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Brazil Prepares for Presidential Transition - 2002-10-25

Plans are underway in Brazil to prepare for a smooth presidential transition following Sunday's runoff election, in which a former labor leader is expected to easily win. The candidate, Luiz Inacio Lula da Silva, is expected to announce some key appointments soon after his likely victory in an effort to calm financial markets nervous over the prospect of a leftist government running Brazil.

The two-term administration of President Fernando Henrique Cardoso comes to an end on January 1 with the inauguration of the candidate who wins Sunday's Presidential runoff election. Opinion polls show Mr. da Silva of the leftist Workers' Party is the likely victor. The burly former union leader goes into the election with an overwhelming lead of some 30 points over his rival Jose Serra of Mr. Cardoso's governing coalition.

Mr. da Silva, known universally as Lula, is making his fourth run for the Presidency. But unlike his three previous attempts when he openly espoused socialism, Mr. da Silva has moved toward the political center.

Despite this, financial markets have been reacting negatively for months at the prospect of a President Lula. Investors fear Mr. da Silva and his Workers' Party, or PT, will stray from promises to maintain fiscal stability. Another worry is how a PT government will handle payments on Brazil's $260 billion debt.

All this has contributed to a sharp decline in the value of Brazil's currency, the real, which has lost about 40 percent of its value this year.

Some analysts say Mr. da Silva's first task upon winning the election will be to calm the markets. Alexandre Barros, who runs a risk analysis firm in Brasilia called Early Warning, says Mr. da Silva can do this by quickly unveiling his economic team. "The first thing he's expected to do, and if he's smart enough, he's going to do it, is announce the names of the people who are going to be one way or another responsible for his economic policies, so that people say: 'OK, this is sort of an insurance that nothing is going to happen which is bad, or threatening, or crazy or anything like that,'" said Alexandre Barros.

Officials in Mr. da Silva's campaign say he will probably make some important announcements on Monday one day after his expected victory. However, they decline to say whether Mr. da Silva will announce his economic advisors, nor will these officials discuss the various names that are being floated in the press.

During the campaign, the former labor leader openly courted the business sector and promised reforms to stimulate economic growth. Mr. da Silva also pledged to abide by the terms of a loan agreement with the International Monetary Fund. The $30 billion loan calls for, among other things, maintaining a fiscal budget surplus and keeping inflation down. The money, most of which will be disbursed next year, is designed to help Brazil weather future financial turbulence.

But analyst Christopher Garman of the Sao Paulo consulting firm Tendencias says the markets still wonder whether a Lula da Silva government can meet the IMF terms, while at the same time honoring its campaign promises. "They're not going to be able to give significant increases in the minimum wage, they're not going to be able increase wages in the public sector," said Christopher Garman. "The PT during the campaign has promised these things, that they would attend these demands. So there's still an undercurrent, a certain divergence between the political expectations upon the party and the fiscal and market reality of what they can do especially in order to maintain the IMF deal. So I think the market is waiting to see how these contradictions play out." To help prevent market turbulence, the Cardoso administration is promising to ensure a smooth transition. Mr. Cardoso's chief of staff, Pedro Parente, told reporters Thursday the government will not take any major decision without consulting with the President-elect. He also said Mr. Cardoso will meet with the President-elect to discuss meeting the budget targets set by the IMF agreement. Meanwhile, top Workers' Party officials say they plan to work closely with the outgoing administration to ensure market tranquility.