Lula - in the eye of a financial storm

Major investment banks and speculators have reacted to the prospect of a victory by Luis Inacio ‘Lula’ da Silva in Brazil’s presidential elections in October by touching off a financial crisis. Can his policies of participatory management and a strong enabling state lead Brazil out of the slump caused by the neoliberal policies of President Cardoso?

Roger Burbach

LUIS Inacio da Silva, the left-leaning candidate of the Workers Party, has taken a commanding lead in the run-up to the October presidential elections. A victory by da Silva, commonly known as ‘Lula’, would have political repercussions that resonate throughout the Western Hemisphere. Brazil is the largest country with the biggest economy in Latin America. It borders on three nations in the throes of turmoil and political uncertainty - Argentina which is experiencing an economic implosion, Colombia, the scene of an expanding civil war, and Venezuela, where rightist and traditional political parties backed by the United States recently tried to overthrow President Hugo Chavez. Moreover, da Silva’s reservations about the US-backed Free Trade Area of the Americas and his independence on foreign policy issues like Cuba and the civil war in Colombia mark him as an adversary of the Bush administration.

Brazil’s president Fernando Henrique Cardoso is constitutionally ineligible for re-election. His centre-right coalition has been unable to find a scandal-free candidate to confront da Silva, the result of government corruption linked to neo-liberalism and the privatisation of public enterprises. The ruling coalition’s first choice, Roseana Sarney, was forced to step aside when police seized a half million dollars in cash in her residence that allegedly came from a bankrupt private enterprise she helped set up with state funds. Now her replacement, Jose Serra, is embroiled in scandal because his political fundraiser stands accused of taking $15 million in bribes to help sell a multi-billion-dollar state steel enterprise to a private consortium.

Da Silva has run unsuccessfully for president three times in the past as head of the Workers Party (PT), but today enjoys almost twice as much support as his nearest presidential contender in pre-election polls. Significantly, Lula’s negative ratings have dropped, with only 38% declaring they would not vote for him under any conditions, a number lower than any of the other major presidential aspirants. This figure bodes particularly well for Lula in the runoff election in late October between the two top contenders, assuming no one wins 50% in the first round. Recent polls show Lula decisively beating any of the presidential candidates who may face him in the runoff.


Concerned by a possible Workers Party presidential victory, major investment banks including Morgan Stanley Dean Witter and Merrill Lynch started downgrading their ratings of Brazil in early May, touching off a financial crisis. The country’s currency, the real, began to drop in value and the stock market plummeted. The meddling of the investment banks has provoked strong reactions. ‘These banks have led the neoliberal sacking of our country and now they are trying to scare people into perpetuating a political order that serves only their narrow interests,’ fumed Reinaldo Gonzalvez of the Economic Institute of the Federal University of Rio de Janeiro.

Even the Financial Times labelled the banks’ reactions a ‘mistake’, noting that should da Silva become president, his economic policies would likely be moderate. In several Brazilian cities Workers Party governments ‘have proven to be good administrators’, said the Financial Times. In the southern state of Rio Grande do Sul where the Workers Party has been in power for a decade, the government has improved social services while helping stimulate agricultural and industrial production, making the state one of Brazil’s most prosperous. Some 13% of the state’s production is publicly or cooperatively owned.

Anaemic economy

Support for Lula breaches class lines. Even sectors of the economic elite are beginning to believe that his policies may offer the best hope for the country. Since the Asian economic crisis of 1997, Brazil’s economic performance has been anaemic, with growth rates sometimes failing to keep pace with the population increase. The neoliberal policies of Cardoso, such as the free flow of speculative ‘hot money’ in and out of the country at the whim of investors, have favoured financial interests over Brazil’s substantial industrial base, much of which is geared to production for the big internal market. ‘Even some foreign interests with investments in the country’s industry look with favour on Lula’s policies,’ says Gonzalvez. Lula first rose to national prominence in the 1980s when he built the Workers Party from his base among the trade unions in Brazil’s large metallurgic and automotive industries, which produce for domestic and international markets.

Domestic interest rates are at 18.5% and rising as part of Cardoso’s effort to keep finance and banking capital from fleeing the country. The international debt of Brazil now stands at about $210 billion while the government has roughly another $250 billion in domestic liabilities. Although Brazil sometimes runs a trade surplus due to its diversified exports of coffee, soybeans, beef, orange juice, sugar and manufactured goods like automobiles, its payments on its international debt and the outflow of profits to foreign investors mean that there is consistently a deficit in Brazil’s annual balance of payments. This has driven the country ever deeper into debt as it seeks new loans to service the debt and cover the deficit. To deal with this fiscal problem and to appease international financial interests, Cardoso during his rule has followed the neo-liberal agenda of slashing social expenditures and services, thereby increasing social unrest, violence and crime throughout the country. Small wonder that George Soros, a prominent international investor with interests in Brazil, recently stated, ‘A crisis is brewing in Brazil which could be terminal.’

When the international firms downgraded Brazil’s credit rating, da Silva, in a slap at Cardoso’s economic policies, declared that the best response to the banks is to ‘combat speculation with production. Every investor will look to Brazil when there is an infrastructure that supports the flow of production, a highly trained workforce and a market that really consumes because there are strong wages.’

Support base

There is a broad base of support for Lula among the social movements of Brazil, particularly within the ranks of the Landless Movement, or MST (Movimento Sem Terra). For a decade and a half, the MST has seized idle lands throughout Brazil, particularly large landed estates. The MST has a committed and skilled leadership that runs the organisation along democratic centralist principles similar to many of the older revolutionary and communist organisations of Latin America. However the MST’s centralism has not prevented it from putting down deep roots in some of Brazil’s most remote communities.

The MST and the PT were initially very close and even had cross militancies when the MST was founded in the late 1980s. But in recent years differences over tactics and strategy have evolved as the PT has concentrated on winning political office  while  the  MST  focuses  on building a social movement among the country’s poorest. At times Lula has publicly refrained from endorsing some of the MST’s land occupations.

But in spite of their differences, the MST rank and file remain clearly supportive of Lula and the PT in the upcoming elections. The two organisations face common and deadly adversaries. Three Workers Party mayors have been assassinated in recent years while MST militants have also been murdered and many others arrested and abused in prison. A Lula victory would clearly open up enormous space for the advance of agrarian reform in Brazil and an end to repression.

The PT itself has internal differences that are often ardently debated. The most controversial decision in this election campaign has been the decision of the PT leadership to select Senator Jose Alencar of the Liberal Party as Lula’s vice-presidential candidate. The Liberals are a centrist party that in the past has been aligned with the ruling coalition. Alencar himself is a textile manufacturer from the relatively prosperous state of Minas Gerais with a personal fortune estimated at close to $500 million. However, Alencar is viewed as a progressive entrepreneur whose employees organise independent unions and receive decent wages by Brazilian standards. In many ways Alencar epitomises the domestic manufacturing bourgeoisie that Lula is attempting to align himself with to buttress his government and Brazil against the speculative and international financial interests that will almost inevitably try to ruin his government if he takes office.

Another major debate in the party is over whether or not to recognise the more than $200 billion in international debt that past Brazilian governments have incurred. The Jubilee 2000 organisation in Brazil - a broad-based ecumenical movement that enjoys the support of the Brazilian National Bishops Conference - asserts that Brazil and other Third World countries cannot and should not pay the debt, especially those parts of it that were incurred under corrupt regimes in the past. However, Lula, in an effort to avoid scaring the financial markets even further, has stated in recent weeks that he will recognise the international debt.

Fundamental transformation

In other arenas, however, the PT envisions a fundamental transformation of the government and its relationship to society. Based on its experience in running state and municipal governments over the past decade, the Workers Party platform proposes two innovative breakthroughs for Brazil at the national level - ‘participatory management of the state’ and ‘strategic management of the state’. According to Marcos Arruda, an economic adviser to the Workers Party and the director of Policy Alternatives for the Southern Cone, a research organisation that works with trade unions and cooperatives, ‘participatory management would be achieved by setting up local and regional councils that would involve representatives of civil society and non-governmental organisations.’ They would discuss and make proposals for economic, social, political, cultural and environmental policies. They would oversee the implementation of public policy and directly relate to the appropriate agencies in the central government in Brasilia. Sectoral chambers, comprised of technical experts as well as productive and civic interests, would also be set up to discuss policies and priorities in specific economic arenas, such as agriculture, transportation, education, sanitation, etc.

The concept of the ‘strategic management of the state’ means that the PT would abandon the neoliberal approach of the ‘minimalist state’ and instead move to use the state apparatus to advance social and economic priorities that serve Brazilian society as a whole. A national development programme would be enunciated that commits the state to implement public policies that extend even beyond the four-year presidential term.

For example, in the area of education, the Workers Party government would establish specific programmes and time frames for eliminating illiteracy among approximately 25 million adult Brazilians. For everyone over 18 who is illiterate or simply wants to advance their education at the secondary or university level, a work-study programme will be set up so everyone has the opportunity to engage in schooling while continuing some form of productive activity.

Another arm of the PT’s educational approach calls for a School Scholarship programme in which families would receive a minimum subsidy in exchange for keeping their children in school and off the streets. This policy was launched by former PT governor Cristovam Buarque in the Federal District. Cardoso has even tried to co-opt it by extending it to other parts of the country. A Lula administration would zealously implement it throughout Brazil. On a broader level, the PT maintains that scientific research and higher education need to be closely linked to the national development policies that are established by the strategic participatory councils.

‘Another World is Possible’

While focusing on the national development of Brazil’s resources and peoples, a PT victory would bolster the party’s ties to international civil society and organisations that are resisting corporate-dominated globalisation. The PT government in the state of Rio Grande do Sul hosted the World Social Forums in Porto Alegre in 2001 and 2002 that brought together tens of thousands of activists from around the world. These forums provoked rich discussions and debates that have reverberated throughout the Workers Party and the social movements in Brazil, as well as among the diverse international organisations that participated in the forums. Brazil, the PT and the country’s social organisations are now an important planning and experimental base for an emergent global alternative to neoliberalism.

The World Social Forum in 2003 will also be hosted in Porto Alegre. It may be inaugurated by a President Lula and symbolise a new age of change and transformation in the world. The PT has proclaimed that its goals are another type of globalisation, one based on the values of cooperation, complementarity, reciprocity and solidarity. Throughout Brazil, the Workers Party is intent on unfurling the banner of the 2002 World Social Forum: ‘Another World is Possible’.

Ironically, the real plummeted to its lowest level ever on 2 July just as the country’s world champion football team returned home to the cheers of millions. That date also marked the eighth anniversary of the introduction of the ‘Plan Real’ by Cardoso. This plan, which he introduced as finance minister just months before he assumed the presidency, represents the inception of orthodox neoliberal policies in Brazil. As Cardoso met the soccer team, he was ebullient, apparently hoping that some of its success would rub off on him and his anointed successor. But Cardoso mentioned not a word about 2 July being the birthdate of the ‘Plan Real’. Both Cardoso and Jose Serra have attempted to blame the recent speculative crisis on Lula, arguing that Brazil cannot have ‘irresponsible leaders’ who will lead the country to ‘economic disaster’. The conservative Brazilian press, led by the O Globo media conglomerate, has joined in this attack, trying to turn the voters against Lula, just as it did in previous elections. But the anti-Lula orientation of the Brazilian media may be less effective than in previous elections. O Globo is suffering severe losses and is selling off its cable TV network. Even more importantly there is a sense at the grassroots among many who were duped in the past to vote for Cardoso that they are not going to be deceived this time by the lies and propaganda of the media and the ruling coalition.

Marcos Arruda of the Workers Party puts a positive spin on the financial crisis and the upcoming elections. He believes the crisis will lead to the defeat of the ruling coalition and that a Lula victory will be a ‘turning point’, not only for Brazil but also for other countries in Latin America. ‘The government finds itself hoisted with a neoliberal petard of its own making,’ said Arruda. ‘A Brazil headed by President Lula could lead the country out of its economic quagmire, mobilise a broad popular base allied with sectors of the progressive middle class, and galvanise international allies. Brazil would serve as a productive and exemplary pole for other Third World countries caught in the trap of neoliberalism and corporate-dominated globalisation.’                        

Roger Burbach has written extensively on Latin America, US foreign policy and globalisation. He is co-editor of September 11th and the US War (City Lights Books), and is currently at work on The Pinochet Affair: Globalising Human Rights.

Reproduced with the permission of Red Pepper. This article originally appeared in the August 2002 issue of Red Pepper. For further information, contact Red Pepper, 1b Waterlow Road, London N19 5NJ, UK. Tel: +44 (0) 20 7281 7024. E-mail: Website: