CLAI Commentary
A series
of occasional commentaries on important
policy issues affecting
October 31, 2002
Lula at Last
By
Dr. James Ferrer, Jr. and Eduardo Segatore1
After
three successive presidential electoral defeats, on October 27 Brazilian
Labor Party (PT) candidate Luiz Inacio “Lula” da Silva finally achieved
his objective. Both rounds of the elections, at the national and state
levels, were an exemplary display of representative democracy. Some ninety
million people went to the polls without any significant mishap or disturbance.
The votes were rapidly counted and the results were announced in record
time.
Now
that the campaigns and the celebrations have ended, the future administration
must quickly face its many challenges. Its principal difficulty will
be Brazil’s severe domestic and external financial constraints. The national
budget has little room for new discretionary spending, especially since
2003 receipts are expected to be smaller than in 2002. Moreover, the
inflation rate is rising and will surpass the present targets for both
2002 and 2003. On the external side, the picture is much the same. The
current account should continue its recent improvement, and perhaps even
be nearly in balance. However, the capital account could offset this
positive development because Brazil has virtually no access to the international
financial markets. In summary, the balance of payments will be tight.
President-elect
da Silva seems to have a surprisingly good grasp of the delicate context
within which his party is taking office. He and his inner circle, measuring
their public statements very carefully, have emphasized their intention
to continue the present stabilization program, including the IMF agreement.
They have sought to dampen some of the public expectations that were
stimulated during the election campaign. For example, they noted the
unlikelihood of achieving 4% growth next year, they stated their desire
to reform the retirement system, they acknowledged the impossibility
of giving public servants the pay raises they expect, and they stressed
that land reform must occur within the context of the law.
Some
observers felt that the statements by the President-elect and his principal
advisors implied a virtual extension of President Cardoso’s economic
policies. Rumors even arose that Arminio Fraga would remain as Central
Bank president for at least a few months into the new administration,
something that da Silva had previously rejected publicly. Perhaps to
change the impression that the PT was abandoning its focus on social
issues, and recognizing that the government’s limited revenues will not
permit the innovation of multiple social programs, the President-elect
announced that his 2003 policies will focus overwhelmingly on eliminating
hunger. Implicitly, he seems to be saying that most of the promised reforms
will have to wait until the nation’s financial situation improves.
The
money markets have thus far responded rather favorably to da Silva’s
statements and actions. This week the Central Bank was able to roll-over
almost US $2 billion in dollar-tied domestic debt, something it was unable
to do earlier in the month. Similarly, the real strengthened significantly
compared to the low levels it had reached earlier this month. Both Brazilian
and foreign bankers apparently have been somewhat reassured by da Silva’s
moderate statements. Obviously, they now are waiting to see whether his
cabinet choices signal a continuance of this moderate tone.
The public may have to wait a few weeks to have this question answered. The
President-elect may be ready to announce the new Finance Minister and the Central
Bank President, but some in the PT want to delay these announcements until
da Silva can announce also the new ministers in the social area. These PT elements
believe that filling the economic slots first would again suggest that the
PT gives priority to economic questions, not to the social agenda. However,
the President-elect will have to negotiate with other political parties before
announcing his full cabinet because the ministerial positions will be an integral
part of the negotiating trade-offs.
The
PT must enlarge its power base in Congress if the next administration
is to implement a meaningful portion of its platform. The party is certainly
stronger than ever. Because the PT did exceptionally well in the recent
legislative elections, several parties will almost automatically enter
its coalition in Congress and individual deputies and senators will switch
to the PT or to one of its coalition partners. Even so, the administration
may have difficulty forming a simple majority in Congress, to say nothing
about the 60% majority needed for constitutional amendments. The PFL
and the PSDB have already stated publicly that they will be in “light”
opposition to the government; the PMDB has indicated that it is prepared
to negotiate. These statements signify that the administration will have
to negotiate and barter for every significant piece of legislation it
wants Congress to approve. Thus, the more parties it can bring into its
governing coalition, the stronger its negotiating position.
For
now, da Silva and his team are off to a good start, thereby confirming
that their brilliant campaign strategy was no accident. They will have
to sustain their performance, carefully balancing increasing pressures
from both inside and outside the PT. Innumerable demands will soon emerge
for a large increase in the minimum wage, for a more aggressive land
reform program, for more employment-creation spending, for a reduction
of state debt payments to the federal government, etc., etc., etc…. The
future President will be able to govern only if he resists most of these
pressures and simultaneously maintains a very delicate balance among
numerous political forces. If he overcomes this awesome challenge, he
will hopefully be able to initiate some of the social changes he has
advocated. If he fails to meet this challenge, Brazil could face a difficult
situation and the PT could seriously damage its future electoral prospects.
1 The views expressed in this article are the authors’ and do not necessarily reflect the views of the Center for Latin American Issues or The George Washington University