Gulf Daily News  (Bahrain)
3 February 2004

Lula's new Brazil ...

By Gwynne Dyer

"All the hallmarks of an impending default are visible: a soaring public sector debt burden; high
short-term interest rates; low growth; a rapidly depreciating currency; and an international loss of
confidence. At current market rates, even an optimist would admit Brazil is insolvent."

That was the verdict of the Financial Times on Brazil on the eve of the election that brought 'Lula' (Luiz
Inacio da Silva) to the presidency just a year ago. The prospect of the first-ever socialist coming to
power in Latin America's largest country had spooked international investors, always a panic-prone lot,
and created a self-fulfilling prediction of financial crisis. But a year later, none of the FT's predictions
have come to pass.

Short-term interest rates have dropped from 20 to 12 per cent; the Brazilian real, which had plunged
40pc against the US dollar, has stabilised; public debt has been contained by draconian borrowing
curbs; international confidence has returned; and economic growth is predicted to run between three and
a half and four per cent this year. Lula must be doing something right.

When I first interviewed Lula 25 years ago, he was a genuine horny-handed son of toil: an ex-lathe
operator from the poverty-stricken north-east who had left school after only five years and migrated south
to Sao Paulo in search of work. He had lost a finger in an industrial accident, became a union organiser,
and was then in the midst of founding the Workers' Party (PT), an avowedly socialist organisation, in the
teeth of the military regime's disapproval.

Now he has trimmed his beard and started wearing suits in deference to the image consultants, and he
didn't even mention the word 'socialism' in the last election. As a man of the left, however, he still has an
image problem with one key group. Even well-informed investors are in the business of guessing where
the ignorant herd will stampede to and getting there first, so any politician with the label 'left-wing' must
be ultra-responsible about budgets and deficits.

That's what trapped Lula, and he has spent the past year working himself out of the trap at some
considerable political cost. There was no financial crisis in Brazil until foreign investors panicked at the
thought of a socialist president, but $6billion fled the country in the three months before the election in
what his closest adviser, Luiz Dulci, called "an act of financial terrorism", so he had to devote the past
year to calming the markets. The price was stagnant growth, rising unemployment, and a lost year on
his ambitious programme for creating jobs and fighting poverty.

Lula kept his core supporters loyal through this ordeal by a high-profile foreign policy that included
successfully standing up to the United States and Europe at the World Trade Organisation talks in
Cancun and visiting Third World icons of another era like Cuba's Fidel Castro and Libya's Colonel
Muammar Gadaffi. But now, with the currency stabilised, a new agreement with the International
Monetary Fund in place, and the Brazilian stock market soaring, he is ready to end the damage-control
phase and start governing.

Even now, after a year of disappointment and austerity, Lula retains the support of over two-thirds of
Brazilian voters: his transparent integrity inspires trust even when the performance leaves much to be
desired. And his first year in office has already established something of great long-term importance: the
normal democratic alternation in power between parties of the left and right will not again be a reason for
panic in Brazil.

In the same week that I first met Lula 25 years ago, I also spent a day with Fernando Henrique Cardoso,
then a leading academic figure in the liberal opposition to the military regime and subsequently Lula's
predecessor as president in 1994-2002. The two men's personalities and circumstances were hugely
different, but what struck me then and still strikes me now is that the long night of the generals had
forced them both - and maybe their entire generation - to move away from simplistic ideologies and start
grappling with the human realities of Brazil.

Lula berated Cardoso as a 'neoliberal' when he was in power, but Cardoso actually did more for the half
of Brazil's 182m people who live in poverty than any previous president of Brazil. Lula is still vilified as a
wild-eyed leftist, but in fiscal and financial matters he has been the very model of responsibility. Brazilian
politics has grown up at last.