Brazilian Elections - Lula - Brazil

The Brazilian Elections and the Latin American Economy

Brazil: 'It's Lula's Turn'

Kenneth Rapoza, São Paulo, Brazil, Updated Oct. 7, 2002.

Artist Armando Valles puts the final touches on a Luiz Inácio Lula da Silva mask in São Goncalo, Brazil (Photo: Antonio Scorza/AFP).

The news magazine rack at the Laselva bookstore in São Paulo’s Congonhas Airport speaks volumes about this year’s presidential campaign. Since May 2002, Luiz Inácio Lula da Silva’s face has dominated both. The Worker’s Party candidate is on the cover of liberal São Paulo newsmagazine Istoé. In the interview inside, Lula talks about Brazil’s need to diminish its dependence on foreign capital. Carta Capital, a progressive economics magazine, questions whether Brazil will run its economy—and its elections—by itself, or whether Wall Street will make the decisions for them. Epoca’s cover shows Lula looking over his shoulder at his top competitors, José Serra and Anthony Garotinho. Meanwhile, Forbes Brasil has an angry looking Velociraptor dinosaur on its cover with warnings of impending doom for investors in this market.

The financial markets will just have to get used to it. All indications are that Lula will be named president of Brazil in the second round of voting on Oct. 27. Lula received 39.3 million votes in the first round of voting Sunday, compared to 19.6 million for José Serra, the handpicked successor to outgoing Social Democratic Party president Fernando Henrique Cardoso. All said, 46.44 percent of the votes went to the Workers Party candidate, while 23.20 percent went to Serra.

It may be too early for Lula to celebrate. “These numbers could change the way things are looking right now,” says Ricardo Guedes Pinto, a political scientist and president of Sensus, a political research group. Polls conducted just before the election by Ibope and Datafolha gave Lula a commanding lead, with roughly 48-49 percent of respondents planning to vote for him. Only 19 percent said they planned to vote for Serra. Only 13 percent of respondents said they planned to vote for former Rio de Janeiro governor Anthony Garotinho. Another study, from Sensus, found that roughly 32 percent of likely voters remained undecided going into the election. Serra's stronger-than-expected showing in the first round of voting suggested that some of those previously undecided voters had gone to Serra's camp.

A Lula victory “is possible, but not absolute,” Pinto says. “The financial markets will get used to Lula if he wins.”

The likelihood of a Lula victory has sent shockwaves through the financial markets, mostly foreign bankers and investors. Billionaire currency speculator and outspoken critic of the International Monetary Fund (IMF) George Soros was quoted by writer Clovis Rossi in a June 8 article for the liberal Folha de São Paulo as saying, “In ancient Rome, only the Romans voted. In modern global capitalism, only Americans vote, not Brazilians.” His comments were widely distributed throughout Brazil and Latin America.

President Cardoso has even risked further destabilizing Brazil’s economy in an attempt to give Serra a boost in the polls. Speaking to reporters in mid-May, he warned, “Brazil risks becoming an Argentina if the next administration is incompetent.” Many political commentators immediately assumed he was talking about Lula, who was educated as a lathe operator.

The dismal performance of Brazil’s currency, the real, which at one time during the day on Sept. 30 was trading at R$4 to the U.S. dollar—its lowest levels ever—is being blamed on “election uncertainty,” according to Arminio Fraga of Brazil’s Central Bank.

On Sept. 30, at the Green Place Flat hotel in São Paulo, José Dirceu, president of the Workers Party, was asked to explain the significance of the rising dollar and a rising Lula. Dirceu laughed. “The dollar doesn’t matter. The dollar has gone down and Lula’s numbers have still gone up,” he said. Since then, the dollar has fallen to R$3.68… but Lula’s star keeps rising.

Dirceu and Lula addressed 83 members of the international press at Green Place Flat that afternoon. The press had only a few things on their minds: What would trade agreements look like under a Worker’s Party presidency? And is Brazil going to be a safe place for foreign investors?

A German TV reporter asked the candidate what changes a foreign firm investing in Brazil should expect. “I hope that the principal change would be that foreign companies in Brazil invest in production, increase exports, and generate more jobs. I was recently at a meeting with the director of Volkswagen, on Friday, and with the management of General Motors, and these [companies] that invest in the productive economy are optimistic and want to continue investing to export more, to generate jobs and wealth.”

Lula’s economic plan, which was written up last year by leading economists in the party, has the support of roughly 650 companies in the country, including outspoken support from chief executives like Eugenio Staub of Gradiente, Brazil’s largest electronics company, Sergio Haberfeld of Dixie Toga, a large plastics manufacturer, and Paulo Feldmann, of the international accounting and consulting firm, KPMG. Lula’s running mate is José Alencar, a senator from the Liberal Party and a textile-manufacturing executive.

But the financial sector has not jumped on the bandwagon. One of the reasons is the tight leash Lula wants to put on the currency speculators who tend to drive the dollar up just when the government must make a payment on its debt to foreign lenders.

When asked who and what was behind the push to discredit him, Lula answered with a smile, “If I knew, I would call for his arrest.” He said that the Brazilian economy is too dependent on volatile foreign capital and insisted that his campaign is not to blame for the troubled economy. “The world economy is in trouble. Possibly it could be a mixture of foreign bankers and Brazilian bankers, who are trying to make easy money in the short term through speculation…. You can be sure that if we win the elections, there’s going to be less speculation in this country because we are going to enforce that the investment of any dollar in this country is going to be in the productive economy.”

Lula said that he would not default on the IMF’s Sept. 6 US$30.4 billion loan, saying Brazil has survived worse political crises. But he warned that a Worker’s Party government would not maintain the status quo in some areas of the Brazilian economy. “The only way you will have a default,” he said, “is if we continue with this current political economy. Then you wouldn’t just have a default, you’d have bankruptcy.”

Fraga will be removed from Central Bank leadership should Lula get elected this month. The party’s main economic plan has been to invest in Brazil’s infrastructure and to sign new multilateral trade agreements. Lula has vigorously opposed the Free Trade Area of the Americas agreement, and Dirceu has spoken of his desire to include Cuba in future trade agreements.

In the final days before the election, Serra and Garotinho frantically campaigned to keep Lula from winning more than 50 percent of the popular vote, in the hope of gaining three more weeks of campaigning before the final round of voting. By the morning of Oct. 7, it looked as though they had succeeded.

Both Serra and Lula spent many years working as political activists. Lula is a renowned labor organizer and is the founder of the Worker’s Party, which was created to oppose the military government that ruled Brazil from 1964 to 1985. Serra was exiled to Chile for his criticism of military rule. Both come from modest backgrounds, though Lula did not finish high school. Both are first-generation politicians. Serra has experience working in the São Paulo Senate and in the capital and was the former Health Minister. In addition to his record in government, Serra has told bankers that only he can cool investors’ anxieties.

Although many bankers chose Serra as their favorite, the consensus in the Brazilian press is that they chose him only as the least of possible evils. Former finance minister Ciro Gomes has seemed a long shot since August, when his confrontational style alienated many voters. Since then, polls have consistently showed only 11 percent of respondents favoring him.

Garotinho, an evangelist Christian, came out swinging against the financial markets at the beginning of his campaign, telling O Estado de São Paulo, “This is not cause for alarm. I want the banks to serve the country and the people, not the contrary.” He said that Brazil has to come up with its own development plans and not take the words of the IMF as gospel.

Gomes’ campaign swam against the current, too, arguing against Cardoso’s privatization policies. Gomes said that Brazil is not ready for globalization. “Our ability to compete is not global, it’s national. Globalization is not working in Brazil because the more advanced countries have the infrastructure and the capital and political apparatus in place to dominate the emerging markets.” His campaign also focused on lowering Brazil’s annual interest rate of 18 percent, one of the highest in the world.

Meanwhile, Lula is everywhere. Billboards and bumper stickers proclaim, “Agora é Lula,”—It’s Lula Now. This is his fourth run for the presidency, and, arguably, his last.

“Lula has the capacity to get things right,” said Marina Aparecida Bajos, a domestic worker in Paraná state. She made up her mind this week and will vote for Lula on Oct. 6. “He’s more prepared than the others, I think. He’s traveled to other countries. He’s ready for this. Now it’s Lula’s turn.”

Last week, the cover of Veja, a centrist São Paulo magazine, depicted the Worker’s Party’s logo, a red star with the letters PT inside (Partido dos Trabalhadores), draped in presidential ribbons, under the cover line: “Is PT prepared for the presidency?” That same week, a local “artist” or two reworked a Veja billboard in São Paulo, placing a square of blue paper over the question mark to turn it into a period, thus making the sentence read: “PT is prepared for the presidency.”

Whether they like Lula or not, 59 percent of Brazilians polled by Sensus believe Lula will be at the helm of Latin America’s largest economy. As Lula’s star continues to rise, the question is whether Latin America’s largest economy is ready for Lula.