By Jon Jeter
Washington Post Foreign Service

BRASILIA, June 18 -- As a presidential candidate, Luiz Inacio Lula da Silva was as quixotic as they come, a former steelworker who promised changes and new
support for Brazil's working class. Foreign lenders and investors thought they would have problems in dealing with him. Hunger, poverty and jobs would be his
government's priorities.

His critics thought his election last November made for good, populist theater, but they feared his government would be a flop. They feared a default on the $260 billion
national debt, plummeting currency, rising inflation and a new round of capital flight.

Six months into his presidency, Lula, as he is universally known in this country of 180 million, has confounded virtually everyone. Steering the world's ninth-largest
economy, his government has avoided the catastrophes predicted for it by cutting spending, paying Brazil's foreign debt service on time, boosting the country's fiscal
reserves and proposing to scale back generous social security pensions to combat a budget deficit.

"He no longer speaks like a workers' leader but like a political leader," said Lula's predecessor as president, Fernando Henrique Cardozo, at a panel discussion held by
the Spanish newspaper ABC.

Inflation has stabilized. Brazil's currency, the real, has rallied. Government bonds and the stock market are doing well, and so is Lula, who has made believers of his
skeptics abroad, even while maintaining his popularity at home.

"I am deeply impressed with President Lula," Horst Kohler, managing director of the International Monetary Fund, told reporters recently.

The Brazilian president, who is to visit the United States this week, barely resembles the candidate who some U.S. critics feared was too close to Cuban dictator Fidel
Castro. Indeed, his biggest political struggle to date is keeping a lid on the rebellion from his Workers' Party's most loyal base -- trade unions, leftist politicians and
anti-poverty groups -- who complain that Lula has sold them out.

Lula is scheduled to arrive in Washington on Thursday evening for talks Friday with President Bush that will center on enhancing economic cooperation, Brazilian
Ambassador Rubens Barbosa said in an interview today with Washington Post reporters and editors in Washington. The Brazilian government foresees eventually
exporting petroleum and natural gas to the United States, Barbosa said. And he said he thinks Lula has assembled an economic team that has won over his critics.

"He's not an ideologue, he's a persistent democrat," Barbosa said. "If he succeeds in the basics of economics with a social agenda, Lula should be perceived in the
United States as an alternative to the Latin American left."

The portrait painted by Lula's admirers as well as his critics is of a president who entered office because Brazilians were not satisfied with the way things were going.

"Brazilians hate instability," said Sebastiao Monteiro Guimares, the mayor of Formosa, a cattle-farming community outside Brazil's capital, Brasilia. "And I think Lula
realized that if you try to do too much too soon, you risk instability. I think that's a good thing, but I can see also how some people might feel they've witnessed a political
bait-and-switch. But Lula knows that before he can move ahead with social programs for the poor, he has to make sure the economy is in a position to first grow."

An affable man who has run for president four times -- so often that many Brazilians feel they know him personally -- Lula has repeatedly asked voters to be patient.
But he has also acknowledged how difficult it is to expand the welfare state in a country where growth is sluggish, and foreign debt payments account for more than
three-quarters of the value of annual exports.

"The world believes in Brazil again," he told reporters recently, referring to his government's fiscal restraint. And last week, following massive demonstrations against his
proposals to cut pension benefits: "I did not know how difficult this would be."

It's been a difficult balancing act, economists and political analysts say. Lula's government has raised interest rates to as high as 26.5 percent to keep inflation at bay, but
that has also put consumer credit and capital expansion out of reach for most businesses, strangling economic growth. The government's growth forecast for the year is
2.2 percent, but many economists here believe the economy will grow no more than 1.8 percent in 2003.

That frames Lula's fundamental challenge. Without economic growth, Brazil may not be able to both repay its high interest foreign debt and afford new and larger
anti-poverty programs such as one called Zero Hunger -- similar to food stamps in the United States -- that are central to Lula's administration.

Polls show that Brazilians consider unemployment and anti-poverty programs as their top concerns. Although Zero Hunger, an ambitious $1.5 billion program intended to
reach 46 million Brazilians, has been slow to get off the ground, "the people will have more patience with [Lula] than other leaders," said Carlos Lopes, a political analyst
here.

To raise more revenue, Lula's administration wants to cut a $20 billion deficit in the government pension system, which doles out full-pay pensions after 35 years of
service for many civil servants. It also proposes salary freezes for government employees and wants to improve collection of tax revenue. To spur economic growth, the
president has proposed weakening the country's labor laws to make it easier and less costly for employers to hire and fire workers.

Lauded by foreign investors and Brazil's business community, Lula has in recent weeks been confronted with insurrections from within his Workers' Party. His vice
president, Jose Alencar, has repeatedly railed against the high interest rates, and last week 30 politicians from Lula's party joined demonstrators in the capital to protest
against proposed reductions in pension benefits.

                                               © 2003