Lula Watch: Focusing on Latin America’s New “Axis of Evil” – Vol. I – No. 11

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Just over six months into the new administration, the Brazilian political scene is marked by debates on social security and tax reforms.

According to dependable indicators and trusted analysts, the Brazilian economy is going through a period of stagnation. Controversy surrounds the economic model adopted by the Lula government, particularly among political and intellectual circles linked with the Workers’ Party. Once again, Lula has asked for patience.

This is only one aspect of the profound debate on ideology and tactics that rages in Workers’ Party ranks about the direction to be followed by President Lula. While some clamor for a clearly revolutionary socialist rupture, the leadership appears to bet on a system of reform and political alliances, keeping the country’s economic and political stability.

The Lula administration mirrors these dilemmas and internecine disputes and continues to display strong ambiguities in its governance.

1. Opposition to social security reform
Since his inauguration in January 2003, Lula promised to carry out what he considered the most urgent reforms: Social security and tax reform. The PT has systematically opposed these reforms for eight years. However only by successfully implementing these reforms can the new government gain credibility domestically and abroad.

The social security reform project introduced by the Lula government has met considerable opposition. Members of the Armed Forces and the Judiciary branch were the first to protest. State employees in Brazil have a special retirement package, which this reform would target.

The government met the demands of the Armed Forces. However, opposition within the Judiciary is intensifying over the last couple of weeks.

Judges all over the country gathered in Brasilia to define a common position on the government’s proposal. The meeting was called by the president of the Supreme Federal Tribunal (STF), Justice Maurício Corrêa, who had strongly criticized the reform during President Lula’s inauguration ceremony.

“Representatives of all segments of the Judiciary have decided to pressure the government to create a special retirement package like the military’s . . . it was the first time that presiding judges from all of the country’s state and federal courts and leaders of judges’ associations have met to define a common position to defend their own rights” (Silva de Freitas, “Juízes se unem por regime de aposentadoria exclusivo,” Folha de S. Paulo, 6/18/2003).

Furthermore, “thousands of federal and state judges, attorneys-general and prosecutors staged protests in the country’s main cities in the largest mobilization ever undertaken by employees of the justice system” (“Juízes e procuradores fazem ato contra reforma e já falam em greve,” O Estado de S. Paulo, 6/17/2003).

The recently-appointed Attorney General also defended the Judiciary’s special retirement package.

While several important persons in judicial circles have criticized the social security reform plan and the government, the tone of criticisms has now become much sharper. “Some went so far as to compare Lula’s government with the dictatorships of Adolph Hitler and Vladimir Lenin.”

“Federal and state judges, who earlier limited themselves to making moderate analyses of technical aspects of the reform bill and defending the constitutionality of their prerogatives and rights as judges, have now decided to adopt a more aggressive tactic by making serious accusations never before leveled against any administration” (Fausto Macedo, “Juízes sobem o tom e dizem que mudar regras é ‘canalhice,’” O Estado de S. Paulo, 6/20/2003).

The attorney general of the State of São Paulo, Luiz Antonio Marrey, said the proposed changes “lead to ominous results in terms of recruiting the best talent” and warned that “one must not amputate constitutional rights with the sole aim of becoming attractive to the markets, particularly the financial market.”

“Federal judge Marcos Orione, a specialist in social security law, affirmed that ‘this government is mendacious, treacherous’ …

“Presidents of judges’ and prosecutors’ organizations went to STF [the Supreme Federal Tribunal] and the General Prosecutor’s Office to deliver a letter criticizing the projected bill.’ The weakening of these institutions can gravely undermine the rule of law’” (“Juízes e procuradores fazem ato contra reforma e já falam em greve, O Estado de S. Paulo,” 6/17/2003).

The president of the State of Rio de Janeiro Justice Court also criticized the projected bill: “They want to stifle those who have acquired rights and transform the Judiciary branch into a mere section of the Executive branch” (“Não sei cortar cana e eles não sabem julgar,” O Estado de S. Paulo, 6/19/2003).

During a protest, the president of the Sao Paulo Association of Magistrates, Justice Renzo Leonardi, stated: “I do not want to leave this country to my grandchildren under a new dictatorship. Those with memory will remember; those born later can do some reading. From the onset, Hitler emasculated Germany’s Judiciary branch and turned himself into the beast of which the Apocalypse speaks” (Fausto Macedo, “Juízes sobem o tom e dizem que mudar regras é ‘canalhice,’” O Estado de S. Paulo, 6/20/2003).

The government also had to face a demonstration of 25,000 public employees in Brasilia, most of them government grassroots, against the reform:

“For the first time, the PT in power has faced the existential crisis of being government without losing the quirks of the opposition. The conflict has directly affected the Party’s caucus in Congress, divided between loyalty to Planalto [the Presidential Palace], which demands that the reform be approved in its entirety, and fidelity to public workers’ unions linked with PT and opposed to changes in the retirement package” (Leonel Rocha e Luiz Cláudio Cunha, “O trator e o atropelado,” Isto É, 6/18/2003).

2. Tax reform
With a tax burden that reached 41% of GDP in the first quarter, there is widespread support for tax reform and a drastic reduction in taxes to jumpstart economic development and promote the country’s integration into the international community.

However, people are frustrated by Lula’s tax reform since it increases taxes even further.

In an article in Época magazine, Senator Tasso Jereissati of PSDB (party of ex-President Fernando Henrique Cardoso), and a former governor of the State of Ceará, says:

“The tax reform proposed by the government can generate huge frustration by not eliminating the distortions caused by the present system . . .

“A point that stands out in the proposal is the apparent maintenance and probable increase of the tax burden. . .

“In fact, one sees the government is concerned only with collecting taxes and has no intention of carrying out a real reform in which the tax system would at least stop being an obstacle to the economy’s efficiency and growth. This is dangerous. The government’s myopia can lead to frustration in society” (“A ousadia necessária,” 6/16/2003).

On the necessary tax adjustment undertaken by the present economic team, economist José Roberto Mendonça de Barros, a former head of the Chamber of Foreign Commerce and secretary of Economic Policy during the first mandate of President Fernando Henrique Cardoso, warns:

“The tax adjustment creates a problem that is now becoming clear and has to do with the resumption of growth. It is not true that the tax adjustment is being done by cutting expenditures, as has been claimed. There is a strong increase in taxation. On whom? Basically, on the poor and the middle class” (Interview with Primeira Leitura, June 2003).

Horácio Lafer Piva, president of the important Federation of Industries of the State of São Paulo (FIESP), “strongly criticized the government’s intention to make permanent the Provisional Tax on Financial Movement (CPMF). ‘CPMF is a worthless tax that harms production, capital formation and salaries,’ he said” (Rita Tavares, “’A CPMF é um imposto vagabundo,’ diz Piva,” O Estado de S. Paulo, 6/14/2003).

3. Criticism by ex-President Cardoso
Along with the debate on reform, the Brazilian political scene has been recently marked by an important episode: a return of former President Fernando Henrique Cardoso to the public arena.

After keeping for a few months a position of discretion about the Lula administration, the ex-President, in a long interview published in the official site of his party, the PSDB (Party of Brazilian Social Democracy), “lambasted high interest rates, criticized points of the social security and tax reforms, poured irony on the 1% pay increase given state employees, and condemned the alliances PT cobbled together in Congress” (Leandro Loyola, “FHC desce do muro,” Época, 6/23/2003).

Fernando Henrique also said the PT “has done nothing so far,” “only manifested intentions,” and is trying to gain credibility by “saying the opposite of what they’ve always said.”

He also stated President Lula’s Workers’ Party is trying to overcome persistent suspicions: “The PT government is trying to correct the effect of the election campaign in that the worsening economic indicators are a consequence of the irresponsible proposals they’ve preached in Brazil over a number of years” (Christiane Samarco, “FHC endurece o tom e critica ´exagero´ do aperto econômico,” O Estado de S. Paulo, 6/17/2003).

According to the press, President Lula responded to such criticisms in an aggressive, inflamed and even testy manner, full of populist overtones. His answer came during a public speech in Rio Grande do Sul during which he was booed by public employees protesting social security reform.

“Lula used the first podium on which he spoke, at a confectioners’ convention, to let off steam in a way the likes of which had not been seen on TV news for a long time from a sitting President.

“He lost his temper and criticized university professors and intellectuals, shouting proudly that he knows neither English nor Spanish.

“Like a revolted fundamentalist, the President entrenched himself in his poor origins and gave free rein to repressed hatred . . .

“Right behind him, some watching this scene with apparent incredulity and others with fear, stood ministers and state governors. Facing him, or better, watching the television screens, the reaction of the citizenry must not have been much different” (Nelson de Sá, “De cima a baixo,” Folha de S. Paulo, 6/18/2003).

In an editorial, the newspaper O Estado de S. Paulo referred to President Lula’s “platform hubris” and messianic tone.

For its part, an editorial in the newspaper Folha de S. Paulo commented:
“Independently of any judgment on the style of the president’s speeches, they stand out not only by their frequency but also by the fact that they are starting to frontally contradict reality” . . .

“There is a risk that a vacuum of more substantial results be gradually filled with a kind of oratory more and more prone to resort to populist mystification” (“Espetáculo da retórica,” 6/20/2003).

4. The economic situation
Following a so-called market-orthodox economic policy, the government economic team has presented microeconomic results hailed as positive: a stronger exchange rate, balance of payments, and primary surplus.

Some specialists in the economic area affirm, however, that such results should not be celebrated in an environment of reduced retail and wholesale sales, a drop in production and an increase in corporate bankruptcies.

Economic indicators appear to reveal a situation that has led specialized agencies such as the Institute of Studies for Industrial Development (IEDI) to speak of recession. Others even fear a collapse of the Brazil’s real currency unit.

According to the media, some important entrepreneurs admit they are worried or disappointed with the Lula government; others even show revolt. They are apprehensive at seeing the recession deepening every passing month while no hint of any action to rekindle economic activity is in sight.

Economist José Roberto Mendonça de Barros “calls attention to the fact that investment is very weak this year. The import of capital goods has dropped by 30% since the beginning of the year; domestic output grew a meager 0.5% . . . In other words, we are farther than ever from a resumption of investment. . .

“According to official estimates, the so-called indirect foreign investment is on a lower level . . . But apart from that, what really catches one’s attention is disinvestment properly speaking. In the real economy I see a considerable number of companies that have either left the country, are leaving, or have decided to leave. . . This is true in the areas of electric power, telecommunications, banking, and oil exploration” (Interview with Primeira Leitura, June 2003).

In an extensive report by Adriana Wilner, the magazine Carta Capital informs:
“According to data issued by the Brazilian Institute of Geography and Statistics (IBGE), production in general has dropped in 14 of the 20 sectors surveyed. Even essential goods have felt the crunch. In the foodstuffs industry, for example, the drop was 5.7%. Production of shoes and clothing dropped by 27.7%

“The production of durable goods was even more affected: it dropped by 13.6%… These figures are consistent with those in employment and income. In April a worker’s income dropped by 7.7% in comparison with the same month last year.

“`We are entering a high-risk environment,’ says Antoninho Marmo Trevisan, a member of the Council for Economic and Social Development and of the Committee of Public Ethics, recently setup by Lula. . .

“The BNDES [National Bank for Economic and Social Development] has encouraged investors to request financing to build new production units, but few had dared do so for now. . .

“A good part of industrialists has no intention of drawing money from their pockets as long as economic policies remain unchanged. . .

“For this year, the ABIB [Brazilian Association of Basic Industry] forecasts a 15% drop in previously anticipated orders. Those anticipated figures, by the way, were already 10% below last year’s levels” (“Uma panela de pressão,” 6/18/2003).

5. Contesting the current economic model
The above-described economic situation has given rise to a quickly spreading debate about which economic model the PT administration should adopt.

“The 25 presidents of Regional Economic Councils and the general directorate of that organization issued a note asking for a sharp reduction in interest rates and `forsaking the practices of market economy fundamentalism’ that are being reinforced in the Luiz Inácio Lula da Silva administration. . .

“The document, delivered to government representatives on Friday, adds to mounting pressures to have economic policies changed” (Conrado Corsalette, “Economistas pedem redução dos juros,” O Estado de S. Paulo, 6/17/2003).

However, the strongest challenge comes from circles very close to the government. In a position paper titled “Forbidden Agenda,” a group of 50 economists, most linked with the PT, accused the government of having adhered to so-called neo-liberalism and the “nonsense of market totalitarianism.”

The manifesto (issued with 299 signatures) asks for a radical change in economic rules and proposes controlling the flow of foreign capital, managing exchange rates so as to favor exports, increasing public spending, reducing the primary surplus and significantly cutting the basic interest rate.

At least 17 economists who help manage the BNDE banking institution have also signed the document. The BNDES, responsible for government loans, answers to the Ministry of Development. Many of the signatories are linked with the economic current followed by BNDES President Carlos Lessa.

Economists close to the present Minister of the Treasury, Antônio Palocci, see the economic recipe contained in “Forbidden Agenda” as a fast route to economic disaster.

In turn, critics of the Lula administration’s economic policy warn that the country risks sinking into “economic Stalinism.”

The release of this document, signed by economists very close to, or even part of President Lula’s party (including some who actually prepared the various economic programs on which PT disputed the elections) raise new doubts on whether the government will finally cave in and change its economic policy. This is all the more true since in many government circles there is talk – not always in very clear terms — about the beginning of a second phase in the administration.

This uncertainty clearly is one of the reasons why financial markets are still somewhat leery about Brazil.

6. Uncertain directions
The controversy about the economic model is only one aspect of the profound debate on ideology and tactics that is rife in PT ranks: while some clamor for a clearly revolutionary socialist rupture, the party leadership appears to bet on a system of reform and political alliances, keeping the country’s economic and political stability.

To win the elections Lula had to put together alliances and sweeten many of his positions: “The Lula government was inaugurated with the burden of proving that they did not ‘eat babies’ and would not ‘burn down the circus’ by resurrecting outmoded statist practices” (Ramiro Alves, “A hora de ser vidraça,” Isto É, 6/18/2003).

After his victory, Lula said that “hope had overcome fear.” However, “[that] fear was actually the PT’s demagogic and revolutionary proposals it has made throughout its history but had yet to be tested on a national level,” notes with precision Denis Lerrer Rosenfield, professor of philosophy at the University of Rio Grande do Sul, in an article published in the important newspaper O Estado de S. Paulo, (“Esquerda?”, 6/16/2003).

For this reason, Lula only gains public confidence, both domestically and abroad, to the degree he stays away from the old socialistic discourse of breaking with international financial institutions, increasing state control of the economy and waging war on free enterprise.

However after his rise to power, the so-called PT radicals and those who sympathize with his positions, without endorsing all his opinions, are demanding that Lula be consistent with the Workers Party’s longstanding leftist orientation.

Ever increasing pressures led PT national president, José Genoino, to say that “the Lula government is not a transition to socialism. We are not making a government of confrontation or revolutionary rupture.” “Our government is one of gradual and progressive changes and reforms within the economic order in which Brazil is inserted” (Alexandra Penhalver, “Governo Lula não é transição para o socialismo,” O Estado de S. Paulo, 6/15/2003).

Nevertheless, some see this ideological change by Lula and the party as ambiguous, since the radicals are given space to maneuver inside the government. Just look at the ample connivance, extensively reported in the press, of land reform minister Miguel Rossetto with the violent, illegal and subversive actions of MST or Landless Movement. Such actions, incidentally, are reaching alarming proportions. The PT government foments instability in rural areas by allowing and even instigating invasions of private lands.

In view of this murky equilibrium of forces inside PT ranks, the dangers of an about-face have been clearly pointed out: “If, however, the resolve of President Lula and his main equerries is insufficient to have the reforms adequately approved, and if these reforms, as a certain wing of PT wants, are subjected to changes in central and crucial points of the texts being discussed, then things can change rapidly. The markets will not passively accept the new reality” (Alcides Amaral, “Os riscos do retrocesso,” O Estado de S. Paulo, 6/16/2003).

The controversy plaguing PT ranks and contradictions in Lula government practices, now signaling an abandonment of their longstanding ideals only to embrace them once again a little later, inevitably raises the question of what the present ideological orientation of the Party really is.

The above-mentioned professor Denis Rosenfield observes:

“Confronted with the imperious need to govern, PT has shown itself without ideas and being forced to abandon everything it had said since its foundation. Disoriented, the party adopted the economic policy of the FHC [Fernando Henrique Cardoso] administration. . . Buried in its past was the support it continues to give to a revolutionary movement such as MST, its anti-American position and friendly nods to Cuba and Chávez. . .

“The ideological quake undergone by PT and now affecting public opinion consists in that the party continues to orient itself, on the level of ideas, by a practice that bids goodbye to its historic positions without clearly saying what its new positions are. . .

“Even as it looks at the present, PT continues to refer to its past, maintaining the ambiguity of a not-yet-totally-consummated conversion” (“Esquerda?”, O Estado de S. Paulo, 6/16/2003).


That concludes this issue of LulaWatch. Until next time,

Sincerely yours,

C. Preston Noell III

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