Hope Triumphed Over Fear

28 October 2002
Article

With a landslide victory the leader of the Workers' Party Luiz Inácio da Silva, commonly known as Lula, has won the presidential elections in Brazil last Sunday. With 61.3% of the vote he defeated government candidate José Serra. Brazil voted for change, despite a scare campaign by his opponent and the international financial markets insinuating that the left-wing Lula would turn the economy into a full-blown chaos. But Brazilian voters were not intimidated. In his fourth attempt to win the presidency, Lula was leading the polls from start to finish and just about missed a first-round victory on October 6th. "Hope triumphed over fear", Lula said in his first declaration.

"Agora é Lula - Now it is Lula". Thousands jubilant Carioca's - the popular name for residents of Rio de Janeiro - gathered in Cinelandia in the city centre to celebrate the victory for which many had to wait 13 long years. In Rio Lula got 79% of the vote. People were singing Lula's campaign samba, flying hundreds of red flags with the white star of the PT, the Partido dos Trabalhadores. A drum band added the flavour of a popular carnival. People laughed, cheered and cried. As the night progressed and the flood of beer took its toll, many changed to a thick-tongued "Olé-olé-olé-olá, Lulá-Lulá". The scene was similar to the crowds celebrating Brazil's triumph at the world soccer championship earlier this year, but with the added touch of the hopeful expectations that reminded of the election victories of socialist leaders like François Mitterand or Felipe Gonzalez in the 1980's.

The Start of a New Era

"The start of a new era". With this page-wide headline the conservative newspaper O Globo opened its election-day edition even before the final results were known. Sunday's result was a foregone conclusion. More than a change of power, the vote for the former metalworker and trade-union leader Lula indicates a profound change of the political culture of Brazil. Lula is the first left-wing candidate to win the presidency and will be the first president who is not part of the traditional Brazilian elite that has governed the nation eternally. Even O Globo, who opposed Lula in all his previous attempts, had to admit that the tide has changed.

"One should compare the election of Lula with the ascendancy of Mandela in South Africa," says Luis Fernando Verissimo, a popular newspaper columnist whose daily ironic comments on Brazilian society are published in nearly all major respected newspapers like O Globo and O Estado de São Paulo. "Brazil is the country with one of the highest rates of social inequality on the globe. Like the racial apartheid that existed in South Africa, in Brazil there is an unwritten but radical kind of class apartheid. Mandela was the first president of the black majority, Lula will be the first one of Brazil's dispossessed and disowned majority".

But Lula's room for manoeuvre to change social and economic conditions is extremely limited, if not almost impossible. Lula is fully aware that he will have to reconcile the huge expectations with the limitations of a harsh economic reality. Winning the presidency in today's Brazil is like jumping into a bottomless abyss of economic problems. "The big problem that worries investors and the IMF is Brazil's large public debt burden, now around US$ 250 billion", according to The Economist. "Buoyant growth in recent years might have made this debt seem manageable, but sluggish economic performance has pushed it up as a share of GDP to the point where some economists believe it has become unsustainable".

Interest rates are up to world-record heights of 21%, stifling economic growth. Inflation is also rising as well as unemployment. In São Paulo - the country's economic motor generating 44% of all jobs - unemployment has reached 9.3%, the highest level since 1982. The dismal economic situation is partly due to the widespread distrust of the financial markets that Lula had to face during the campaign, resulting in a steep plunge in the real and the sharp rise in interest rates, which made the debt position even more precarious. The 'spreads' on Brazil's debt -the premium investors demand to compensate for risk- soared.

At the Mercy of Market Anxiety?

The scale of market anxiety came close to panic on occasion. George Soros, the famous investor and currency speculator, told Folha de São Paulo that the election of Lula would make investors so fearful of a possible default that they would stop financing Brazil, fulfilling their own prophecy. Only a victory for José Serra, the candidate of President Fernando Henrique Cardoso's centre-right coalition could dismiss such fears. Vote for Serra, or expect an Argentine-style crash in which Brazil would default on its public debt, Soros said about the mood in the markets. The power of hostile financial markets and the harsh judgements they impose is something Lula had to deal with during the campaign, and will have to face while in government.

Serra and Cardoso told voters that Brazil could face Argentina's fate "if an incompetent president were elected". Lula retorted that the government engaged in "economic terrorism", fomenting panic to cling to power. The scare tactics did not work. Not in the least because Lula this time presented himself as a moderate candidate, as 'Lula Light'. He trimmed his beard, replaced his eternal PT-shirt with suit and tie, and presented himself as the natural national option for reform, not revolution. The radical rhetoric of his previous campaigns disappeared and the former position of the PT to declare a moratorium on Brazil's government debt payments was substituted with a pledge to repay it, and to maintain a primary surplus sufficient to stabilise it.

Another factor for Lula's victory is that question marks about neo-liberal economic policies are raised everywhere nowadays, says columnist Verissimo. "The institutions of neo-liberalism themselves see that their model has reached its limits. The Worldbank is ringing alarm bells about explosive poverty. The IMF itself admits that maybe sometimes it would have been better if they had not passed by to restructure economies". Even under President Cardoso, the former leftist sociologist turned neo-liberal, Brazil's government debt has soared, hitting a record 62% of GDP this July, compared with 30% when he became president.

"I think Cardoso was an excellent president", says Verissimo, who many times made fun of him in his newspaper columns, with ironic comments about his vainness and overrated ego. "The best prince our elite ever produced. Precisely because he was respectable and incorruptible, he will be the symbol of an era that has come to an end. Cardoso opened the way for Lula", says Verissimo. As Finance minister Cardoso curbed a staggering inflation that was running at an annual rate of 10,445%. With his Plan Real, Cardoso made it fall to single figures and kept it staying there.

Since the poorest had found it hardest to keep up with rising prices, this caused a drop in deprivation. The proportion of Brazilians living in extreme poverty - defined as not having enough income to eat properly, let alone afford anything else - fell from 20% to 15% between 1993 and 1995, but it has not improved further since. With his anti-inflation policy working well, Cardoso won the 1994 and 1998 presidential elections. He managed to gain the confidence of the international financial markets and to seduce its neurotic and hypersensitive capital, that moves with the touch of an electronic signal, to invest in Brazil, says sociologist Luis Carlos Fridman.

But this battle to create a solid financial base to counter the fluctuations of the global economy led to a paralysis with regard to solve the social tragedy of the poor in Brazil. Cardoso dreamed of a Brazil following the example of Spain, which has gone from being poor and backward to wealthy and modern in the generation since its return to democracy, in particular under the socialist leadership of Felipe Gonzalez. Brazil has gone only halfway during Cardoso's mandate, and now Lula has to complete the job.

Cardoso's main accomplishment is that he consolidated democracy that will ensure a peaceful transfer of power. In a mature democracy this seems nothing extraordinary. But Brazil's military dictatorship ended only 17 years ago. Brazil's oligarchy has held a long and tight grasp over society and its vigorous, cruel and excluding capitalist model. The fact that a former metalworker and trade-union leader is now elected president means that Brazil's political system has been civilized. In a way Lula is the natural successor of Cardoso. Social reform and the fight against poverty are urgently needed as well as the logical next step after economic stabilisation.

Social Pact

Maybe Lula is the one who can make it work. He claims to be the only alternative that can establish a "social pact" between employers and the trade unions to reform and stimulate the economy. To show his intentions the PT sealed an electoral pact with the small, conservative Liberal Party in order to get its leader, José Alencar, a self-made textiles magnate of humble background like Lula himself, as his running mate. Alencar represents the interests of the national productive industrial sector that has suffered from the emphasis on finance capital to solve Brazil's economic hardship. A brutal transfer of the productive sector to finance capital has been going on for years.

Optimists point the recent signs that the markets are becoming reconciled to a Lula government. During the week preceding the election share prices at the Bovespa - the stock exchange of São Paulo - were rising and the exchange rate for the real against the dollar improved. Investors' main worry is not that Lula, once in office, will rip off his moderate garb to reveal his old, fiery, socialist self and declare a debt moratorium. They fear that he may be incapable of taking the tough decisions needed to stabilise the debt - imposing a further fiscal squeeze if needed in the short term, while passing difficult reforms.

But Lula not only has to walk the tight rope of the narrow margins of economic reality, but also those of the political conjuncture. Although the PT is now the biggest political force in Brazil, it has no majority in Congress. Moreover, the PT failed to win governors in important states like São Paulo, Minas Gerais and Rio de Janeiro, and even lost its hold on Rio Grande do Sul. In Brazil's federal system the power of each separate state is something not to underestimate, particularly São Paulo which generates close to 40% of Brazil's GDP. The public debt of the states is one of the difficult issues to be tackled, and affects the highly needed fiscal reform and debt-restructure negotiations with the IMF.

Lula and the PT will have to build coalitions if they want to accomplish anything. First, Lula will have to face the radical sectors in the party. His moderate faction, "Articulation", has a tight grip on the party leadership, but many militants - who worked hard to get Lula where he is now - will desire more radical reform. The more radical sections control at least 40% of the party machine, but are not a united front. Some of them already demanded that the PT should return to its guiding principle of a total rupture with the economic model, and oppose Lula's policy of alliances with moderate forces outside the party.

Paradoxically, Lula's most promising potential allies might be the Social-Democrat Party (PSDB) of his opponent Serra and outgoing President Cardoso, and a faction of their main coalition partner, the Brazilian Democratic Movement (PMDB). Both parties and the PT grew out of the leftish opposition to Brazil's 1964-85 dictatorship, but the PMDB and PSDB moved to the centre, embraced the neo-liberal economic model and formed a centre-right government with the backing of conservative groups.

In the final days of the campaign Serra presented himself also as the candidate for social reform - the experienced and responsible one, of course - in an ultimate attempt to challenge Lula - the irresponsible one. While Lula, with a secure 60% lead in the polls, was cautious not to make too many expensive pledges, Serra started to spend money and attacked Lula's reform agenda as to vague. It showed that the differences between Lula and Serra were not that sharp anymore, and the emergence of agenda of social reform was the necessary one Brazilians were wanting. Serra's problem was that the PSDB had defaulted in the eight years Cardoso had lead the government.

The PSDB is nonetheless a major political force. The party still holds seven states, including important ones like São Paulo and Minas Gerais. In the near future it seems unlikely that the two will forge a coalition. The wounds inflicted during the battle for the presidency and the PT's critical opposition to Cardoso need time to heal. But Lula already announced he wanted to talk, while PSDB-leaders said they would conduct a responsible and constructive opposition. ,,The PSDB needs to be a centre-left party again, it needs to go back to its roots," said party hopeful Aécio Neves, governor-elect of Minas Gerais.

Fourth Way

Adding to fuel market anxiety on Lula's victory were press reports on the wave of populism in Latin America and Lula's alleged and real friendships with the controversial Venezuelan president Hugo Chávez and Cuba's Fidel Castro. The prospect of an alliance between oil-rich Venezuela and Latin America's economic giant Brazil made certain people in the United States very nervous. What would be the consequences for the Free Trade Area of the Americas (FTAA), the main economic agenda of Washington in the next years?

The comparison of Lula with the left-wing populist Chávez is ridiculous, says Verissimo. "Lula is not seeking a confrontation with the rich, he wants to conclude pacts". He is the result of a long struggle of a party that has been developing for 22 years. All his life he has tried the bring about change within the system, extending the margins - not seeking confrontation as such, but not dodging it either if necessary. Over the years the PT has build experience in running states and cities, often quite efficiently. The PT is more like the traditional European style labour movement with strong roots in civil society.

Exactly because Lula is the complete opposite of the populism that is emerging everywhere else in Latin America, Brazil could be a pioneer for democratic change on the continent. Some see that movement leading a 'fourth way' - replacing the failed 'third way' of European social democracy, which has become stained by relying on neo-liberal thinking. It might be more challenging to consider the possibility that Lula and the PT could invigorate the European left, its confused social-democracy and the 'third way' with is energy and pragmatic idealism. Maybe the old continent should be a bit more humble and look at the PT as an example. They certainly should support Lula's exciting project wholeheartedly.

"The financial markets have to understand that people have to eat", Lula said when confronted with an article in The Economist that said that a president is voted in only once every four years, but the markets vote every day. "The needs of the people are as important as those of the market. We will have balance the two of them in". To keep a huge mass of poor with no money to spend on products demonstrates bad market judgement. International financial institutions should consider the possibilities of this potentially vast market of 170 million when a minimum of modest wealth is assured.

Significant sectors of Brazilian entrepreneurs have understood that. They think the 'capitalism with a human face' of Lula is more profitable then deprivation and social-political instability. But the risk is that once again the myopic global financial system will opt for short-term profitability. "Until now it was easy, but today the difficulties begin", Lula warned his followers in São Paulo gathered to celebrate the victory Sunday night. He will need all the support he can get.