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«Elections in Brazil: Lula on his Way to a Second Term Bruno Ayllón and Víctor García Guerrero ∗ Theme: Brazil’s incumbent President, Luis ...»

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Area: Latin America (Translated from Spanish) - ARI 98/2006

Date: 26/9/2006

Elections in Brazil: Lula on his Way to a

Second Term

Bruno Ayllón and Víctor García Guerrero ∗

Theme: Brazil’s incumbent President, Luis Inácio ‘Lula’ da Silva, is the front-running

candidate in the upcoming elections on 1 October. Lula could obtain a new four-year

mandate in the first round of the elections, though he would have to come to agreements

with other political parties to form a parliamentary majority.

Summary: In this October’s elections for Brazil’s president, state governors, deputies and senators, the financial market will not be exerting the kind of pressures seen in the 2002 elections. The current government’s corruption scandals have been assimilated by voters to such an extent by the electorate that President Luis Inácio ‘Lula’ da Silva could win his second term in the first round. However, his party will pay a price for the political crisis, forcing the President to reach agreements with organisations of different political stripes to ensure reasonable control over the next parliament. Lula’s main victories are an acceptable economic situation, oil self-sufficiency and social programmes, while his economic policy will continue on the orthodox path followed these past four years. It is possible, however, that he might focus more on development in an attempt to spur the country’s growth and reduce its huge social disparities.

Analysis: Nearly 126 million Brazilians will be called to vote on 1 October. The world’s third-largest democracy by number of voters will elect a president to govern the country for the next four years. They will also choose 27 state governors and the governor of the Federal District (Brasilia), 513 federal deputies, 1,059 state deputies and a third of the 81 senators who make up the Upper Chamber.

Unlike four years ago, when the Brazilian economy was going through a period of serious instability –uncontrolled inflation, flight of capital and considerable depreciation of the national currency– the situation is very different today. Neither President Lula da Silva nor his Workers Party (PT) are seen as threatening to break with the established economic model. Brazil’s economic underpinnings are also better than in 2002. For example, the São Paulo stock market has been bullish for several months and the real has remained steady and adequately valued versus the US dollar, despite the election campaign.

Country risk, which stood at over 2,400 points before the 2002 elections, is now ten times lower.

What voters expect of these elections is more difficult to quantify. Some figures suggest that voter interest (or lack of interest) is similar to 2002 levels. According to a study by Instituto Datafolha, half the population would abstain from voting if it were not a legal ∗ Bruno Ayllón MEC post-doctoral researcher at the University of São Paulo, Brazil Víctor García Guerrero Master in Mass Communications, University of Leicester, and Brazil correspondent of Radio Nacional and Radio Exterior de España

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obligation. This is the same figure registered four years ago and also during the 1994 and 1998 elections. Only in 1989, when the first direct presidential elections were held after more than two decades of military dictatorship, was a larger percentage of Brazilians (54%) more content with the idea of voting than of not voting.

The reasons for the evident tranquillity of the same financial agents who in 2002 were at the point of leaving Brazil in bankruptcy, have to do with the economic progress and orthodoxy of the Lula government. The promises made in the Carta ao Povo Brasileiro –a campaign document launched four years ago to try to calm those who feared the arrival in power of a government that would supposedly break radically with the past– have been met without exception, essentially as regards the contracts and agreements signed by Brazil with private investors and international lending institutions.

Far from promoting radical changes in the management of the Brazilian economy, the Lula government has exercised greater fiscal restraint than the government of his predecessor, Fernando Henrique Cardoso (1994-98 and 1998-02). On average, Brazil’s three levels of government have stopped spending 4.25% of the country’s annual gross domestic product to pay down the interest on the huge public debt –in the order of €365 billion, or 50.3% of GDP as of July 2006–. The result is that the debt, despite growing in absolute terms, has decreased in terms of GDP from the 57.2% recorded in early 2003. It is worth noting that Brazil’s debt is now internal: the federal government has managed to pay off its obligations to the IMF and has negotiated favourable conditions with its private creditors.

With inflation kept below 4% in 2006, 6 million jobs created in the formal sector, economic growth averaging above 3% over four years, increased international reserves, the virtual write-off of the external public debt and the end of the agreement with the IMF –which is of great symbolic value for a president who once cried ‘IMF go home!’ in the streets–, Lula’s reasonable macroeconomic results stand as one of his main victories, this from the former trade union leader who said he had been left a ‘cursed legacy’, in reference to the difficult conditions he inherited from previous governments.

However, the fact that he achieved these results with an orthodox economic policy similar to the one followed by Cardoso has, at the same time, made his position appear contradictory and has exacted a certain political price. His attempt to reform the social security system in late 2003, based on what some sectors of his party considered neoliberal criteria, led to the expulsion of well-known PT representatives, such as senator Heloísa Helena, now leader of the Socialism and Freedom Party (PSOL) and candidate in the presidential election. Helena is presenting herself to voters on what is considered the traditional PT platform –direct government intervention in the economy, a drastic reduction in interest rates (by government decree) and a break with financial capitalism– which she believes Lula and his government have betrayed.

The other great betrayal by Lula and the PT, in the opinion of their critics on both the left and the right, is not only economic, but also ethical. Scandals involving the illegal financing of political parties, accusations of vote-buying in parliament and cases such as that in which a PT leader was found in São Paulo airport with large bundles of dollars hidden in his underwear, have led some observers to call this the most corrupt period in Brazilian history. Presidential Chief-of-staff José Dirceu and Finance Minister Antonio Palocci each lost their jobs in different scandals. Dirceu was punished with the loss of his seat in parliament and he will not be able to run for any elected office until 2016.

Regardless of whether or not the PT government and its allies are the most corrupt in Brazil’s history, the scandals that have broken since mid-2005 have weakened both the Brazilian executive and Lula himself. The centre-right opposition flirted for months with the

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idea of threatening impeachment proceedings. This was not done due to a more than likely lack of votes in parliament, combined with a lack of popular support for such a drastic initiative –one that has been carried out only once in the country’s recent history, in 1992, against then-President Fernando Collor de Mello, who was accused of corruption–.

The worst moments in the political crisis are now over and the executive has managed to reach the election campaign with higher popularity ratings than ever before in this legislature. Polls show that more than half the population thinks the government is excellent or good. The same percentage say they will vote for Lula on 1 October, which would return him to the presidency in the first round.

Candidates and Programmes Along with the Communist Party of Brazil (PC do B) and the Brazilian Republican Party (PRB), the PT forms the A força do povo coalition. The vice-presidential candidate is Lula’s current second-in-command, the businessman José Alencar (PRB). The Lula government’s programme for 2007-10 focuses on five main areas: (1) fighting social exclusion, poverty and inequality; (2) continuing to develop the new model of development based on growth with more equitable distribution of income and environmental sustainability; (3) good-quality universal education; (4) broadened democracy and political dialogue; and (5) a greater role for Brazil in world events.

There are no important new measures or spectacular promises. The programme is realistic and pragmatic, and continues on the road already taken, giving priority to social programmes and policies. However, in the area of political reform, Lula’s programme does reveal the concerns expressed in political debate. Reform would help fight corruption and would ensure ‘the plurality of parties, party loyalty, public financing of election campaigns and proportional democracy –preferably in pre-established electoral lists–, as well as fomenting the construction of the majorities necessary for governability’ (see Lula presidente. Programa de Governo 2007/2010, p. 12, at http://www.pt.org.br).

In the economic field, the programme pledges to maintain the lines of action that have made it possible to reduce Brazil’s external vulnerability, contain inflation to levels that are historically low for the country and to create –in the opinion both of the government and of international risk classification agencies such as Standard and Poor’s– the conditions for sustainable development. This is the current government’s main election plank in the economic area. Brazil continues to have the world’s highest interest rates, making the cost of money very high and hindering access to credit. A new Lula government, according to its election platform, would continue to promote gradual reductions in interest rates and would encourage measures to make lending cheaper.

The large public debt hinders the state’s investment capacity, which means infrastructures that are generally poorly maintained or insufficient for the challenges facing the country’s growth. During the past government, the PT passed a law by which the state could reach agreements with private companies on investment in highways, ports and the railway system. The first of these PPPs (Parcerias Público Privadas) –practically unheard of in Brazil but used in countries such as the UK– involves the construction of a subway line in São Paulo.

In general, Lula’s programme does not give a clear indication that his government would follow a more orthodox line, but neither does it indicate the opposite. Projected spending in 2007 indicates that since the fall of Antonio Palocci the most monetarist sectors have lost influence in the government while, in contrast, those who favour development first have gained ground. An example of this is that the programme does not discuss central bank autonomy or greater efforts to increase tax collection than those already being made. The programme’s developmentalist character is also reflected in its aim to increase investment in the energy sector and to develop alternative fuels such as biodiesel. During Area: Latin America (Translated from Spanish) - ARI 98/2006 Date: 26/9/2006 Lula’s term in office, Brazil achieved oil self-sufficiency and significant discoveries of crude oil and gas have been made. An issue pending resolution is the conflict with Bolivia over that country’s nationalisation of the oil and gas sector and its consequences on gas prices for Brazilian industry.

A new PT government, according to its platform, would continue to encourage equitable growth in the agribusiness sector –the fundamental part of the export sector– and familyowned farms. Agrarian reform and the redistribution of land to hundreds of thousands of families will continue to be a priority. Organisations such as the Movement of Landless Rural Workers (MST), a traditional ally of the PT, have criticised the government on this issue over the past four years, saying that only tentative steps have been taken and that the government is in fact split: one part of it only cares about profits for big agricultural producers, while another –weaker– part wants to move ahead with agrarian reform.

The growth of agribusiness also raises ecological issues and creates conflict with indigenous peoples. Deforestation of the Amazon, caused by the expansion of livestock operations and agricultural cultivation, has continued unchecked. Ecologist organisations and the Ministry of the Environment have questioned the lack of government capacity to slow down this often uncontrolled expansion. Indigenous organisations have criticised the federal government’s lack of will to defend their rights against the eager expansion of ranchers and big agricultural producers.

Lula also brings to the election the promise of continuing the Bolsa Familia programme –a financial aid package for the poorest families (in exchange for sending their children to school and keeping their vaccination schedule up to date)– which includes the Fome Zero programme. In August 2006, 11 million families received some kind of aid under this programme. This is the same number of families who suffer ‘social vulnerability’ according to the Instituto Brasileiro de Geografia e Estatística (IBGE). The opposition claims that Lula is buying millions of votes with the programme, while the government and the PT consider it to be the main instruments for redistributing money in a country with one of the most disparate levels of wealth in the world.

The main opposition candidate, Geraldo Alckmin of the PSDB, has criticised Lula’s programme, which he accuses of being ‘empty, rhetorical, vague and hollow’, an exercise in wishful thinking and a catalogue of good intentions, but with no explanation, for example, of where the revenue will come from for the sectoral funds promised for infrastructure or industry, or what measures will guarantee that the private investment rate reaches 25%, up from roughly 20% today.

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