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Lula and Brazil: new beginning or dead end?

Arthur Ituassu
18 May 2005

The most recent polls on the Brazilian president, Luiz Inácio Lula da Silva, and his government show that ratings are falling – and quickly. In one of them (CNT/Sensus), Lula’s approval rating fell from 66% to 60% between February and April while his negative rating rose from 26% to 29%. A 60% popularity is certainly still high but Lula undoubtedly recalls that in January 2003 a staggering 83% of the Brazilian population thought well of him.

Since Lula’s election in October 2002, the approval ratings of the government have been worse than those of the president. Government approval has been close to 40% since the beginning of the year and disapproval rose from 13% to 16% in April. In fact, if one asks Brazilians who they are going to vote for in the 2006 presidential election, the chance of hearing a “don’t know” is close to 65%, despite the fact that Lula is certainly planning to run again.

For Brazil’s political analysts, the game is to work out why discontent with such a charismatic president is growing. Lula is Brazilian democracy’s star. With no university degree, the former factory worker was elected in 2002 after three unsuccessful attempts (1989, 1994 and 1998) and more than a decade of challenging military rule (1964-1985) as leader of a labour union, which later transformed itself into the Workers’ Party, Partido dos Trabalhadores (PT).

There are two factors that help to understand what is happening. The first concerns the expectations of the people. With the guiding theme “not afraid to be happy”, Lula and the PT came to express the desire for change in Brazilian politics, a mirror for the hopes of the common man and woman. Their platform expressed the citizen’s dreams of a better life: more money, more schools, better health, more security, jobs and justice – nothing less than the transformation of politics (finally) by virtue.

The second factor situates the first in the crossroads of history, and concerns the capacity of the Brazilian state as presently organised to fulfil its basic obligations and address the demands of the people.

From 1995 to 2004, a timespan that includes the first two years of Lula’s presidency, four major accounts have determined government expenditure in Brazil: interest rates; pensions; bureaucratic salaries and current spending of the federal (so-called public) sector.

Interest rates have been at the centre of the Brazilian political debate. Last month, impatient with his critics, Lula told people to look for lower interest rates, even though he knew they would only find them outside the borders of Brazil.

Under the stewardship of Lula’s finance minister, Antonio Palocci, interest rates have climbed as high as 19.5% a year (without discounting inflation) and have averaged 14.2% in real terms in the last ten years. This is the price Brazilian society pays for stabilising the economy from 1994-2002, when stopping inflation had consequences for public sector finances at all levels.

The then president, Fernando Henrique Cardoso, had to reorganise those public and private banks which lived on the fall of the value of money. He had also to acknowledge some debts that had been hidden (the esqueletos). Those actions and others built the basis for stability but also elevated the public debt and consequently the interest rates paid by the Brazilian government.

There is great public concern about interest rates and a Brazilian federal government debt of R$ 727.5 billion (reais). The current spending of the federal public sector (which includes even the famous cafezinho) reached R$ 2.78 trillions from 1995 to 2004. The salaries of the bureaucracy cost R$ 1.07 trillion and pensions amounted to R$ 1.2 trillion in the same period. (the real is currently valued at around 2.44 to the United States dollar).

All four accounts add up to R$ 5.78 trillion in the last ten years, six times bigger than the R$ 884 billion invested in health, education, social security and infrastructure together. In the same period, the (so called) public sector investment as a proportion of the federal budget amounted to 0.49% in security, 5.85% in health and 6.67% in education, these last two thanks to a law that obliges the government to spend a certain amount in both areas.

Even the outlays on pensions and education are far from genuine public expenditure, since only those people who work for the state (including judges and senators) retire on full salaries and government investment in education basically goes to the federal universities, which are free for the best students of the country who were mostly educated, in turn, in expensive private schools.

In two and a half years Lula has not touched any of these problems. Cardoso, by contrast, cut federal spending on salaries from R$ 114.32 billion to R$ 94.26 billion during his last year in government. At the end of the first year of the PT’s presidency in Brasilia it had risen to R$ 99.81 billion.

Since Lula needed to spend more, he tried recently to raise taxes, which now account for 40% of the GDP. Worse, he used a political mechanism that he had condemned for years – the Medida Provisória (provisional measure), an anachronistic device that allows the executive to pass a law without the approval of congress. Brazilian society reacted and the president was forced to retreat.

Lula is now in a dilemma. He is the incarnation of the hope for a happy society: free, prosperous and equal. But the president and his party have always defended the status quo that resulted from the historical process of industrialisation in Brazil, the same process that created a strong country but generated the most unequal distribution of income after Namibia, Lesotho and Sierra Leone.

According to the United Nations, the richest 10% in the country receive 46.7% of the earnings, while the poorest 10% people get only 0.5%.

Historically, Lula always defended laws that protected workers and took a protectionist approach towards international trade. His party supported state direction of the economy, opposed privatisations and supported the nationalisation of the nuclear and energy sector. Equally it favoured the public sector bureaucracy and defended the federal universities, some of which have bigger budgets than some Brazilian provinces.

Lula has not yet decided if he wants to be who he always was or something different. Nobody even knows if he can be something different and even small movements towards difference quickly provoke questions of accountability. But whatever Lula wants, one thing is undeniable: Brazil certainly wants to be different.

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