lula and his chief economic advisor Guido Mantega, now Minister of Planning. It was logical enough that criticism launched at the economic policies of the previous government triggered their attention. After all, neither former Finance Minister, Pedro Malan, nor President Fernando Henrique Cardoso himself had hidden their espousal of the Washington Consensus doctrine of neo-liberalism. Were there one variable left uncontrollably floating in that model, it was risk. And the perceived risk of Lula as president stirring around the WC theorems was enough to bring the country to the brink of disaster.
When Lula opted for conciliation, progressives often shrugged it off as a sundry measure required to gain power. Radical perception had it that the gentle harmonies of uniform understanding could not partake of policy without damaging the party's commitment to social reform. Yet for those who most believe in salvation—Brazil's 130 million poor—the harsh realities of market risk and lines of credit may be yielding to an ever-receding horizon of hope.
Progressive Tensions
Brazil's new President, Lula da Silva, is the embodiment of a radical's evolution into the high priestdom of peace-and-love Zen politics. To claim that most of Brazil's disenfranchised love him as their wonder-child is all but an overstatement. Born into the impoverished Northeast, Lula's childhood now reads as a mythic continental American dream. Like countless others, his parents left the agrarian region in the 1940s, heading south to the more prosperous havens of industrial São Paulo. From his early adult years, Lula filled the assembly line ranks that drove the booming Brazilian automobile industry.
During the middle period of the military dictatorship that occupied Brazil from 1964 to 1985, Lula turned to politics, and eventually co-founded the Workers Party. This was the time of Solidarinosc in Poland and a democratic surge within leftwing political movements worldwide. Lula's popularity as a trade union leader reached such heights that, when the military finally stepped aside, he decided to run in the first democratic elections held in the country for over a generation. He has done so in every election since.
While campaigning, Lula spoke stoically and serenely of the risks the country faces. With its debt to GDP ratio at over 60 percent, his government would first have to concentrate on bolstering the country's economy. For an emerging market, this primarily means reassuring the market and its players. Despite slashing Brazil's risk rating as against American Treasury C-Bonds to its lowest level since late spring 2002 (at 1,211), electoral victory has only intensified Lula's concern.
As his economic staff moves ever closer to matching market challenges, Lula tries to stall a slow slide from wonder-child to orphan. Battling between the hopes and fears of his people, his aim is to humanize an emerging market. In less specious times, such an attitude faces a wall of suspicion. But Lula the progressive has thus far stood out by gaining international backing for his vision. At least he has so far. Managing this tension is also how Lula's Brazil has come to exemplify the wedge driven between 21st century progressivism and 20th century emerging market vulnerabilities. Whatever it is that Brazilians now want, these two variables have been set upon an unstable common journey.
So it was of the highest importance that the ministerial meeting held on Monday, February 10th, be touted as a defining moment for the government. Lula's change of course from the programs and policies of his predecessor, the social democrat Cardoso (1994-2002), would finally be set. For eight years, the distinguished sociologist stood over his triumph, a new currency, the "Real". In the early 1990s, inflation spiraled until ebbing at 50 percent per month, a crisis that would soon precipitate the subsequent lesson in corruption of the (Fernando) Collor Plan. Cardoso's economic decision brought that disaster to a smooth landing, and the country to a long sought stability.
The fixed exchange rate device of pegging the real to the American dollar considerably increased the purchasing power of a large segment of Brazilians. It also allowed industrialists to import expensive foreign technology to upgrade their own sectors. Although the strong currency chipped away at exports, imported technology would prompt an import substitution market. Despite the consumer confidence of those years, failing investor confidence abetted by the Asian economic crisis of 1997 began to take a toll on the currency and stock market even within Cardoso's first mandate.
When the Asian crisis gave way to Russia's defaulting on the ruble, "hot" short term capital steam-rushed out of the Brazilian economy. The real could no longer be sustained at its pegged standard. The currency was made to float and began its grueling slide, wiping away the gains achieved in Cardoso's first term. Advocates of globalization who had been claiming an increase in world prosperity suddenly were beating hollow well beyond the many contradictions of their capitalist utopia.
In the other corner, anti-globalization activists absurdly yearned for the complete collapse of the Brazilian economy, claiming it would spread to envelop the global market and thereby sound capitalism's death knell. Realistically, the human toll of such a collapse would be far greater than any constructive energy rising from the ashes. What such opinions did bring to bear, rationally speaking, was that here lay an economic belief system—an ideology—whose reality was ultimately to produce poverty. In countless campaign speeches, Lula's team and party gestured that they would have nothing of it.
Circulation and Repetition
Weekend papers announced high expectations for the February 10th meeting. From it came only silence, offset only by the embarrassment of a secret tape recording. Late that evening the major news source announced more belt-tightening, this time to the tune of R$14.1 billion (US$ 3.5 billion). This was a measure leading beyond appearances directly to austerity. Appearing on the evening news, the President morosely left the Planalto palace where the meeting had just been adjourned. He approached admirers outside, as he has every day since inauguration. "We have to make sure the situation is secure before undertaking the greater plan", he assured the faithful.
Politics can often be an art of self-deception. Its communication channels divert honest messages into patterns of disenchantment forever projecting others as more privileged, as dominant. That the latter exist is trivial. But who their patrons are becomes the challenge to ferret out: is it the IMF, international speculators, investors, or Brazilian banks themselves?
Once a party virtually holding a monopoly on political honesty in Brazil, the PT now faces a daunting task. It seeks ever so slightly to separate itself from creditors, investors and speculators, i.e. the global finance networks determining the worth of currencies. These networks are also the ones who've most ensured the perpetuation of mass disenchantment.
In the lead up to the election, Lula could not have taken the risk of disagreeing with the terms of an IMF bailout. State coffers stood dramatically low. The real had come wildly under attack, losing 25 percent of its value in a matter of weeks. Had Lula opposed the terms and the Cardoso government led to default on its loan servicing on the eve of election time, the PT would surely have lost the presidential race, as well as its standing in the two houses of Congress. In exchange of Lula's adherence, the IMF granted Brazil a $US 30 billion bailout package, the largest the institution has ever offered.
In light of the financial turbulence, the two most awaited appointments Lula was to make were to the Finance Ministry and Central Bank. Last May, the Financial Times stepped in on behalf of market players by penning an editorial in which it beckoned Lula to name his ministers then and there. Under the pretext of clear planning, the Times smoothly slid a knife under Lula's throat. Either you name personnel we agree with and our news will help keep your economy afloat, or you sink. That was the coded message.
When the day finally came, the market couldn't have been less disappointed. At the helms of Finance is Antonio Palocci, an M.D., who headed the transition and was formerly mayor of an affluent São Paulo suburb. "For an ailing economy, I've named a physician", Lula declared in December. Yet the physician had deferred to the economist weeks earlier, when calling his soon-to-be predecessor Pedro Malan "without doubt, the most serious politician in Brazil." For all his seriousness and integrity, Malan was still Chicago's man in the tropics. Palocci seems bent on nothing else than carrying his flag.
At the Central Bank, Palocci is joined by Henrique Meirelles. His appointment signals a shift from the speculation camp to the investors' ring—assuming that they differ at all. In George Soros's ex-partner, Armínio Fraga, speculators had their man presiding over the bank during the latter part of the Cardoso years. Lula had indicated while campaigning that Fraga would have to go. Few party cadres expected a shift to the ex-president of Global Banking/Financial Services at Fleet-Boston. To get a sense of Meirelles' political weight, the size of the IMF bailout, a surprise to everyone but deciders, was given in proportion to the US$ 20 billion that the bank reportedly has invested in the country.
Meirelles' job is foremost to regain and keep investor confidence. To do so, he has convinced Palocci of the need to increase the primary fiscal surplus projection to 4.25 percent from 3.75 percent, unheard of even during the Cardoso years. To test the waters, he personally accompanied Lula to the World Economic Forum in Davos. As for what the strategy regarding Brazil's currency is, this remains unclear.
The pre-election position of Lula's chief economic advisor Mantega, was that the real should be trading at 2.5-2.75 to the dollar. This was also Fraga's position. But after 2002's record trade surplus, due largely to the weak or "more competitive" currency, economists have been quiet about a real suspended at 3.6. Were analysts of PT ardor, they would be hedging their bets that export turnover allowed by this rate will stimulate a return to 4 percent growth.
Still, the export surplus has not softened what both Palocci and Meirelles have been uttering and ushering. Apart from boosting the primary fiscal surplus, they have agreed on the urgency of curbing a stubbornly rising inflation rate by an ever-higher increase of the prime interest rate to 26.5 percent in view of curbing debt-to-GDP ratio back to 55 percent and inflation back down below 1 percent. Palocci has furthermore emphasized the need to reinforce the Fiscal Responsibility Law whereby governments of all tiers are bound by law to keeping a budget surplus, as he has the benefits of respecting all of the previous government's contracts and internal debt.
How the government intends to jump-start job creation with money costing as much to borrow, and banks refusing to take even the slightest risk with small and medium sized companies, has become a mystery to all Brazilians who still believe in the "bigger plan". Reality did strike a seeming note of understanding with the February 10th mega cut of R$ 14.1 billion as R$5.1 billion was carved straight from social spending. The stone of no ministry or secretary was left unturned. Health and education, the PT's highest priorities, even Lula's prized "Hunger Zero" program, have had to bite the bullet so that 'global' finance may rest assured.
Apart from insider scuffling, the February 10th meeting did deliver an unusual innovation. Lula has established a presidential research think tank, joining forces from a broad spectrum of Brazilian society and industry. The Council for Economic and Social Development will have no legislative mandate, though it is in charge of regularly formulating policy guidelines for the executive.
Given its voluminous size of 82 members, the PT rank and file in the lower house has grown suspicious as to its intentions. After all, a non-elected body is always grounds for concern in a democratic system when close to the presidency. Given that it is largely made up of lobby and special interest groups, it may in fact be a way for Lula to constantly keep them in check, instead of allowing them free sway to undermine his efforts at keeping partisan control of the two houses.
This possibility has not prevented many PT members of the lower house from fumigating. To counter their vocal criticism, president of the PT, José Genoíno, and PT Senate leader, Aloízio Mercadante, have chosen the dubious route of quashing the dissents as the mainstream press has eagerly been lapping up the PT style as a conflict between radicals and realists. Whatever the fairness of Genoíno's measures, radicals have seized the spotlight. Contrary to myopic mainstream misrepresentations, it could not have happened sooner.
Many are already beginning to wonder where the radical reformist dream has fled to so early in the running. Could voters really have claimed to be surprised when Palocci insisted on February 5 that "we made a program to govern, and not to win the election" or that "if the radicals thought that Lula's campaign promises were meant only to win the elections, they were fooling themselves"?
As for the President, he has been downplaying the import and weight the austere fiscal measures will have on the PT's "unwavering" social commitment. More than anyone else, he understands that the name of the game of today's economy is trust. And Lula needs the trust of the international financial community to raise Brazil to the pastures on which the Washington Consensus promised it would one day graze. Few doubt the difference in views as to what may grow on those fields.
Points of Social Attack
Lula's term began with his dedication to the Hunger-Zero program. In any nation, there are many tiers to fighting poverty. Opting for reform instead of revolution dictates a case-by-case process of praxis. Lula's commitment is eventually to increase the minimum wage, though the boost depends on how much the economy grows. And job creation is held to be stimulated by a lower prime interest rate enabled by a reformed income tax system in addition to revenues from exports.
Lula's deepest engagement, however, has been to settle the pendant weighing most heavily on Brazil's underclass. The fifth-world conditions prevailing in many areas of the country has engulfed even the most affluent State of São Paulo. Just a measure of the problem: unemployment is so chronic it fails to be measured appropriately.
Liberation theologian and distinguished social critic, Frei Betto, is Lula's chief philosophical advisor and the brainchild of the Hunger-Zero program. Despite early organizational-level criticism, Lula's ambitions go much deeper. For in this program, he is tapping into the energy of a vast area of civil society for his party's goals at sustained reform. With politicization come not only a sense and purpose, but also a commitment to secular education quite akin to Betto's philosophy.
Concerting and deliberating are part of a game to which Brazil's remarkably open media will be expected to seriously rally. This is the key ingredient to Lula's vision of education, one whose seeds are sown most thoroughly through a heightened sense of citizenship—perhaps the single most lacking factor in the national pride of Brazilians.
On the institutional level, the government has had to tackle the issue of social security. Brazil's public sector distributes a disproportionate bounty in pensions that cries out as a prime source of social inequality. Unlike a country such as France, Brazil's public sector is minute. Amounting to 11 percent of the country's pensioners, former public sector workers account for a deficit of $R 53 billion (US$ 14.8 billion) for the 2002 fiscal year. This stands in contrast to the estimated 30 percent of pension receivers from the formal private sector whose expense led last year to a deficit of $R 17 billion (US$ 4.8 billion). Left unaccounted for is the majority of Brazilians who partake of the informal private sector: street vending, undeclared services and crime.
The lion's share of these pensions goes to the military—and their offspring as well as to retirees of the federal judiciary. Pensions especially for these former public sector cadres spectacularly exceed the private sector monthly limit of R$ 1,561 (US$ 438) . Whether the PT, through their partisan alliances in the Assembly and Senate, is able to wrest these treasures from the hands of its guardians is its first great challenge. As the social security system explicit shifts collective money to a minority of the population, the government's success in curbing the pension deficit can only give more credibility to its fiscal policies, raise its social clout and establish political stability, if not in the short then at least in the long run.
Among the many ministers of note in Lula's large government is Marina da Silva at Environment. Originally from the Amazon region, Ms da Silva (no relation to the President) is a long time environmentalist. Under her jurisdiction, she will have a territory ranging over half the size of the continental USA. Its biodiversity and wealth is recognized the world over, which has at times led the USA, among others, to overlook it as sovereign Brazilian territory. The thirst of the Northern and Asian wealthy for precious wood, exotic animals and plant-derived curatives helps to maintain a criminal export trade industry, well ensconced in the massive jungle.
Famed Tropicalia singer-songwriter, Gilberto Gil, has the Culture portfolio. His role as government spokesperson to the youth cannot be underestimated. Indeed, Gil makes up for his jazzy political jibe in talking a language that all can understand. If education is a leading priority for this government, whose ministry is headed by Cristovam Buarque, this is because despite access to cable television, regular network programs approach those in the USA for debilitating intellectual content. Gil and Buarque have enormous moral responsibilities to attempt to hoist the population's general culture level to a higher sphere.
Although its first window on the world has been economic, Brazil's foreign ministry at Itamaraty palace has gathered an all-star team of intellectual diplomats under Minister Celso Amorim. Moreover, it has found a place for controversial diplomat Samuel Guimarães, whose Five Hundred Years of Periphery deserves an English translation. José Bustani, ousted from the UN agency for the prohibition of chemical weapons by the USA, also figures among its ranks. Lula's wish is to make Brazil a leader in South America. His intervention on behalf of Chavez and democracy in Venezuela has already been noted. As has his government's unbending commitment to peace in the Persian Gulf.
Lula's government has been in power for a little over 40 days. His ascension has been feted as a historical event. It holds a potential for reverting Latin American history to completing the popular reforms begun over a generation ago and brutally stunted by military coups, torture and mass murder. The continent is once again rife with violent popular uprising in Argentina, Peru, Venezuela, Colombia and now Bolivia.
As the largest country in South America, Lula's Brazil is trying to prove that there is indeed another way. This is a way that can only be achieved by splitting from a capitalist system producing ever-increasing poverty and crime and onward to one leading to greater distribution of public wealth and democratic centralism.
Canadian philosopher, Norman Madarasz, holds a Ph.D. from the Université de Paris and has extensively published think pieces and philosophical research. Currently living in Rio de Janeiro, he writes on international North-South relations and on the political economy and culture of Brazil for Brazzil, Counterpunch and other reviews. He welcomes comments at normanmadarasz2@hotmail.com