Snatching defeat from the jaws of victory? Lula, the 'losers' alliance', and the prospects for change in Brazil (1).

Author:Morais, Lecio
Position:Behind The News 3

The Brazilian Workers' Party (PT) won a resounding victory in the presidential elections in October 2002. Its candidate, Luis Inacio Lula da Silva (Lula) received 40m votes (46.4%) in the first round, and 53m (61.3%) in the second round of the elections. His nearest rival, Jose Serra, a former minister in F.H. Cardoso's administration (1994-2002), was beaten by 20m votes in both rounds. (2)

The new president, a former lathe operator and trade union leader, commands nearly universal appreciation. He has been feted by the international left as well as the US government, the IMF and the World Bank, and he is probably the only person ever to be cheered both in the Davos World Economic Forum and the Porto Alegre World Social Forum. This can be explained by Lula's impeccable leftist credentials and personal integrity, and by his adoption of a thoroughly neo-liberal economic programme. This article examines the reasons for continuity and the scope for change during the new administration.

Neo-liberalism in the 1990s

Since the late 1980s successive Brazilian administrations have followed the standard neo-liberal-globalist policy menu. These policies included financial, trade and capital account liberalisation, large-scale privatisations, economic deregulation and monetary stabilisation though the 1994 Real plan. (3) Brazilian neo-liberalism is peculiar only because of its relative lateness and gradualism. This was partly due to Brazil's protracted transition to democracy, stretching between the mid-1970s and the late 1980s, and partly due to the political resistance against the neo-liberal reforms.

Brazil liberalised its trade and capital accounts of the balance of payments only during the nineties. When the first stage of the reforms was finally completed, in 1994, the international environment was already much more hostile than in the earlier period. The Russian crisis of 1998 was especially damaging, having triggered capital outflows leading to an unsustainable balance of payments deficit (US$46.5 billion between the third quarter of 1998 and the first quarter of 1999). In order to defend the currency, the Real, the Brazilian government negotiated with the IMF and the G7 a rescue package worth US$41.3 billion. However, these loans were insufficient and, in January 1999, government support for the Real was abandoned. The currency immediately sank by 40 per cent (see Morais, Saad-Filho and Coelho 1999).

After the crisis, Brazilian economic policy shifted towards a combination of inflation targets, primary fiscal surpluses (in order to service the domestic public debt) and lower real interest rates. These changes were insufficient to restore economic growth. Between 1990 and 2002, annual average GDP growth rates were only 1.7 per cent, significantly below the growth rates of the so-called 'lost decade', the 1980s. This declining trend persists. In the meantime, the foreign debt has doubled to US$240 billion, the productive and financial sectors were largely denationalised, most state-owned enterprises were sold off at bargain basement prices, and the domestic public debt has increased from below 30 per cent of GDP to over 60 per cent. Finally, the concentration of income and wealth has remained unchanged.

Neo-liberalism, the currency crisis And exchange rate instability have triggered substantial changes in the Brazilian productive sector. Manufacturing industry, previously relatively well integrated through import-substituting industrialisation, has been fragmented and hollowed out, and key industries were absorbed by transnational capital (see Saad-Filho and Morais 2000, pp. 14-18). As a result, industry has become increasingly dependent on foreign suppliers and markets, and strategic planning has been subordinated to the global strategy of the parent companies. Finally, privatisation, often to foreign bidders, has reduced state capacity to influence industrial development, and the composition of the output. World-com, Bell South, Telefonica, Portugal Telecom and Telecom Italia have purchased parts of Embratel, the former state monopoly; Enron, AES, El Paso, Duke Energy, Iberdrola, EDF and EDP have swallowed pieces of the electricity generation and distribution systems, and HSBC, ABN-Amro, BBV and Santander have moved into the banking and financial sectors largely through their purchases of state-owned banks.

The domestic and foreign financial institutions have seized the co-ordinating and allocative roles of the state...

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