Wishes, limits and resistance: Is Lula fighting for a real alternative?

The election last year of Lula da Silva and his Workers’ Party in Brazil raised high hopes of a real change in the continent. However, Adhemar S Mineiro contends that, judging by the policies adopted by the new government so far, there is little basis for the belief that Brazil offers an alternative model of development for the region.

Latin America searches for an alternative

LATIN American people and social movements have been facing, at least in the last three or four years, the sensation of having experienced a decade of failure of economic and political attempts at reaching a new path to development. The resistance and critical view over the proposed Free Trade Area of the Americas (FTAA), trade liberalisation and the spirit of WTO agreements reflects just a small part of the opposition to a global policy which used to be known as the ‘Washington Consensus’. To understand how trade liberalisation fits into this framework is to identify its relation with all other points of the so-called ‘Washington Consensus’ - fiscal discipline, reduction of the role of the State, positive real interest rates, competitive exchange rates, financial liberalisation, opening to foreign direct investments, privatisation, deregulation, legal security to property rights. Those points are usually considered as an ensemble of policies to be implemented together, although the implementation of such policies differs from country to country.

After 10 to 15 years of adoption of the essence of those proposed measures, the general economic environment in Latin America has not led to any kind of equitable and sustainable development, or indeed to any kind of development at all. Risks in economic operation increased and so did instability - and firms’ adjustment to such a risky and unstable environment reinforced trends of capital concentration and centralisation, and contributed to the global rise of unemployment rates and the permanent search for liquidity and forms of ‘financial wealth’.

Besides, the combination of increasing internal and external debts and positive real interest rates (which sometimes represented high interest rates) with the idea of fiscal discipline approached in a dogmatic way tends to increase the share of national budgets in Latin America devoted to the payment of financial obligations, depriving the State of the funds to manage social and development policies.

Financial liberalisation and increased flows of foreign direct investment increased economic dependence  in all countries, and the fragility in their balance-of-payments accounts. Together with deregulation and privatisation, the flows of foreign investment also contributed to the de-nationalisation of the main and more dynamic economic sectors in most Latin American countries.

Taking this situation into account, the recent political movements in most   Latin American countries are opposing the effects of those policies on the one hand and, at the same time, trying to build up political alternatives on the other hand. The actors involved in these movements are complex and diversified: they could be from traditional sectors, like workers and unions, peasants, indigenous peoples and left-wing parties, among others, or the recently organised, such as the landless, homeless, jobless, retired people and others. Their leaders could come also from any of these sectors, and could be people like the metalworker Lula da Silva in Brazil, a dissident of the national army like Colonel Gutierrez in Ecuador, or a representative of indigenous people like Evo Morales in Bolivia. These movements can also refuse to have an individual leader, like the piqueteros (jobless blocking streets and roads) in Argentina. They sometimes can choose to conduct the fight for transformation through the institutional route, as in Brazil or Ecuador, or sometimes can absolutely reject the existing institutions, like the Colombian guerrillas or the majority of people in Argentina that chose the slogan ‘que se vayan todos’ (‘all of them must go’), referring to Argentinian politics as a whole. It has become the norm for many of these sectors to meet together at the World Social Forum, which from 2001 to 2003 took place in Porto Alegre, Brazil.

Because of the importance of the country to the entire region, and also because of the novelty represented by the organisation of a left-wing competitive party in the last 20 years (the Partido dos Trabalhadores - PT -  Workers Party) coming from the grassroots-based movements of Brazilian society and the leadership of the former metalworker Lula, the elections in Brazil last year and the first steps taken by the new government of President Lula are followed with great interest throughout Latin America.

Brazil: Challenges in the victory of hope

During last year’s elections, as a candidate, Mr Lula da Silva assumed that PT, its coalition partners, his advisers and supporters, and himself, faced the challenge of confronting the short-term economic crisis and the pressures from financial interests in order to construct a different economic model, one that would deal with the social crisis by re-taking the path towards economic growth and re-distributing income and property. The opportunities and risks that Lula represented at that moment were encapsulated in a campaign slogan that became very popular: ‘Hope will beat Fear’ - meaning that the hope for change and the building up of alternatives would be stronger than the fear of any economic turmoil that could come as a consequence of the election of Lula.

In the electoral period, Lula, like all other candidates, promised changes in macroeconomic management and defended changes in the general economic direction. But it is also true that, due to very strong pressure exerted by the financial markets, the main candidates also compromised themselves to respect the former rules and to lead the changes in negotiations with the representatives of financial and capital market interests in a kind of ‘transitional period’ and also to respect the terms of the agreements between the Brazilian government and the IMF endorsed by President Cardoso’s government in the second half of  2002.

The structure of such a new pattern of development was not clearly outlined in Lula’s campaign proposals, nor was the evaluation of the macroeconomic environment under President Cardoso’s government. Anyone who has read carefully the proposals presented by candidate Lula da Silva and his party would have identified elements of ambiguity in their campaign platform, especially concerning the economic proposals. As an example, consider the following two passages from the campaign platform1:

‘The idea that macroeconomic equilibrium, liberalisation, and the free action of market forces are enough for the natural occurrence of development is mistaken. In the last eight years, this kind of policy led to exchange rate instability and astronomical interest rates that choked the financing to new businesses, discouraging technological innovation and weakening exports.’ (Page 13)

‘Stability and the control of the public budget and inflation are, as always, the ambition of all Brazilians. They are not only the property of the current government, as the stability was obtained with a great burden of sacrifices, particularly from the most vulnerable sectors of the society’. (Pages 12/13)

The same ambiguity could be found, in summarised form, in the ‘Letter to the People of Brazil’2, a widely distributed document addressed by Lula to the Brazilian population near the time of  the signature of the 2002 agreement between the Cardoso government  and the International Monetary Fund. The ‘Letter to the People of Brazil’ put more emphasis on the terms of ongoing contracts.

‘Fear trying to tie the match’

Some representatives of the concerns of the financial markets had been insisting since the beginning of 2002 that most of the economic turmoil Brazil was facing was due to the intention of the main opposition candidates to change the model, and they used the crisis to negotiate conditions which were more favourable to their interests, in a kind of longer transition.

They frequently insisted on retaining Mr Arminio Fraga, a former executive of George Soros’ funds, as Brazilian Central Bank President, and on maintaining the conditions of the agreements  with  the  IMF,  in  order to guarantee a more peaceful transition.

Lula seemed to agree with them, at least in the beginning of his presidential term. Having assured, after he had won the election, the maintenance of the terms of the agreement with the IMF, Lula chose as the head of the Brazilian Central Bank Mr Henrique Meirelles, a member of the same party as the former president Cardoso and who had been elected member of parliament in the 2002 election.  Meirelles is a retired executive of the North American FleetBoston Group and, to accept the offer to be president of the Central Bank, he had to give up his mandate as deputy.

In the same direction, the first two months of the new government’s term have shown a consistent adherence to the fiscal and monetary policies of the former government. At the end of his first month as president, Lula announced new budget cuts in order to raise the fiscal primary surplus (that means, excluding debt service payments) from 3.75% of GDP to 4.25%. The new government claims this is needed to avoid an increase in the ratio of  internal debt to GDP, but in fact the cuts represent reduced social expenditures and public investments. Besides, the Brazilian Central Bank raised the basic interest rate from 25.0% in December, the last month in office of the former government, to 25.5% in January, and to 26.5% in February.

After two months of very conservative monetary and fiscal policies some people are already making a joke of Lula’s campaign slogan (‘Hope will beat Fear’), saying that in those two months fear has tied the match. In fact, the actions of the new government appear to be strongly related to the fear of economic turmoil, but in them may also be discerned the influence wielded by the interests of the financial markets.

A conflict to build a new option

The first two months of the new government represent, on the one hand, the maintenance of the agenda of the former Cardoso government. The insistence on fiscal adjustment and fiscal discipline at a certain level defined the emphasis and the content of the three main reforms being negotiated between the Executive, the Parliament and the organised social sectors represented in the newly created Council for Economic and Social Development3 - social security reform, fiscal reform and labour reform. Besides, the move to raise the interest rate as a response to the expectation of rising inflation4 has continued through the last months of 2002 (former government) to the term of the new government in 2003.

On the other hand, the new government launched an ambitious plan to combat hunger all over the country, called the ‘Zero Hunger’ project. It is the main social project of the new government and also represents the constitution of a Council for Food Security (CONSEA)5, responsible not only for the discussion of the social actions related to the programme but also for advising the president on issues related to food production (which involves discussions on land reform, genetically modified seeds and credits for agriculture, for example) and food supply (which means that themes like food imports and some World Trade Organisation rules can be discussed inside the council). As the CONSEA’s remit encompasses a wide range of themes, it can be an important forum to discuss some alternative policies.

The foreign policy, especially the priority accorded to Mercosur6 and the critical view towards the FTAA, support for Colonel Chavez’s government in Venezuela, the critical view towards the Colombia Plan led by the United States, and the position against the invasion of Iraq without the approval of the United Nations Security Council, represents also an important change in relation to the former government. And the development of a new energy policy, in response to the priority given by the former government to the privatisation of the infrastructure sectors and the guarantees of profitability to the newly privatised enterprises, reflects new perspectives on a sector that suffered deeply under the former government and its ‘market-friendly’ policies.

These three are perhaps the main policies of the new government that come into conflict with the policies established during former president Cardoso’s term. They seem to also be not in sync  with the pursuit of the old macroeconomic agenda and its market-oriented policies.

The struggle to create an alternative continues

As suggested in this article, the electoral definition does not answer the question of how to build up a new project of development in Brazil, and at this moment the Brazilian example cannot be used by organised forces searching for alternatives all over Latin America.

The new Brazilian government, with President Lula at its head, seems to have incorporated important new organised forces into the main decision-making levels and, more remarkably, into the governmental coalition. On the other hand, this new coalition does not do away with the forces and interests that prevailed in the former government, especially those related to the financial markets. It seems as if the electoral process is still going on, but this time within the government itself.

The possibility of organising a new hegemonic alternative will depend on the outcome of this struggle inside the new government, and how the new forces, supported also from outside the institutional framework of the State, can offer a whole ensemble of consistent options.

Whether or not this alternative takes shape can be crucial to Brazil’s future. Continuing along the path of persistent financial market-oriented adjustment policies could lead to a situation akin to what happened in Argentina two years ago, with the outbreak of a huge social and financial crisis. Inability to join forces in a new strategic national project that can break a new development path may mean not only the continuation of a period of social and economic crisis, but also the loss of an important political possibility represented by Lula and the Workers Party. There is little time to forge this alternative, however, for the new government is losing little by little its potential as long as the impasse persists.                       

Economist Adhemar Mineiro is former President of  Associacao de Economistas da America Latina e Caribe (AEALC - Latin American and Caribbean Association of Economists).


1    A free translation from the campaign platform ‘Programa de Governo 2002’, in 

2    The ‘Letter to the People of Brazil’ is available in English in or

3    The Council for Economic and Social Development was created in the first month of the new government and has a consultative status with the Executive, to which it is connected through the Special Secretary for Economic and Social Development, Mr Tarso Genro, former mayor of Porto Alegre. The council comprises 93 members - 11 members of the government (10 ministers plus the Special Secretary) and 82 people representing different sectors of Brazilian society - trade unionists, businessmen, NGOs, churches, peasants, academics and others.

4    As a consequence of the 1999 agreement with the IMF, the Brazilian Central Bank adopted the system of inflation targeting, which was re-asserted in the 2002 agreement between the Brazilian government and the Fund.

5    The Council for Food Security (known as CONSEA in Portuguese - Conselho de Seguranca Alimentar) also has a consultative status with the Presidency, and has its own Special Secretary, Mr Jose Graziano. CONSEA components are representatives of the government, peasants, churches, rural entrepreneurs, NGOs, academics and others.

6 Mercosur (Southern Cone Common Market) is an attempt at economic integration with other countries in the region, namely Argentina, Uruguay and Paraguay (Bolivia and Chile have consultative status with the Mercosur bodies).