The International Monetary Fund moved to lock the
future government of Brazil into an economic straightjacket
when it loaned $30 billion to the outgoing government
of Fernando Henrique Cardoso in an attempt to prop up the Real.

Roger Burbach

On Jan. 1, 2003, Luis Inácio Lula da Silva—elected in a landslide victory with over 61 percent of the vote—will become president of Latin America's largest country. Lula, as he is commonly known, received three million more votes for president than George W. Bush did in the United States in 2000.

Leonardo Boff, a progressive theologian in Brazil, declares that “Lula's triumph represents the victory of a project from below, one of the poor.” Lula's first act as president-elect was to create the Secretariat for Social Emergencies. Its primary responsibility is to end hunger and malnutrition among more than 20 million Brazilians.

"If at the end of my presidential mandate every Brazilian has three meals a day then I will have realized my life's mission," proclaimed Lula.

This was Lula's fourth run for president. In this campaign he abandoned much of the leftist platform of previous campaigns, forging an alliance with more centrist political forces. This shift is symbolized by his choice of vice-president, José Alencar, Brazil's largest textile magnate and a leader of the centrist Liberal Party. Alencar declares that the alliance is the product of a "novel political society," reflecting a new social pact, "where Lula represents labor and I represent capital."

Asked why he accepted the position of vice president, Alencar notes: "In the history of civilization labor came first, and then capital. And also in my personal history...it was labor that built my capital."

But it is an open question whether the United States and international bankers will adopt as enlightened a position as Alencar. Brazil has a public debt of $240 billion, the largest in Latin America. In the run up to the election on Oct. 27, foreign capital began to flee Brazil, leading to a depreciation of the country's currency, the Real, by over 40 percent.

Much of Lula's campaign questioned the free trade policies launched under the "Washington Consensus" during Ronald Reagan's administration in the 1980s. The consensus has meant not only the opening of Latin American markets to U.S. trade, but also the privatization of state enterprises and the slashing of social spending in health and education.

According to a Brazilian financial advisory firm, ABM Consulting, the 10 largest banks in Brazil, including Citibank and BankBoston, earned returns of 22 percent on their holdings in Brazil in 2001 compared to 12 percent on a global level. George Soros, a forward-thinking international financier with significant holdings in Brazil, declares: "The system has broken down;" it "does not provide an adequate flow of capital to countries [like Brazil] that need it and qualify for it."

In its initial response to Lula's victory, the Bush administration declares it "looks forward to working productively with Brazil." But even before Lula's victory, the U.S. Under-Secretary of the Treasury, Kenneth Dam, stated, "we have a contingency plan" if Brazil declares a moratorium on its international debt.

Dam provided no details, but the International Monetary Fund (IMF), the leading financial institution backing the position of Washington, moved to lock the future government of Brazil into an economic straightjacket when it loaned $30 billion to the outgoing government of Fernando Henrique Cardoso in an attempt to prop up the Real.

Only $6 billion will actually be spent under Cardoso, while the remainder will be released to the incoming government if it has a budget surplus of 3-and-a-half percent. No government in South America has achieved such a surplus in recent years.

Right-wing pundits and policy strategists in the United States have already begun to criticize the Lula government. Constantine Menges, a Senior Fellow of the Hudson Institute who served as the Latin American adviser in the National Security Council under Ronald Reagan, recently released the study: "A Strategic Warning: Brazil." In it he decries the "Castro-Chavez-Lula axis" (referring to Fidel Castro of Cuba and populist president Hugo Chavez of Venezuela). Menges argues that these countries are "capable of pushing other South American countries to the Left and establishing a dangerous alliance with communist China, as well as with Iran and Iraq, two terrorist countries."

This would constitute a gigantic "South American Left bloc," which would have a domino effect in countries like Colombia, Bolivia, Ecuador and Argentina.

While Lula certainly is not intent on provoking the United States by consorting with Iraq, he is looking to other Latin American countries to strengthen an independent economic stance and to expand regional trade agreements. His first international trip will be to Argentina, which has defaulted on its international debt and is Brazil's leading partner in the regional trade bloc known as Mercosur.

Lula has made it clear that he will not support the trade initiative of the Bush administration, the Free Trade Area of the Americas (FTAA), unless the United States abandons trade policies that discriminate against Brazil. Among other provisions, the FTAA advocated by the United States envisions the protection of Florida orange juice interests and Midwest soybean producers along with U.S. steel exporters. Brazil is the world's largest exporter of orange juice, a leading exporter of soybeans and also exports large quantities of steel.

If there is one position Lula consistently articulated in this presidential campaign, it was his call for "expanding Brazil's productive capacity." In his last presidential debate with José Serra, who represented the outgoing government, Lula stated: "Brazil is a great country. It has enormous resources that we have not even begun to turn to the benefit of our people."

The day after his election Lula proclaimed that budgetary restrictions would not prevent him "from expanding social programs," decreasing unemployment and "expanding educational opportunities for Brazil's poorest."

Roger Burbach is director of the Center for the Study of the Americas (CENSA) in Berkeley, California. His e-mail: censa@igc.apc.org 

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