The List of the Undone in Lula's Brazil

As a reader of O Estado de S. Paulo pointed out, during the thirteen
months that Lula has been in office, not one federal highway has
been paved, no hospitals or penitentiaries were built, professors
or policeman's salaries have not been improved, not one
favela has been removed. And the list goes on and on.

Richard Hayes

After falling nearly 10 percent one day last week, the BOVESPA or São Paulo Stock Exchange Index finished January down 1.73 percent from its year-end level. This was the first time since June that a monthly loss has been experienced. Although C-Bonds have not yet sunk to the level at which I suggest selling short some months ago, they were last quoted at about 98 percent of face value after having sold recently at a premium.

The "Brazil Risk Index" is now back over 500 base points. The causes for this swing have been attributed to the US Fed's possible indication of higher interest rates later this year and Banco Central's (COPOM) decision to leave the SELIC or basic interest rate at 16.5 percent. But there may be more behind this evident change of sentiment.

As a reader of O Estado de S. Paulo pointed out in a recent Letter to the Editor, during the thirteen months that Lula has been in office, in spite of lots of talk, not one federal highway has been paved, no port repairs were made, no hospitals or penitentiaries were built, professors or policeman's salaries have not been improved.

Not one favela has been removed or improved upon, no highways have been privatized, no taxes have been reduced, no financial or technical assistance has been given to those settled as part of agrarian reform, the governmental procedures have not been simplified, and passports have not been modernized. The list of non-accomplishments does not end there.

On the other hand, Lula who appeared on the front page of leading newspapers this week with his wife in front of the Taj Mahal, has managed to travel around the world at tax payers expense and is about to buy a new presidential jet. Airbus will supply for US$ 56 million an aircraft that would be the envy of any head of state.

And this is being done without competitive bidding, it seems. Imagine the outcry emanating from the PT if FHC had decided to replace the aging Boeing 707. For a man who insists that Petrobras buy off- shore oil rigs made in Brazil, it seems inconsistent that the PT administration would purchase such a plane abroad when EMBRAER, the local aircraft manufacturer, could supply a fine plane.

So what if it didn't have the range of the Airbus. A refueling stop once in a while should not be a disgrace for a man who portrays himself as the leader of a third world anti-poverty campaign.

New Cabinet

In between trips to Monterrey and India with a stopover in Geneva on the way back to Brazil, Lula managed to order the cabinet changes that have been a topic of speculation for several months. The substitutions were strictly political in nature displaying no evidence that competence or experience were criteria used in making the alterations.

The only consolation is that it should be easy for the new ministers to not be any worse than their predecessors. Room was made for new PMDB (Partido do Movimento Democrático Brasileiro—Party of the Brazilian Democratic Movement) appointees. Eduardo Campos, the new Minister of Science and Technology, for instance, has as his only qualification the fact that he is a grandson of Miguel Arraes, an old leftist ex governor of Pernambuco and a leader of the PSB (Partido Socialista Brasileiro—Brazilian Socialist Party) that nominally supports Lula's government.

José Dirceu's job as Chief of Staff or actually a sort of Prime Minister has been more clearly defined. The political dealing with Congress, governors and mayors has been delegated to Aldo Rabelo of the Communist Party. This leaves Dirceu free to concentrate on making the PT government more effective. Dirceu clearly enjoys his power.

Prime Minister Dirceu

There is no doubt now that the man running Brazil, while Lula flits around the world making cockeyed declarations, is José Dirceu. As pointed out in an earlier commentary, this man is devious and literally two-faced. When he was sprung from prison in 1969 during the military rule as part of a deal that freed kidnapped American Ambassador Elbrick, Dirceu was expelled from Brazil and went to Cuba.

He later came back to Brazil after plastic surgery under false identity and took up residence in rural Paraná state where he married and fathered a son. When civilian rule returned after 1985 and amnesty was given to former political prisoners or those who had been considered subversive and were forced into exile, Dirceu surfaced as Dirceu and deserted his Paraná family before using his Cuban experience eventually helping to found the PT or Workers' Party.

The PT is by far Brazil's best-organized and richest political party. The local press recently stated that the Workers' Party has more cash than all of the other 20 odd parties put together. Dirceu, in a clever move, created 2,797 new government jobs most of which will go to card carrying members of the PT.

This will cost taxpayers at least R$ 50 million (US$ 16.6 million) a year if the average salaries are R$ 1,400 (US$ 467) per month. As all PT members that are awarded government jobs must pay a sliding percentage of their salaries to the coffers of the PT, indirectly all Brazilian taxpayers, not merely those who helped elect Lula, are helping support the party financially.

Senator Jorge Bornhausen of the PFL (Partido da Frente Liberal—Liberal Front Party), one of the very few members of the opposition that seem to not take absurdities lying down, is said to be contesting this contracting of government workers without qualifying examinations.

Lawless Land

Lula should not be blamed for all of Brazil's mishaps. But negative news coming out of Brazil may have an effect on investors and speculators as time goes on. This past week, inspectors from the Ministry of Labor that were investigating slave labor practices in Minas Gerais were murdered along with the driver of their truck.

A massacre is building up in Mato Grosso do Sul near the Paraguayan border where Guarani-Kaiowa Indians (native Brazilians) have invaded several ranches stealing cattle and burning buildings. They claim that the land was taken from them by European colonizers three or four centuries ago. The legitimate owners of these lands have taken up arms and shooting may soon start unless the government, seemingly inert, does something to diffuse the situation.

As always happens at this time of year, floods in the city of São Paulo snarled traffic and left many people homeless. Yet there may be water rationing in São Paulo due to the low level of the reservoirs that supply the city's drinking water.

Businessmen, that up until now have been reasonably tolerant of Lula and his comrades, were not at all happy when the President in a speech delivered in New Delhi told them to complain less and work harder. With real interest rates nearly the world's highest and taxation overwhelming, Brazilian businessmen struggle to keep afloat in most cases.

Veja, Brazil's leading weekly new magazine, ran a story pointing out many other difficulties for the productive sector that the government has failed to address. Sunday's New York Times published a revealing article by Larry Rohter explaining the murder of Celso Daniel the PT mayor of Santo André. Both José Dirceu and José Genoíno, the current president of the PT, are implicated in this murky affair. It is worthwhile to read the article.

Lula is now showing his true face. It is a matter of time before populist moves could begin to take the place of the appearance of pragmatism and rationality that have characterized macro economic policy and won a degree of credibility for the PT led government.

Lula has discarded the idea of Central Bank independence, so soon Central Bank president, Henrique Meirelles, may be pressured into making moves of which he does not approve such as lowering interest rates in spite of creeping inflation.

Not much will happen until after Carnaval as the special session of Congress is not expected to produce anything constructive such as labor and judicial reforms, passing a new bankruptcy law or even concluding the pension and tax reforms started last year. Could it be that confidence in the Lula/Dirceu run government has peaked?

Richard Edward Hayes first came to Brazil in 1964 as an employee of Chase Manhattan Bank. Since then, Hayes has worked directly and as an advisor for a number of Brazilian and international banks and companies. Currently he is a free lance consultant and can be contacted at 192louvre@uol.com.br

February 2, 2004.