[A-List] Brazil: Lula good for capital?

["Keaney Michael" <Michael.Keaney@xxxxxx>]

Lula falls foul of a foreign fantasy
By Kenneth Maxwell
Financial Times: September 27 2002

In Latin America "magical realism" has faded as a literary fad. But when
it comes to Brazil, fanstasy reigns supreme within the International
Monetary Fund and on Wall Street. How else can you explain the
demonisation of Luiz Inácio Lula da Silva, presidential candidate of
the Workers' party, or the ridiculous, "Lula-meter" invented by Goldman
Sachs last June to predict the value of the Brazilian currency against
his standing in the public opinion polls.

The "Lula-meter" was thankfully locked away from public view. But
wherever it is, it must be ticking away furiously. With barely a week to
go to the first round of the Brazilian election, Mr da Silva is in
striking distance of an outright victory. José Serra, the government
candidate, who remains Wall Street's favourite, languishes a full 25
points behind Mr da Silva in the polls. And Anthony Garotinho, the
former governor of Rio de Janeiro, is chipping away at Mr Serra's chance
of even reaching the second round.

Mr Serra has run a negative campaign. This has done little to improve
his standing so far, but it did succeed in eliminating two of his main
rivals. If Mr Serra makes it to a second round, he will try to destroy
Mr da Silva's image as an affable moderate by running television clips
of the "old" radical in meetings with Hugo Chávez, the volatile
Venezuelan president, and with Fidel Castro, the Cuban leader.

But the red flags and red stars of Mr da Silva's Workers' party
notwithstanding, someone should tell Wall Street and the IMF that the
cold war is long over. In fact, they should pray that Mr da Silva gains
an outright victory next Sunday. With the real in free fall, the last
thing Brazil and the international financial system needs is a
scorched-earth campaign stretching to a second-round vote on October 27.
It is hardly something the IMF, with its $30bn Brazil bailout package at
stake, should be hoping for.

Solid public support is critical for any Brazilian president, and a
relentlessly negative campaign will only weaken the capacity of either
candidate to govern effectively in 2003. The truth is that Brazil's
current vulnerability has been created under IMF guidance. Risk premiums
were bound to rise at a time of electoral uncertainty, increasing risk
aversion among investors and a weaker global economy.

Under these circumstances, interest payments tied to the value of the
real or indexed to the dollar were bound to be difficult to bear
regardless of whether Brazil maintained a primary budget surplus of 3.75
per cent. To blame all this on Mr da Silva is ludicrous.

Mr da Silva has run for the presidency four times. He has learned from
past failures, as has the Workers' party (PT). The PT has used the past
decade to modernise its ideology and move towards the political centre.
For 20 years, party members have been elected to the state and local
offices. They know that efficient and honest administration is more
important than strident partisanship. The PT has quietly formed
alliances with other parties and during the campaign has reassured the
military.

It has maintained an open link to President Fernando Henrique Cardoso.
If Mr da Silva does win in the first round, Mr Cardoso is likely to
ensure a smooth transition and to work with him to deal with the
financial crisis. It is very much in Mr Cardoso's interests to do so
since he does not want to step down from office in the midst of an
economic meltdown, with his reputation as a statesman destroyed. A da
Silva presidency can also expect more or less the same support from a
solid centre-left coalition in Congress as a Serra presidency. Wall
Street analysts and IMF bureaucrats should leave Brazilian politics to
its 115m voters and stop confusing fact and fantasy.

The writer is director of the Latin America programme at the Council on
Foreign Relations.