President Lula's Choices

Pressing problems faces his Excellency President
Lula—who will run the central bank

John Fitzpatrick

Only a few days before election day on October 6 and the question is: can the PT's Luiz Inácio Lula da Silva win in the first round? The answer is a "yes". Opinion polls give him around 45 percent, putting him within reach of the 50 percent majority required for a knock-out. Even if he fails to win in the first round, the chances of him winning in the second round are extremely good and polls show he would win by a wide margin over his rivals ex-health minister, José Serra (PSDB), former governor of Rio de Janeiro, Anthony Garotinho (PSB) and former finance minister, Ciro Gomes (PPS).

Lula is on a winning streak and his principal rival, Serra, is making little headway even though he recently overtook Ciro Gomes in second place. It is difficult to see any single factor arising between now and polling day which will upset this scenario. Serra's tactics of trying to blame Lula for the worsening economic situation have failed, and his claim that he will create eight million jobs has fallen on deaf ears.

Voters have also shown that they will not be intimidated by scare tactics and will not vote for Serra, simply because the market sees him as a safer pair of hands. This week saw the dollar soar to record levels against the real, reaching R$3.80 at one point, but Lula is no longer seen as the bogeyman responsible for the sinking currency. Finance minister, Pedro Malan, told investors in Washington that greed, fear and ignorance were driving the market. He also said that a PT government would maintain the basic economic policies of the Fernando Henrique Cardoso administration.

In fact, the PT has been quietly preparing itself to assume responsibility for the economy since it knows that Lula's untried team will need as much domestic and international support it can get, if he wins. However, there is still a lot of uncertainty about whether Lula will maintain Cardoso's economic policies. The fact that Lula has such a commanding lead shows that voters are not so keen on these policies and want change. How much change will be up to "President" Lula to decide.

Let us look at one dilemma which arose this week when Lula announced, on the very day the real nosedived, that the current Central Bank President, Arminio Fraga, would lose his job under a PT administration. (Serra later announced that Fraga would remain under his government.) Few voters will be swayed by the fate of a financier whom most have never even heard of so this was not a vote-winning announcement by Lula. Everyone agrees that Fraga has done an excellent job over the last three years but no-one could possibly expect Lula to keep him on.

However, at the same time, some PT economic advisers would like him to stay on temporarily and, in fact, Lula may find that Fraga will remain in charge for some time. Any new Central Bank chief will need to be approved by Congress which does not meet until February 15, about six weeks after the new President takes office. If Lula wins outright on October 6 the market will expect a quick indication of who will be the next Central Bank president. If this does not happen, then things could get even worse. At the same time, Lula will have to put forward a serious candidate acceptable to domestic and foreign investors and international institutions like the IMF and World Bank.

There are signs that this is happening. Brazilian journalist Celso Pinto, writing in the Folha de S. Paulo newspaper, quoted a top PT adviser as saying that the next Central Bank president would not need to be from the PT. Pinto said that over the last two weeks, the PT's economic policy makers had held meetings with Brazil's main bankers, such as Olavo Setúbal of Itaú, Lázaro Brandão of Bradesco, José Safra of Safra and Fábio Barbosa of Banco Real, as well as economists with divergent views such as Delfim Netto, Luiz Paulo Rosenberg, Ibrahim Eris and Raul Velloso.

Pinto said possible candidates for the post whose names were raised included Claudio Haddad, an ex-Central Bank director, and Henrique Meirelles, former president of BankBoston. Both these bankers have great credibility but one could only imagine them accepting the post if they were given the kind of freedom Cardoso has given Fraga. At the same time, it is difficult to imagine Lula being comfortable with either of these two, particularly Haddad who used to be a partner in Banco Garantia, a pushy US-style investment bank, which overstepped itself a few years ago and was subsequently sold to the Swiss bank Credit Suisse. Meirelles has expressed political ambitions and may be more to Lula's taste. However, this is pure speculation at the moment and Lula is playing his cards close to his chest.

Much will also depend on who Lula's finance minister would be. In theory, the finance minister is senior to the Central Bank president, and Malan, has exercised this power. However, he and Fraga have been a team of de facto equals and the market will not be happy to have a Central Bank chief hemmed in by a finance minister who is a politician. Even today, after almost eight years of loyal service to the President, Malan is still not a member of Cardoso's PSDB or any other party. One of those tipped to be Lula's finance minister is João Sayad, a former minister under José Sarney's government, and currently in charge of the finances of São Paulo's PT-run city government.

Lula is looking extremely pleased with himself and has every right to do so. Everyone loves a winner and even those interest, which will vote against him, are now more or less reconciled to the idea for a PT president. He was even called "Your Excellency" at a meeting of the Brazilian lawyers' association as though he were already President. His "peace and love" campaign, in which the rhetoric was toned down and a statesmanlike approach adopted, seems to have paid off.

John Fitzpatrick is a Scottish journalist who first visited Brazil in 1987 and has lived in São Paulo since 1995. He writes on politics and finance and runs his own company, Celtic Comunicações - www.celt.com.br, which specializes in editorial and translation services for Brazilian and foreign clients. You can reach him at jf@celt.com.br

© John Fitzpatrick 2002

You can also read John Fitzpatrick's articles in Infobrazil, where this article firs appeared, at www.infobrazil.com  

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