Crisis Brews In Brazil As Leftist Presidential Candidate Seizes Lead

Rio de Janeiro. A crisis is brewing in Brazil as Luis Inacio da Silva, the left-leaning candidate of the Workers Party, has opened up a wide lead in the upcoming October presidential elections. A victory by da Silva, commonly known as “Lula,” would be a political jolt for South America. Brazil is the largest country with the biggest economy in Latin America. It lies between two tumultuous nations-Argentina which is experiencing an economic implosion, and Venezuela, where rightist and traditional political parties backed by the United States recently tried to overthrow President Hugo Chavez. Moreover, da Silva’s opposition to the U.S.-backed Free Trade Area of the Americas and his independence on foreign policy issues like Cuba mark him as an adversary of the Bush administration.

Brazil’s president Fernando Henriquez Cardoso is constitutionally ineligible for reelection. His center-right coalition is having a tough time finding a scandal-free candidate to confront da Silva, the result of corrupt government policies linked to neo-liberalism and the privatization of public enterprises. The ruling coalition’s first choice, Roseana Sarney, was forced to step aside when police seized a half million dollars in cash in her residence that allegedly came from a bankrupt private enterprise she helped set up with state funds. Now her replacement, Jose Serra, is embroiled in scandal because his political fundraiser stands accused of taking $15 million in bribes to help sell a multi-billion dollar state steel enterprise to a private consortium.

Da Silva has run unsuccessfully for president three times in the past as head of the Workers Party, but today commands the widest lead he has ever enjoyed in pre-election polls. Significantly, his negative ratings have dropped, with only 38 percent declaring they would not vote for him under any conditions, a number lower than any of the other major presidential aspirants.

Concerned by a possible Workers Party presidential victory, major investment banks including Morgan Stanley Dean Witter and Merrill Lynch downgraded their ratings of Brazil in early May, touching off a financial crisis. The country’s currency, the Real, began to drop in value and the stock market plummeted.

The meddling of the investment banks has provoked strong reactions. “These banks have led the neo-liberal sacking of our country and now they are trying to scare people into perpetuating a political order that serves only their narrow interests,” fumed Reinaldo Gonzalvez of the Economic Institute of the Federal University of Rio de Janeiro.

Even the staid Financial Times of London labeled the banks’ reactions a “mistake,” noting that should da Silva become president, his economic policies would likely be moderate.   In several Brazilian cities Workers Party governments “have proven to be good administrators,” said the Financial Times. In the southern state of Rio Grande do Sul where the Workers Party has been in power for a decade, the government has improved social services while helping stimulate agricultural and industrial production, making the state one of Brazil’s most prosperous. Some thirteen percent of the state’s production is publicly or cooperatively owned.

Support for Lula breaches class lines. Even sectors of the economic elite are beginning to believe that his policies may offer the best hope for the country. Since the Asian economic crisis of 1997, Brazil’s economic performance has been anemic, with growth rates sometimes failing to keep pace with population increase. The neo-liberal policies of Cardoso, such as the free flow of speculative “hot money” in and out of the country at the whim of investors, have favored financial interests over Brazil’s substantial industrial base, much of which is geared to production for the big internal market. “Even some foreign interests with investments in the country’s industry look with favor on Lula’s policies” says Gonzalvez.  Lula first rose to national prominence in the 1980s when he built the Workers Party from his base among the trade unions in Brazil’s large automotive industry, which produces for domestic and international markets.

When the international firms downgraded Brazil’s credit rating, Da Silva, in a slap at Cardoso’s economic policies, declared that the best response to the banks is to “combat speculation with production. Every investor will look to Brazil when there is an infrastructure that supports the flow of production, a highly trained workforce and a market that really consumes because there are strong wages.”

Before a gathering in early May of the National Industrial Confederation, Lula called for a reform of the country’s tax structure. Production and exports “should be favored with lower rates,” he said, while financial and speculative interests should be taxed more heavily. Da Silva’s platform calls for no new loans or agreements with the International Monetary Fund. Nevertheless, his party is leaning towards recognizing the old debts incurred with the IMF and other international lenders, even if they are considered unfair and an element in feeding Brazil’s notorious political corruption.

In recent years, Lula has distanced himself and the Workers Party from more radical sectors of the Brazilian left. There are even differences between his party and the Landless Movement, or MST, the militant organization of farm workers organized throughout Brazil. Nevertheless, the huge activist organization has made it clear it backs Lula, and this support reverberates beyond the votes of the rank and file membership.  The MST and its goals enjoy wide acceptance among much of the country’s middle class, which views the organization of landless workers as a legitimate social movement that is taking idle agricultural lands from wealthy and absentee landowners.

What a Lula presidential victory would mean for Brazil is unpredictable, given the internal economic slump, the volatility of other parts of South America, and the likely opposition of the Bush administration. In recent days the Brazilian Real has continued to fall, and some financial observers now believe it is not due simply to Lula’s potential victory but also to the spreading economic ripples of Argentina’s collapse and the refusal of the IMF and the Bush administration to step in to bail out the country. The IMF has plunked down $10 billion in Brazil in recent days to prop up the Real, a reward to the subservient Cardoso administration, but neither the currency nor the stock market in Sao Paulo are stabilizing.  

Marcos Arruda, an economic adviser to the Workers Party and the director of Policy Alternatives for the Southern Cone, a research organization that works with trade unions and cooperatives, puts a positive spin on the economic crisis and the October elections. He believes that a Lula victory could be a “turning point” not only for Brazil but other countries in Latin America. “The ruling coalition finds itself foisted on a neo-liberal petard of its own making,” said Arruda.  “A Brazil headed by President Lula could lead the country out of its economic quagmire, and also serve as a productive and exemplary economic model for other Third World countries caught in the neo-liberal trap.” 


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