Brazil's new era

Behind the historic electoral turn, and what lies ahead.

LUIZ INACIO DA SILVA, better known as Lula, has won the presidency of Brazil. As the countdown to the country's final round of elections began, it was no-holds-barred campaigning on television. With Lula of the Workers Party (PT) widening his lead in the polls over Jose Serra of the Social Democratic Party of Brazil (PSDB), the reigning coalition threw everything, including the kitchen sink, at the former metalworker.

Some television spots depicted the states and cities governed by the PT as garbage dumps, complete with scavengers and dogs. Others cut from Lula delivering a militant speech to workers to him charming businessmen with more moderate message, followed by the question "Who is the real Lula?" Then there was unadulterated scare-mongering: Serra warning the electorate that Lula's economic policies are similar to those of President Hugo Chavez in Venezuela, which is in the midst of bitter class warfare and on the brink of civil war.

But Lula gave as good as he got. Bill Clinton-like, he tied around his opponent's neck the collapse of the Brazilian economy during President Fernando Henrique Cardoso's administration, which Serra served as Planning Minister. He forced Serra to run what one commentator called a "schizophrenic" campaign, unable to defend Cardoso's policies yet unable to distance himself from them.

Perhaps as decisive as substance in the electoral homestretch was Lula's telegenic edge: in contrast to the boring Serra, the ex-factory worker is perfect for the medium, down to the mischievous wink that establishes an intimate tie between him and the viewer.

The atmosphere in this country of close to 175 million was electric as it awaited something truly historic. Ahead of the announcement of the election result, Candido Grzybowski, head of a social policy think tank in Rio de Janeiro, said that Lula's victory would represent a "new stage of the national project, where the poor, the marginalized, the workers become the driving force in the rebuilding of the nation." Citing the Italian thinker Antonio Gramsci, he said: "There are times when an individual becomes himself the project. This is one of those times."

Starting out as an impoverished migrant from the northeast of the country, Lula entered political life as the feisty head of a metalworkers' union in San Bernardo de Ocampo, one of the proletarian strongholds in the vast Sao Paulo industrial belt. Persecuted by the military government, he came into prominence as a mass leader at a time when social struggles were gathering the momentum that would eventually displace the dictatorship and establish social movements as a key actor in Brazilian political life. The PT, which Lula helped found in 1980, was one of the points of confluence of the struggles of workers, peasants, urban poor, the progressive intelligentsia, and Church activists.

Over the last 22 years, the PT under Lula's leadership has developed a distinctive elan, one that combines the fervour of an insurgent movement with the hard-nosed pragmatism of an electoral party. It is perceived as a non-traditional party that is solidly rooted in the masses and is uncorrupt. It is seen as innovative, with its experiment in "participatory budgeting" in the city of Porto Alegre, widely known not only in Brazil but the world over. It is also seen as being tough on crime and drugs: the PT Governor of Rio de Janeiro, Benedita da Silva, has probably swung many urban voters to Lula's side with her uncompromising war against Rio's powerful drug lords.

Unlike other parties on the Left, the PT is seen as non-doctrinaire and flexible. "The party started out quite sectarian," recounts Kjeld Jacobson, head of the international relations department of the Central Federation of Workers (CUT). "But it soon learned that to win elections it had to make alliances. Without these alliances, the most you could get was only one-third of the vote, so if you wanted to win elections, you had to win the centre."

The PT "formula" has been immensely successful, with the party not only winning governorships in key States and cities but also becoming the party with the largest number of deputies in the Federal Chamber of Representatives, today claiming 99 out of the 500 members of that body. As important as winning elections is the experience gained in mastering the intricacies of legislation and managing Brazil's unwieldy municipalities, cities and states. As it prepares to conquer executive power, the PT, contrary to the propaganda of the Cardoso government, is a tested force.

In the current elections, the PT's sophisticated some would say, opportunistic alliance-building has altered the political landscape. One result is the fragmentation of the political and economic establishment. The PT's vice-presidential candidate, Jose Alencar, is a textile entrepreneur who has headed the Federation of Industries of the State of Minas Gerais. Critical backing for Lula comes from the Liberal Party, which is dominated by Christian evangelicals, who make up 12.5 per cent of the population. Among the key Lula-backers are well-known politicians from the Centre-Right and the Right, such as former President Jose Sarney and the notorious hardline conservative kingpin from the northeast, Antonio Carlo Magalhaes.

Lula's success in winning over key sectors of the business, says Jose Correa Leite, a leader of the civil society movement ATTAC, stems from his ability to convince them that he will inaugurate a new era of "national capitalist development" that would protect and reconcile their interests with those of the lower classes. Taking advantage of the cross-class distress caused by eight years of neoliberalism, Lula has managed to unite the peasants, urban poor, workers, middle class, and fractions of the elite behind a distinctly non-radical programme of reviving the economy via an expansion of domestic demand and stimulating national industries. Indeed, during the campaign, the details of the programme have been given less prominence by the PT than the spirit of a civic cross-class nationalism that is captured in the main campaign slogan, "For a decent Brazil."

Such broad cross-class electoral alliances are not unique in the history of Brazil and Latin America. What is distinctive this time, according to PT partisans, is that the centre of gravity of the alliance lies among the lower classes and the marginalised groups.

Still, there are those in the Lula camp who wonder if this is in fact the case, who miss the strong labourist bias of the old PT, and who speak apprehensively about Lula's "capitalist-worker alliance."

To many people, Lula's victory stems partly from the failure of Fernando Henrique Cardoso, the distinguished Left-wing intellectual who transmogrified into a proponent of neoliberalism, friend of transnational corporations, and ally of the United States. So great is Cardoso's loss of credibility that even his party's candidate has rarely asked him to make a campaign appearance for him. According to University of Rio de Janeiro economist Reinaldo Goncalves, a comprehensive index that takes into account key items such as public debt, external debt, inflation, inequality, and unemployment would "unambiguously show that the economic record of Cardoso is the worst among all of the country's 24 chiefs of state."

Under Cardoso, the country's external debt has more than doubled, from $148.2 billion when he assumed office in 1994 to $400 billion today. This situation has its origins in the President's famous Plano Real, which pegged Brazil's currency to the dollar in an effort to fight inflation as well as attract foreign investment. The strategy seemed to work in the first few years, with inflation being brought under control and with total capital inflows more than doubling between 1994 and 1996. But as the economist Geisa Maria Rocha shows in painful detail in a recent issue of New Left Review, Cardoso's early triumphs were pyrrhic. The pegged currency quickly became overvalued as the dollar gained strength in the mid-1990s, resulting in an erosion of the competitiveness of Brazil's exports. In the context of the trade liberalisation that was pursued simultaneously in accordance with neoliberal, free-market doctrine, the overvalued real triggered a flood of imports that produced a yawning trade deficit that needed more and more foreign capital to finance it. This meant higher and higher interest rates to attract foreign capital.

When Brazil was "infected" in late 1997 by the Asian financial crisis, interest rates hit the roof rising to 50 per cent in October 1998 as the government, with the International Monetary Fund's encouragement, sought to prevent foreign capital from leaving Brazil. Simultaneously, the authorities spent $50 billion defending the overvalued real from speculative attack before finally giving up the dollar peg and watching helplessly as the real quickly lost over two-fifths of its value against the dollar. It was downhill for the real from there. Recently, with foreign investors' fears of Lula's candidacy, renewed speculative pressure speculation has driven down the real to four reals to a dollar, from 1:1 in 1994.

Cardoso's monetary policy was part of a bigger policy package aimed at globalising Brazil's economy. Reinaldo Goncalves says that instead of pursuing a "discriminating process of relating to the world economy", Cardoso opened up uncritically and simultaneously in the key areas of finance, trade, technology, and investment. In all four areas, Brazil came out the loser.

The situation in investment was paradigmatic. The liberalisation of the foreign investment law and the privatisation of state enterprises brought in $1.8 billion in net foreign direct investment in 1994 to $30 billion in 2000. The foreign investment boom put Brazil in the sixth place among developing countries in terms of penetration by transnational corporations, with TNCs now accounting for 40 per cent of Brazilian exports.

But what seemed a few years ago to be part of the solution has now become a major part of the problem, in the view of many Brazilian economic analysts. With so much of local production coming under the control of TNCs, control of decisions over national production has passed into the hands of enterprises that respond more to international conditions of profitability than to the needs of the local economy. Thus has emerged the great paradox of the Cardoso period: the dominance of foreign capital has not led to greater fixed capital investment, greater international competitiveness, and greater technological innovation. Indeed, the Secretary-General of the United Nations Commission for Trade and Development (UNCTAD), Rubens Ricupero, claims that the transnationalisation of the Brazilian economy has been accompanied by deindustrialisation.

The large-scale entry of foreign capital has led, according to Geisa Maria Rocha, not to a strengthening of domestic capital in association with foreign capital but to its displacement. While certain sectors of finance capital and big industrial capital benefited from association with foreign capital, the greater part of the local industrial elite and medium and small industry that have serviced principally the domestic market have seen their fortunes sink. Enter Lula, who has cleverly captured the Brazilian industrial sector's discontent by using the high interest rates as a symbol of the dire state of the sector. As the campaign hit the home stretch, Lula constantly told his audiences that it was time to lift a "blind" policy that foists 20 per cent interest rates that "strangle" the economy while benefiting only the few foreign and local interests that are the main prop of the Cardoso-Serra dispensation. Under Cardoso and the IMF's watchful eye, Serra is tongue-tied.

Yet, in spite of the populist rhetoric, the Lula camp is cautious when asked about its short-term economic strategy. The reality of the crisis brought on by neoliberalism, Antonio Prado, the executive coordinator of the PT's electoral programme, tells us, is that "there is little room for manoeuvre in the short-term." This means "we'll have to continue some of the current administration's policies like inflation targeting, the floating exchange rate, and raising the budget surplus in the first year."

Indeed, the IMF has practically imprisoned the future Lula government by warning that the remaining $24 billion of the $30 billion emergency loan negotiated with the Fund in August will not be released unless the government continues the stringent conditions agreed to by the Cardoso government. In order to prevent a massive capital flight that would destabilise the economy, Lula said he will live up to the conditions demanded by the IMF, just as earlier he had agreed to honour Brazil's foreign debt obligations.

Given the prominence he has given to the interest rate issue, however, Lula will not be able to avoid taking a stab in this direction, even in the first year. Interestingly, the key initiative he plans to set in motion to achieve this objective is one that he shares with Serra: an aggressive export programme to trigger a rise in earnings that would allow interest rates to drop, enterprises to borrow, and investment to resume. This strategy is, the economist Goncalves points out, fraught with difficulties and dangers since not only have Brazil's industries lost competitiveness but the international economy is currently marked by deflation, recession, and overcapacity.

No major redistributive programme is planned for the first year of the Lula government owing to the crisis and the simple lack of resources. The question is: will Lula's main base of workers and peasants cooperate? Public employees have not had their wages raised for eight years, and land reform is at a standstill. Of the Lula campaign, Prado says, "We are confident the workers' civic consciousness will prevail and they will agree with the government's gradualist approach."

As for the countryside, it continues to be in ferment, with incidents of land occupation by the militant Movement of the Landless (MST) and other groups taking place even during the election period. Nevertheless, for Lula, room for manoeuvre in the rural sector seems to be greater compared to the urban areas. Geraldo Fontes, an MST leader, claims that Lula is favourable to an MST proposal for a short-term programme in the countryside that has three elements: expropriation of all land that is now occupied, provision of people in the reformed areas with seeds, tools, and other basic needs, and food for the first three months.

Lula's main problem in his first year may not, in fact, be internal actors but international ones. Foreign capital is likely to be skittish, watching for signals to head for the exit. The IMF will be watching the new economic programme with eagle eyes, determined in particular to make the PT live up to its promise to achieve a budget surplus of 3.75 per cent.of Gross Domestic Product (GDP). Then there is the United States and its pet project, the Free Trade for the Americas (FTAA).

The PT might not be as resilient when it comes to the Free Trade Area of the Americas (FTAA), as it has been on the IMF loan and the foreign debt. Lula's campaign adviser Prado told this writer that the current FTAA, as negotiated by the Cardoso government, is a "non-starter". Its provisions on investment, patents and trademarks, and government procurement are seen as particularly damaging to the PT's strategic economic programme.

With its investment programme closely patterned after the current North American Free Trade Area including something similar to NAFTA's Chapter 11, which allows TNCs to sue governments for discriminatory treatment Prado sees the current FTAA as making it practically impossible for Brazil to pursue an industrial policy. Its provisions on government procurement would make it difficult for Brazil to carry out an import subsitution strategy by allowing the government to offer national industrialists preferential incentives to produce important industrial inputs. Its patent provisions would "endanger public health" by making it difficult to produce the necessary chemicals to make cheap medicines for people. "It is impossible to defend the FTAA under these conditions," he maintains.

The PT is, of course, only expressing the overwhelming negative sentiment expressed by Brazilians in a recent unofficial referendum. Mindful of this resistance, the U.S. Trade Representative Robert Zoellick recently warned that Brazil's choice was either to trade with ALCA [the Spanish acronym for FTAA] or with Antarctica." This created an uproar in Brazil, which Lula, who had earlier characterised the FTAA as a "type of economic annexation of Latin America by the U.S.," tried to defuse by saying: "We have a number of things to settle with Comrade Bush." Not surprisingly, this "lulism" made things worse.

A clash with the U.S. over the FTAA might be eventually unavoidable, but with Washington preoccupied over West Asia, Iraq and the so-called war against terror, Lula, like Hugo Chavez in Venezuela, might, for the moment, be spared the full brunt of a U.S. response.

Keeping the U.S. at bay, keeping the establishment divided, keeping his mass base in line as he and his team try to restart an economy in the throes of recession. Such is the magnitude of Lula's task in the next 12 months. "All new governments enjoy a honeymoon period with the Brazilian people," says Jacobson of CUT. Luis Inacio da Silva will need as long a honeymoon as he can possibly get from the Brazilian people and as little attention as possible from the United States.

Walden Bello is Professor of Sociology and Public Administration at the University of the Philippines and executive director of Focus on the Global South, an economic and political research institute based in Bangkok.