By Gwynne Dyer, Contributor"All the hallmarks of an impending default are visible: a soaring public sector debt burden; high short-term interest rates; low growth; a rapidly depreciating currency; and an international loss of confidence. At current market rates, even an optimist would admit Brazil is insolvent."
THAT WAS the verdict of the Financial Times on Brazil on the eve of the election that brought 'Lula' (Luiz Inacio da Silva) to the presidency just a year ago. The prospect of the first-ever socialist coming to power in Latin America's largest country had spooked international investors, always a panic-prone lot, and created a self-fulfilling prediction of financial crisis. But a year later, none of the FT's predictions have come to pass.
Short-term interest rates have dropped from 20 to 12 per cent; the Brazilian real, which had plunged 40 per cent against the U.S. dollar, has stabilised; public debt has been contained by draconian borrowing curbs; international confidence has returned; and economic growth is predicted to run between three and a half and four percent this year. Lula must be doing something right.
When I first interviewed Lula 25 years ago, he was a genuine horny-handed son of toil: an ex-lathe operator from the poverty-stricken north-east who had left school after only five years and migrated south to Sao Paulo in search of work. He had lost a finger in an industrial accident, had become a union organiser, and was then in the midst of founding the Workers' Party (PT), an avowedly socialist organisation, in the teeth of the military regime's disapproval.
Now he has trimmed his beard and started wearing suits in deference to the image consultants, and he didn't even mention the word 'socialism' in the last election. As a man of the left, however, he still has an image problem with one key group. Even well-informed investors are in the business of guessing where the ignorant herd will stampede to. And getting there first, so any politician with the label 'left-wing' will tell you, must be ultra-responsible about budgets and deficits.
That's what trapped Lula, and he has spent the past year working himself out of the trap at some considerable political cost. There was no financial crisis in Brazil until foreign investors panicked at the thought of a socialist president, but $6 billion fled the country in the three months before the election in what his closest adviser, Luiz Dulci, called "an act of financial terrorism", so he had to devote the past year to calming the markets. The price was stagnant growth, rising unemployment, and a lost year on his ambitious programme for creating jobs and fighting poverty.
Lula kept his core supporters loyal through this ordeal by a high-profile foreign policy that included successfully standing up to the United States and Europe at the World Trade Organisation talks in Cancun and visiting Third World icons of another era like Cuba's Fidel Castro and Libya's Colonel Muammar Gaddafi. But now, with the currency stabilised, a new agreement with the International Monetary Fund in place, and the Brazilian stock market soaring, he is ready to end the damage-control phase and start governing.
Even now, after a year of disappointment and austerity, Lula retains the support of over two-thirds of Brazilian voters: his transparent integrity inspires trust even when the performance leaves much to be desired. And his first year in office has already established something of great long-term importance: the normal democratic alternation in power between parties of the left and right will not again be a reason for panic in Brazil.
In the same week that I first met Lula 25 years ago, I also spent a day with Fernando Henrique Cardoso, then a leading academic figure in the liberal opposition to the military regime and subsequently Lula's predecessor as president in 1994-2002. The two men's personalities and circumstances were hugely different, but what struck me then and still strikes me is that the long night of the generals had forced them both and maybe their entire generation to move away from simplistic ideologies and start grappling with the human realities of Brazil.
Lula berated Cardoso as a 'neoliberal' when he was in power, but Cardoso actually did more for the half of Brazil's 182 million people who live in poverty than any previous president of Brazil. Lula is still vilified as a wild-eyed leftist, but in fiscal and financial matters he has been the very model of responsibility.
Brazilian politics has grown up at last.
Gwynne Dyer is a London-based independent journalist whose articles are published in 45 countries.
