New Internationalist

Longing For Lula

Issue 356

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Latin America / BRAZIL - THE DEBT CRISIS

Longing for Lula
Photo:
Daniela Cestavollo
Longing for Lula
The election of ‘Lula’ da Silva as President is a turning point in Brazilian
history – but Sue Branford is worried about the destination.

Brazil 'To end hunger in the country. That's what I want President Lula to do,' said the 19-year-old woman, Marina, looking at me very seriously with her dark-brown eyes. 'I voted for Lula. He cares for people and he's determined to do something for the poor. It's shameful that a country as rich as Brazil still has people dying from hunger.'

I was chatting to a class of English-language students in Higienópolis, a middle-class neighbourhood in São Paulo, Brazil's largest city. Most of the students were young professionals - doctors, lawyers, teachers, computer programmers.

Quite unprompted, one after another even those who had not voted for Lula told me exactly the same thing. They wanted the new Government to end the fearful social crisis that has turned Brazil into one of the most unjust countries in the world.

The coming to power in January of Luis Inácio 'Lula' da Silva, at the head of the left-of-centre Workers' Party (Partido dos Trabalhadores, PT), feels like one of those turning points in a nation's history. I've been visiting Brazil for 30 years and I've never found the level of political awareness so high. All over this vast country, almost the size of the United States, people are talking excitedly about a new beginning. People want Brazil to turn its back on free-market economics. They want an end to government cutbacks, privatizations and downsizing. They want Brazil to develop its huge natural resources, to redistribute income and land, to put the interests of ordinary Brazilians before those of foreign creditors.


What about injustice?
On election night Lula was interviewed on Jornal Nacional, the main news and current-affairs programme on TV Globo, the biggest television network. The programme had carried in considerable detail the reaction of 'the markets' to Lula's victory - the small slide in the value of the real (Brazil's currency), the impact on the São Paulo stock market, the view of foreign investors. With a half-smile on his face, Lula commented: 'Haven't we got something more important to talk about? What about the hunger, the unemployment and the social injustice in the country?'

Since Lula took office social movements have been hurriedly occupying the new political space. Environment Minister Marina da Silva, herself from a family of poor rubber-tappers in the Amazon forest, has appointed leading environmentalists to key positions. She is determined to stop loggers from illegally extracting timber from Indian reserves and national parks and to put an end to indiscriminate jungle clearance.

With full government backing for the first time, labour inspectors will be moving swiftly to eradicate the slave labour still regularly found on large cattle ranches.

Working closely with Brazil's powerful landless movement (Movimento dos Trabalhadores Rurais Sem Terra, MST), Miguel Rossetto, Minister of Agrarian Reform, will start to redistribute latifúndios, the huge unproductive landed estates, to landless families. Brazil has one of the most concentrated systems of land ownership in the world. Just 27,000 latifúndios cover 178 million hectares (an area well over three times the size of France), while four million rural families have little or no land to live on. 'If it behaves courageously, the Government could make 100 million hectares of land available for agrarian reform,' says João Pedro Stédile, an MST leader. 'It's a lot of land.'

He will have to decide whether the (unwritten) right of a starving child for food is more pressing than the (written) right of a creditor for repayment

To honour his commitment to end hunger, Lula has already launched Fome Zero (Zero Hunger), a welfare programme for the country's nine million poorest families. They will receive coupons to exchange for food in supermarkets. The programme has been organized in a hurry and is not yet working well, but its goals are ambitious. Rather than importing cheap food from abroad, the Government will encourage local small-scale farmers to cultivate food for the programme. In this way it hopes to boost living standards across a broad swathe of poor rural society.

These are all exciting initiatives. Yet many left-wing Brazilians, particularly veteran petistas (supporters of the PT), are profoundly uneasy. They don't believe the Government has a viable strategy for extricating the country from the mess left by neoliberalism.

For over a decade Brazil, like so many other Latin American nations, adhered wholeheartedly to the so-called Washington Consensus. Foreign investment poured in, the annual net total rising from $3.9 billion in 1995 to $29.9 billion in 1999. What the Government had not foreseen (though left-wing economists warned about it) was the destabilizing impact this would have. The dollars did not go into productive investment but paid for imported goods - a huge spending spree abroad. The deficit on trade and services - largely interest on foreign debt - went from a modest $0.5 billion in 1994 to a colossal $33.4 billion in 1998.


Worse than Argentina
By then the Government was well and truly caught in a spiralling debt crisis. It had to keep local interest rates high to attract more and more dollars with which to service the ballooning public debt. Today Brazil is actually in a more serious financial crisis than Argentina. Its public debt has reached almost $280 billion, equivalent to more than half the country's total economic output. Even if the Government cuts back heavily on public spending and runs a huge budget surplus, it cannot hope to pay more than a third of the interest on the debt, let alone repay any principal.

Interest rates are now running at about 25 per cent and the only institutions making money are the banks, which in 2002 made their biggest profits ever. The 19 Brazilian banks that have published their results so far have jointly made profits of $3 billion - five times the amount the Government is planning to spend on Fome Zero.

What is the way out? Lula promised last June not to renege on the debt. At the time Brazil was facing an economic crisis, with foreign speculators pulling billions of dollars out of the country. The markets were rife with rumours that, once elected, Lula would default on the debt. His reassurance calmed the markets and averted a crisis - now he is stuck with it.

The PT has always campaigned for transparency and honesty in government. Workers' Party mayors and state governors have invariably paid the heavy debts left by predecessors before funding their own social programmes. This is what Lula would now love to do nationally - but the sums just don't add up.

Unless this central question is resolved, his imaginative and daring programme of social reform will founder, starved of resources. Sooner or later he will have to decide whether the (unwritten) right of a starving child for food is more pressing than the (written) right of a creditor for repayment.

Sue Branford [image, unknown] Sue Branford is co-author of Politics Transformed - Lula and the Brazilian Workers' Party, Latin America Bureau, London, March 2003.

[image, unknown]

LATIN DIMENSION: Flight of the Swallow
For the first time in decades, Latin America has
stolen from Africa the trophy for the worst economic
performance in the developing world.

After the 'lost decade' of the 1980s, Latin America has once again become a net exporter of capital, sending out more money than it receives. In 2002 $39 billion haemorrhaged out of the region in this way.

In the same year seven million more Latin Americans joined the ranks of the absolutely poor. In 1982 15 per cent of the population were classified as 'indigent' - without enough income to feed themselves. By 2002 that number had risen to 20 per cent.

What has gone wrong? Sponsored by the Washington Consensus, speculative 'flight' capital - known in Latin America as 'swallow' capital - has flown in and out, gobbling up juicy profits. Time and again foreign speculators have acted together, targeting vulnerable governments and forcing them to spend billions of dollars in vain attempts to defend their currencies.

The only real solution now is to reschedule the debt over a long period - or to default. Yet all governments - including the Lula administration in Brazil - are fearful of leading the way. They are aware of the price they could be made to pay for cutting off the foreign banks' biggest source of profit.

Latin America's debt crisis, which was declared officially over in the late 1980s, is very much alive - and kicking.


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