Brazil’s Begins to Throw Off Austerity Plans

by ROGER BURBACH

The cabinet ministers of Luis Inacio "Lula" da Silva’s government who have kept the Brazilian economy in a neo-liberal economic straight-jacket are coming under sustained attack from the more popular sectors of the governing Workers Party. Even Lula himself has given signs he is moving away from the budgetary and financial prescriptions imposed by the International Monetary Fund that he has adhered to during his first fifteen months in office.

Interestingly the start of the discord had nothing to do with economic policy. In mid- February Lula’s chief of staff and closest political adviser, Jose Dirceu, became embroiled in a political scandal. Waldomiro Diniz, a close friend of Dirceu’s who serves as his aide on congressional affairs, was caught on video camera accepting payoffs from the head of one of the country’s major bingo parlor operators. The funds were allegedly used to back the political campaigns of candidates of the Workers Party.

Diniz was quickly fired and the opposition in Congress began calling for a full-scale investigation and the removal of Jose Dirceu from office. As Emir Sader of the Public Policy Laboratory of the State University of Rio de Janiero noted: "The reactionaries are making their move. They are trying to bring down Dirceu and gut Lula’s government." Dirceu however, is not an easy target, having served for years as a talented political strategist at the head of the Workers Party before becoming Lula’s most powerful aide in the government. His first line of defense to prevent Congress from opening an independent investigation was to point out that the video camera taping occurred before the 2002 election and that the bingo scandal had only taken place in Rio de Janeiro, not in other parts of Brazil, therefore not allowing for federal prosecution. Then in early March to smash the opposition, Dirceu began to mobilize the Workers Party behind him by openly criticizing the finance minister and the economic policy team.

The case Dirceu presented against them was fairly straight forward. During 2003 the economy had grown at less than 1%, and unemployment in Brazils largest industrial center, Sao Paulo, stood at around 19%. This economic lethargy was due to Brazil’s high interest rates (10% in real terms, among the highest in the world) and the following of IMF guidelines demanding a budgetary surplus of 4.25 % so that Brazil could make payments on its international debt. Even large sectors of the Brazilian business community were deeply upset with this no growth policy.

Dirceu’s attacks initially focused on the Minister of Finance, Antonio Palocci, a technocrat aligned with the head of the Central Bank, Henrique Meirelles, who formerly worked as the worldwide president of the US Fleet Boston Financial Group. The Central Bank is autonomous, but the Finance Minister is influential in its decision-making. In early March Palocci indicated that when the bank next met, interest rates would be held steady. Dirceu criticized this stance, mobilizing most of the leadership of the Workers Party along with its membership behind him. The bulk of the party had been simpering and complaining for months about Lula’s economic policies that appeared to mimic those of his predecessors and produced little of the "New Brazil" that Lula had promised during his election campaign. A handful of Senators and representatives from the Workers Party had even been forced out when they refused to support budgetary legislation that reduced the retirement income of public employee pensioners.

While Lula has thus far remained above the domestic fray among his ministers, he threw down the gauntlet against the IMF and other international institutions when he met with Argentine President Nestor Kirchner in Rio de Janeiro on March 16. The presidents of South America’s two largest economies jointly released "The Declaration of Cooperation On Cooperation for Economic Growth with Equality." It demanded that the international financial institutions act "sensibly" and that they end the deep contradictions between the economic demands they place on the developing countries and the countries’ real needs for sustainable development. The two presidents stated "this financial architecture requires mechanisms to avoid causing the crises that have afflicted Latin America." As a step in this direction Lula and Kirchner asserted that investments in productive infrastructure projects should not be included as part of regular government expenditures. Brazil and Argentina called on the other full and associate members of the Mercosur trade bloc–Uruguay, Paraguay, Bolivia, Peru and Chile-to sign on to the declaration. The presidents also issued "The Act of Copacabana," a wide ranging document that called for the formation of a "Community of South American Nations."

Emir Sader of the Public Policy Laboratory, who has been severely critical of Lula’s economic policies, declared that "in the foreign policy arena Lula is making a profound difference. He is staking out a new agenda in Latin America and the global South in general." Prior to the Iraqi war, Lula was one of the most outspoken opponents of the impending US invasion. Then, he helped forge the bloc of 22 nations that stopped the World Trade Organization in its tracks at Cancun in August 2003. Next at the close of the year he lead the charge that forced the Bush administration to back off from its plans to impose the corporate-dominated Free Trade Area of the Americas on the entire Western Hemisphere by 2005.

Right-wingers in Washington, like the State Department’s top aide for Inter-American Affairs, Roger Noriega, are becoming obsessed with Brazil as they fear the emergence of another "evil axis." Lula has provided political and economic support to Hugo Chavez, the charismatic president of Venezuela who is at odds with his country’s economic elites as well as Washington. In December, Brazil extended a billion dollar loan to Venezuela to enable it to purchase Brazilian goods it urgently needed. Conservatives in the Bush administration fear an emergent alliance of Cuba, Venezuela, Brazil, and now Argentina as Nestor Kirchner works with Lula to challenge the political and trade policies of the United States.

Inside Brazil, political tensions have risen notably in recent days. The reactionary sectors are continuing to try to destabilize the government with the bingo scandal. After Lula’s joint declaration with Kirchner some financial market analysts are asserting that even higher interest rates may be needed to offset any future increases in government expenditures. At the same time, progressive dissidents in and outside of the Workers party are making it clear they are bent on stepping up the pressure on Lula. The largest social organization in Brazil, the Landless Workers Movement, at a meeting on March 18 announced that it was ending its self-declared truce on land invasions. They are drawing up plans for invasions of particular regions in the country in April and May.
Land reform has been stymied in particular by two other conservative ministers, Roberto Rodrigues the agricultural minister who served as the head of an agricultural business association representing domestic and multinational commodity giants, and the Minister of Development, Luiz Fernando Furlan, a former director of the global food processing corporation Sadia. Due in part to their influence, the process of agrarian reform has moved at a snails face, while large agribusiness exporters have witnessed a boom in their revenues.

It is doubtful if Lula will fire his conservative ministers in the short term or make any immediate dramatic shifts in his domestic policy. But many believe he may be preparing the groundwork to square his economic programs with his foreign policy initiatives. Francisco Meneses, an agricultural analyst who sits on the National Council of Food Security that advises Lula on issues related to hunger and agriculture states: "It is understandable that Lula has not implemented fundamental economic changes thus far, given the clout of the international financial organizations and the power of domestic economic elites. But we may see some significant shake ups take place as the political and social caldron heats up in Brazil."

ROGER BURBACH has just returned from a trip to Brazil, Argentina and Chile. His most recent book is "The Pinochet Affair," published last year. In May, 2004 Zed Books will release a new book he wrote with Jim Tarbell, "Imperial Overstretch: George W. Bush and the Hubris of Empire."

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