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Optimism after Brazil’s President Lula Completes First Year in Office - 2004-01-27

Last January, Luiz Inacio Lula da Silva became president of Brazil. Contrary to widespread expectations, he did not take the leftist-populist path many predicted. Instead, he has continued economic policies backed by the international financial community. At a recent conference here in Washington, U.S. analysts took stock of President Da Silva’s first year in office. VOA’s Serena Parker reports they expressed concern that even though Brazil has stayed the economic course, growth rates have remained stagnant, and some worried that could undermine the president.

On January 1, 2003 hundreds of thousands of Brazilians took to the streets to celebrate the inauguration of Brazil’s first-ever working class president, Luiz Inacio Lula da Silva. A passionate advocate for Brazil’s poor, the man known universally as Lula won Brazil’s highest office on his fourth attempt.

While most Brazilians rejoiced at Mr. Da Silva’s swearing-in, international financial markets were less euphoric. Investors mistrusted Mr. Da Silva, partly for his leftist-populist rhetoric and partly on grounds of inexperience. In the weeks before and after his election Brazil’s currency plummeted in value by more than a third, triggering sharply rising prices, as international investors bailed out of Brazilian assets.

But in the year since Mr. Da Silva took office, he has surprised his critics by remaining on an orthodox financial path and signing two agreements with the International Monetary Fund. He has been rewarded for this policy as interest rates have fallen and the Brazilian currency, the real, has strengthened.

Latin America analyst Mark Falcoff: “If there is one thing that Lula’s first year has demonstrated, it’s that even with the change of governments and a presumed shift to the left, the country’s signature on previous agreements is still valid. I think that is perhaps the most important thing that has happened as far as Brazil is concerned in the last year. It has had a tremendous impact on international confidence in Brazil.”

Mark Falcoff is resident scholar at the American Enterprise Institute and author of numerous books on Latin America. He says Brazil’s predictability is good for the country and the region.

“It suggests to me that Brazil is a serious country with a large constituency for sensible, pragmatic, forward looking policies,” he says. “It is not about to go off half-cocked as Argentina has or as I believe Bolivia is about to.”

Mark Falcoff attributes the Da Silva success to several factors, among them the president’s ability to engage in serious coalition building across party lines.

“First of all, Lula’s party, the PT, has already had experience governing Brazil at different levels of government,” he says. “So they’ve already had to face the problems of budgetary constraints, social expectations. It’s a left that has become less revolutionary and more practical in the process of actually having the experience of government. Secondly, Lula himself has been willing to draw on the country’s very considerable reserve of intellectual talent and at the same time he’s willing to spend political capital when he needs to. In this way, probably the only way I can think of, he resembles our own President Bush.”

One way in which Mr. Da Silva spent some of his political capital was pushing through pension reform. Under Brazil’s previous social security system, a handful of federal employees received very generous pensions, some as high as $15,000 a month. Meanwhile, millions of Brazilians received nothing. By tackling this issue and taking on the powerful state workers’ union, Mr. Da Silva will ensure the monies are distributed more evenly among the population, while also saving $18 billion over the next 20 years.

Mr. Da Silva’s insistence on pushing through this reform cost him some political allies. Several top-ranking officials from the Workers Party were forced to leave government jobs after loudly criticizing the President. But Riordan Roett, director of the Western Hemisphere Program at Johns Hopkins School of Advanced International Studies, says Mr. Da Silva has used this to his advantage.

“The PT has held together,” he says. “They’ve tossed out a few of the crazies and that communicates very well to the rest of the party nation-wide that this is now a centrist, centrist-left party. That can vary depending on the audiences you’re talking to and Lula is very good, as are his people in the PT, at talking to multiple audiences with slightly different messages, which is why I think his personal popularity is so high.”

Riordan Roett says Brazil’s emergence as a leader of developing countries also plays well at home. The Brazilian government has been a harsh critic of American and European farm policy, in particular government subsidies that it says hurt farmers in the developing world. Taking an aggressive stance against U.S. foreign policy objectives -- such as the war in Iraq and free trade -- sits well with audiences in Brazil and around the world. However, Mr. Roett says Brazil has real issues at home it needs to deal with.

“Now, I haven’t seen the new Global Competitiveness Report put out by the World Economic Forum. It’s due out the first week of February,” he says. “But looking at last year’s Global Competitiveness Report, it’s the same old problem: o costo Brasil, the cost of doing business in Brazil. So what Brazil needs to do is focus on is the broader issue of institutions in Brazil and the cost of doing business in Brazil: the lack of emphasis on education, entrepreneurship, and the kinds of issues that foreign investors are extremely worried about.”

Mr. Roett is not alone is his assessment. Albert Fishlow, director of the Center for Brazilian Studies at Columbia University in New York, says another year of slow economic growth in Brazil will produce a change in the political landscape, a change unlikely to benefit President Da Silva or his Workers Party.

“If growth this year doesn’t get up above 3% and closer to 3.5% - remember the municipal elections occur in October,” he says. “And one of the important objectives of the PT is to win those elections because the reality of the matter is the PT, up to now, has been a regional party, and what they want to do is become a national party. And the way to become a national party is to win in those municipal elections all across the country.”

Albert Fishlow says Brazilians are more concerned with unemployment, crime, and social inequality than whether or not the international financial community approves of their country’s economic path.

Whether Mr. Da Silva can continue to expand Brazil’s social welfare programs, reduce crime, strengthen institutions, eliminate corruption and grow the economy while not accumulating more foreign debt remains to be seen. But based on the Da Silva Administration’s first year in office, these outside analysts are cautiously optimistic about the country’s future.