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For Lula and the PT,
Winning Brazil’s Elections Not the Biggest Challenge After All
by Matthew Flynn | October 17, 2002
Luiz Inacio Lula da Silva, long-time leader of Brazil’s Partido dos Trabalhadores (Workers Party, PT) received outstanding support in his bid for Brazil’s presidency in first round elections on October 6. Although he did not gain the 50% majority needed to win in the first round, Lula received 39 million votes, almost 20 million more than Wall Street’s favorite, Jose Serra, from the governing coalition, who Lula will face in a run-off vote on October 27.
According to the latest opinion polls, Lula now has up to 60% percent of the vote and a 30-point lead ahead of Serra. Other left-of-center candidates who participated in the first round elections–Ciro Gomes from a coalition of small parties and Anthony Garotinha from the Partido Socialista Brasileira (Brazilian Socialist Party, PSB)–have pledged their support to the PT. And even members of Brazil’s largest party, the centrist Partido do Movimento Democratico Brasiliera (Brazilian Democratic Movement, PMDB) and the rightwing Partido do Frente Liberal (Liberal Front Party)–both of which form part of the government of President Fernando Henrique Cardoso–are jumping ship.
It is a near impossibility that Serra could pick up the over a million votes per day he would need to win before the run off election. The situation has PT supporters excited about instituting real change in how Latin America’s largest country is governed and financial investors fretting that such change will impact the neo-liberal reforms instituted under Cardoso’s two terms in office.
The simple fact that Lula, who comes from a poor family from the country’s impoverished northeast region, could assume Brazil’s presidency gives the majority of this country’s population, who fall outside of the closed circle of elite power and privilege, renewed hope in Brazilian democracy. Brazil is one of the most unequal countries in the world in terms of income and wealth distribution.
"This is the first time that there is a chance for real change. Such change has many scared, and probably will not happen immediately, but I believe that it will result in more jobs and lead to improved education," said Helen Navajas, a student at the Univesidade Federal de Ouro Preto.
Those who plan to vote for Serra believe the opposite will happen. "Lula will destroy what is left in the country and increase the country’s economic problems and unemployment," said Cristiane Trezze, who works as a bank attendant in Rio.
The fear expressed by some anti-Lula citizens is augmented by the current crisis of confidence in the country’s finances. In the week after the election, the local currency, the real, surpassed the Argentine peso and closed at R$3.99 to the dollar. The real has lost more than 40% of its value just this year.
The PT and other critics of Cardoso claim that the appreciation of the real results more from the country’s excessive dependency on foreign savings to finance its development than the prospect of a left-of-center government coming to power. The threat of a pending U.S.-Iraq conflict as well as recession and corporate scandals in the United States are also making it more difficult for Brazil to attract foreign capital.
In fact, Lula and his backers have clearly stated their commitment to the government’s contracts and responsibility in servicing the country’s national debt of US$260 billion. When Cardoso’s economic team obtained a US$30 million line of credit from the International Monetary Fund to cover foreign obligations until end of 2003, Lula agreed to the multilateral lender’s condition of obtaining a primary surplus of 2.75% of GDP.
Even heavyweights representing the international financial community predict that a PT-led government would not precipitate an implosion of Brazil’s economy. "My experience in the last seven or eight years shows that when people are defined as devils, revolutionaries or whatever, when they come to power they come to face with reality. Mr. Lula is very experienced and has extremely competent people around him," said James Wolfensen, the president of the World Bank.
But the PT’s desire to boost annual GDP from the current lows to over 4% and create millions of jobs in the process will require Herculean efforts. On top of a slowing economy and a number of taxes due to expire next year, funds for financing development remain scarce and interest rates remain high. Cardoso recently sent next year’s budget to Congress, which diverts money away from needed public investments to cover debt expenses.
Many Brazilian political observers believe that the PT, despite attacking the status quo of the Cardoso regime, will not diverge radically from the neoliberal reforms already in place. "The PT of Lula that is going to the run-off elections respects the general lines of the government that are in place and just promises a more competent management of the model, exercised under a supposedly distinct morality," wrote Reinaldo Azevedo, the editor of political monthly Primeira Leitura in a recent article.
Another challenge that a PT government will have to face when trying to pave a new path for the country is dealing with Congress. Despite leftwing parties increasing their presence in Brazil’s legislature and the PT becoming the largest party in the House of Deputies with 91 seats, Lula and his allies still do not have the 3/5’s majority in Congress required to approve legislation.
But political power in Brazil does remain concentrated in the presidency. Aside from having control over the purse strings, the executive commands a number of powerful state-owned financial institutions and large corporations, such as oil producer Petrobras.
What the PT says it wants to do is to use the state’s leverage to promote social and economic development. Instead of spending billions of reais to clean up crooked banks, for example, the PT would like to direct investments toward small- and medium-sized companies. Instead of using the resources of the powerful state-owned development bank BNDES to assist foreign capital to acquire local assets, Lula’s economic advisers want investments geared toward substituting imports and promoting exports.
In fact, the first steps toward more state involvement in the economy are already in the works. Local papers report that Brazilian diplomats are lobbying for changes to global trade accords that would address the particular needs of developing countries–for example, wider use of Trade-Related Investments Measures (TRIMs), negotiated in the ambit of the World Trade Organization to allow developing countries more leeway to enact national industrial policies. Developed countries such as the United States, Europe, and Japan have tried to sideline the proposal, but Brazil’s support for TRIMs enjoys backing from other large countries, such as India.
Such initiatives at the multilateral level, which the PT is expected to pursue even more vigorously once in power, are not likely to sit well with the Bush administration and its aim to form a Free Trade Area of the Americas (FTAA) by 2005. The PT, although not having defined exactly how it will approach hemispheric trade negotiations, has condemned–along with much of the rest of Brazil’s political establishment-U.S. anti-dumping legislation, agricultural subsidies, and rising protectionism.
"We will not open our market in the FTAA if we do not receive reciprocity and not just in primary products," said Aloizio Mercandante, a PT economist, who just received the highest number of votes in the country’s history to assume a seat in the Senate.
Rejection of the FTAA runs even higher among the populace. According to a popular referendum recently sponsored by church groups, labor unions, and numerous nongovernmental organizations, over 10 million Brazilians, or 96% of those who voted, rejected their country’s participation in the hemispheric free trade talks.
Despite the ample support Lula currently enjoys, a PT-led government will face a number of challenges if it comes to power. The country’s population will have voted Lula into power because a decade of neoliberal economic reforms has achieved little in terms of reducing inequalities, providing steady jobs, or stemming domestic violence. Pressures to perform, however, will be limited by few resources and pre-existing constraints and obligations. Lula and the PT, in its first time in holding the reigns of government power, will have to perform a delicate balancing act between meeting the demands of its constituents and not provoking the veto power of national and international financial capital.
Matthew Flynn, a correspondent for Business News Americas , is based in Rio de Janeiro, Brazil. He can be reached at < email@example.com >.
Published by the Americas
Program at the Interhemispheric Resource Center (IRC). ©2002. All
Matthew Flynn, "For Lula and the PT, Winning Brazil’s Elections Not the Biggest Challenge After All," Americas Program (Silver City, NM: Interhemispheric Resource Center, October 17, 2002).