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A Tough First Year for Brazil’s Lula

Kenneth Rapoza, World Press Review correspondent, São Paulo, Brazil, Dec. 17, 2003

Brazilian President Luiz Inacio Lula da Silva in Beirut, Dec. 5, 2003 (Photo: Joseph Barrak/AFP-Getty Images).

Aginaldo de Matos, 30, was laid off in March from his job at the chocolate manufacturer Lacta, owned by Kraft Foods Brazil. Aginaldo’s wife is unemployed. They have one child at home. Aginaldo doesn’t know how much money he earns a month, his income is so unreliable. He recently set up shop on Rua Joaquim Floriano in the busy São Paulo neighborhood of Itaim Bibi, selling illegal copies of software and video games. But he doesn’t blame Brazilian President Luiz Inacio Lula da Silva for his troubles. “There are things that this government has no control over,” Aginaldo said. “I see very few solutions to our problems.”

Brazilians celebrated Lula’s victory at the polls last year. A new, more optimistic era seemed to have begun. Just six months ago, Lula said Brazil was about to witness a “spectacle of economic growth” in the days ahead. Today, reality seems to have settled in. Economic growth for the year is projected to be 0.3 percent. Thirty percent of the population still lives in poverty. Unemployment in São Paulo hit a record 15 percent this year. Nationwide, unemployment is rising and incomes are dropping. In 2003, the average Brazilian watched her pay drop by 15.2 percent to 831 reals, or roughly US$296, a month—enough to pay bills and put food on the table but not much else. A study released on Nov. 25 by the Commercial Association of São Paulo showed that 56 percent of the city’s population will not be buying Christmas presents this year. All this in the economic hub of Brazil and the largest industrial and financial center in Latin America.

This cannot be the situation the Lula government had hoped for after sweeping into office last year on the wave of a popular revolt against conservative economic policies that, critics charged, had been largely dictated by domestic and foreign bankers. Even during his campaign, Lula made reassuring noises to calm jittery bankers abroad. At the time, many Brazilian commentators suspected they were just that: reassuring noises. Lula supporters argued that the new president had inherited a country in financial trouble and had to earn the trust of international investors to bring money and jobs back to the country. But few questioned the leftist credentials of Lula’s Workers’ Party (PT).

Today, it is getting harder to argue that Lula has remained true to his leftist past. Since coming into office, he has pursued essentially neoliberal economic policies, which have rankled some of his left-wing supporters. On Dec. 8, the centrist Diario de São Paulo reported that Lula enjoyed only lukewarm support or faced “explicit opposition” from his old allies in the powerful Central Workers Union.

On Dec. 12, the Brazilian Senate passed Lula’s pension reform bill, which would cut benefits for retiring government employees and raise the retirement age. Lula says the bill aims to close the gap between private- and public-sector pensions. International financiers applauded the bill as a step toward closing the Brazilian government’s US$250 billion debt. On the same day the bill passed, the International Monetary Fund (IMF), which Lula and the PT once criticized as the source of the country’s woes, approved a new $14.8 billion loan for Brazil. On Dec. 16, IMF Director Horst Köhler called Lula’s economic management team an example and congratulated them on their economic policies.

The left wing of the PT has not. Rebel PT members argued that cutting pensions and raising the retirement age was hardly a pro-labor stance. On Dec. 14, the PT national governing body decided it had had enough of the internal criticism and expelled four of the ringleaders: Sen. Heloisa Helena, lower house deputies Joao Batista de Araujo, Joao Fontes, and Luciana Genro. Several PT members quit the party in protest.

As Jornal da Tarde columnist José Nêumanne put it on Dec. 3, “Lula is sliding on the social front, but the PT—ironically—is doing well with bankers.”

Contrasts and Contradictions
But approval ratings for Brazil’s first working-class president remain high, and his policies have won him new friends from among Brazil’s elites. On Dec. 3, Mauricio Botelho, the president of Embraer, the fourth-largest manufacturer of commercial airplanes in the world, invited journalists to Rubaiyat e Figueira, a pricey restaurant in the Jardins neighborhood of São Paulo. Under a massive tree surrounded by tables and stone-faced security guards in black suits, Botelho told World Press Review that when Lula took office, “international credibility in the country was zero…. This government in the first year managed to reverse some terrible [economic] situations. They have secured their position and created the conditions for a new cycle of development next year.”

Botelho’s comments mirror the consensus in the mainstream Brazilian press that predicts economic growth of around 3.5 percent next year, falling interest rates, and increased foreign direct investment. According to Sobeet, an economic consulting firm in São Paulo, foreign investment in Brazil is now at its lowest level in 10 years.

But Dalva Nogueira, who owns a high-end interior design store on fashionable Rua Haddock Lobo, seems less confident. “Everything’s stopped, even here in this part of town,” she says. Will things improve in 2004? “I’ll believe it when I see it,” she scoffs.

Haroldo de Britto, a consultant for government and industry at the Brazilian firm Goes & Consultants, is more sanguine. Lula’s first year was a “necessary evil,” he maintains. “Lula had to get the financial markets to trust its policies. The majority of my contacts in government are optimistic about next year...I can’t imagine two bad years in a row. But if things don’t turn out better for the population, it could be a big problem for this government.”

In an interview published in the November edition of São Paulo’s independent monthly Premeira Leitura, Maria Victoria Benevides, a professor at the University of São Paulo, agreed with this last sentiment. Benevides, who worked with the PT to establish its program, described the current mood in Brasilia thus: “There is no one in the party or in the government that I talk to who is not intensely worried or does not say that the mission they had in mind is much more difficult than they had hoped…I’m upset, and in some cases I’m profoundly puzzled. But I maintain my strictest confidence, because there would be a historic price to pay in the case of a failure of this government. It would be enormous.”

Faced with dismal numbers, the press here mocked Lula’s prediction of six months ago that Brazil would see “spectacular growth” in the coming year. But in the case of capital markets, Lula’s comment was right on the mark. Brazilian government bonds broke records this month. Bond investors rely on Brazil’s high interest rates to guarantee much higher rates of return then they would get if they were invested in U.S. bonds. Bovespa, the main stock exchange here, continues breaking daily records, gaining 79.12 percent from July to November. Investors haven’t had this much confidence in Brazil since 1998.

Jose Serra, the Social Democrat Lula trounced in the October 2002 elections, told popular late night talk show host Jô Soares on Dec. 2 that he saw Lula’s having gone “from someone who was hostile to the financial markets, as the PT people were, to someone who now works only to please those markets” as “just another extreme that this government has fallen into.”

The country managed to increase exports to the United States and the European Union, but most of all with China and India. But to date, none of this has generated jobs overall. “If it does generate jobs,” says Fernando Ribeiro, and economist at Sobeet, “the job would likely require education if it were to improve a person’s level in society.”

And Brazil’s education system is in a woeful state. According to a government study released on Dec. 2, 14 million Brazilians older than five have never even been to school. Just 3.4 percent of the population has a college degree. In the country with the most black people outside of Africa, more than 80 percent of Brazilians with college degrees are white and only two percent are black—a situation Education Minister Cristovam Buarque has called “social apartheid.”

Today, anyone who can pass the tough entrance exams can go to university free of charge. It sounds good in theory. But in practice, a disproportionate number of wealthy people, prepped for the exam at expensive private schools, pass the exam. To rectify this, the Lula government has proposed restricting full university scholarships to the poorest students and spending the money saved on primary and secondary education. In a Dec. 8 interview with São Paulo’s centrist weekly Época, José Dirceu, Lula’s chief of staff, promised “to revolutionize the university.”

The contrasts Dirceu is seeking to bridge are as stark as ever. The Dec. 3 edition of the weekly business magazine Carta Capital used Havaianas-brand flip-flops as an illustration. The jeweler H. Stern adorned the flip-flops with gold and 414 diamonds worth roughly US$21,000, enough to buy a two-bedroom apartment in a middle-class neighborhood. The original item, which were popular with the poor before Brazilian supermodel Gisèle Bündchen made them fashionable, normally sell for less than $2.50.

São Paulo is home to an increasing collection of expensive stores. In the fashionable districts, Cartier, Montblanc, and Tiffany & Co stores line boulevards. Montblanc has seven stores in Brazil, four of which are in São Paulo, making this city the largest market for the pen-makers. Tiffany & Co. has just one store in New York City. But São Paulo, where an estimated 1.16 million people live in shantytowns with scant access to basic utilities, is home to two Tiffany & Co. locations. A third is being planned for either Brasilia or Rio de Janeiro.

Famous Last Words
Paulo Nogueira Batista Jr., a columnist for São Paulo’s liberal Folha de São Paulo, remarked that Lula’s policies have been somewhere between those of U.S. Presidents Franklin D. Roosevelt and Herbert Hoover. Under Hoover, Batista wrote, “Monetary discipline and fiscal austerity were supposed to improve market confidence, which would then lead to a recuperating productive economy that generates jobs. That didn’t work. As unemployment increased, Hoover asked for patience and announced that growth was eminent: ‘Prosperity is just around the corner,’ he said, which became one of his most famous and most ridiculed last words.”

Roosevelt, Batista wrote, “rolled over” many market demands, which helped lead the U.S. out of the depression. “Had Roosevelt stayed in line with the established financial order, he would have ended up like his predecessor: in the dustbin of history. The analogy with the current situation in Brazil is obvious.…The number of unemployed and underemployed Brazilians keeps rising. Only two paths of economic activity continue to prosper in Brazil: organized crime and the financial markets.”

Despite the bad news, Lula’s first year has had its triumphs. A Dec. 1 study released by UNAIDS found that while the number of new AIDS cases rose worldwide in 2003, that number had stabilized at roughly 22,000 in Brazil. AIDS-related deaths fell by 60 percent, according to a Nov. 26 report in Estado de São Paulo. And the United Nations chose Brazil as one of the three nations they consider a global example of how to contain the spread of the disease. France and England were the other two nations.

The Food and Agriculture Organization of the United Nations also applauded Brazil for lowering the number of people subject to famine. The much talked-about Fome Zero (Zero Hunger) program, which seeks to unite other social-welfare programs to combat malnutrition and educate the poor, has reached 1,277 cities and around 1.3 million families, according to government figures. The average government subsidy for poor families has risen from R$28 ($10) to R$75 ($26) per month, Lula told the liberal São Paulo magazine Istoé (Dec. 10). The money comes with the stipulations that the children must remain in school and be vaccinated, and that pregnant women must get prenatal care.

“I think that, in 11 months, we did more on international policy than has been done in 11 years,” Lula told Helio Campos Mello, Istoé’s editorial director, referring to Brazil’s new leadership role in international trade debates. “Some things that we are doing are part of a strategy from a country that desires to be a force in international relations, that wants to be more respected and wants to have more influence in international trade. We’re not a country of poor little things, a tiny nation, insignificant.”

“This has been a good year for Lula,” Adriano Campolina, policy director at the relief organization ActionAid, says. “In terms of social progress, it wasn’t a significant year of reduction of our problems, but we can’t blame Lula for that. Next year will be better.”