November 01, 2002|By Jerry Haar and Jeffrey Stark
MIAMI -- The administration of Brazilian President-elect Luiz Inacio Lula da Silva will be the most closely watched to date as a case of whether Latin American democracies can combat socioeconomic injustice and simultaneously pursue global competitiveness.
Financial markets have accelerated downward ever since opinion polls reported that Mr. da Silva was pulling significantly ahead of the other candidates in Sunday's election. Investors, already wary that Brazil's growing debt burden could lead to a default similar to neighboring Argentina's, took no solace in Mr. da Silva's attacks on banks and currency market traders as perpetrators of "economic terrorism" and his promise to perform "major surgery" on South America's largest economy.
Yet Mr. da Silva has traveled several times to New York to alleviate the concerns of the investment community and made it clear in an open letter in June that his Workers Party government would honor all of its international commitments.
Only time will tell whether Mr. da Silva is an unreformed socialist or a European-style social democrat. What is inarguable, however, is that the first major challenge confronting his administration in January will be one of rescuing and resuscitating the Brazilian economy.
Saddled with $300 billion in public sector debt and a sinking currency, Brazil's economic situation is precarious.
For Mr. da Silva to turn around the ship of state, he must act swiftly to assuage investor anxieties and achieve progress toward economic growth with social justice. Ironically, that will mean recasting or applying reformist touches to many of the same economic policy prescriptions he criticized during his candidacy.
His economic team must be committed to monetary and fiscal prudence, and despite likely protests from his core supporters -- unionized workers and civil servants -- he must extensively overhaul the costly and inefficient public pension system.
Mr. da Silva will have to revisit trade policy if he is intent on jump-starting the economy and creating more jobs. Brazil has one of world's lowest ratios of exports as a percentage of gross domestic product -- 10 percent.While Brazil is highly competitive in its exports of aircraft, steel, autos, pulp and paper and textiles, not to mention commodities, it could do much more.
Mr. da Silva has criticized the proposed Free Trade Area of the Americas (FTAA) as an "annexation of Latin America by the U.S." But while trade liberalization by itself is not a development strategy, the FTAA could serve as a catalyst that would give Brazil's growth rate a much-needed boost.
Social policy is another area in which Mr. da Silva's presidency will be tested. More than 50 million Brazilians remain poor, income distribution in Brazil is one of the world's worst, urban unemployment is approaching 20 percent and wages are falling.
As a union leader, Mr. da Silva is savvy enough to know that only by working with, not against, the private sector can he hope to make progress in attacking these deep-seated, structural problems.
Finally, sustained economic recovery will also require an unprecedented effort by the new administration to root out crime and corruption and aggressively take on the drug lords who have turned the country's big cities and prisons into violent fiefdoms. About 40 residential districts of Rio de Janeiro were shut down the last week of September when a powerful criminal gang ordered stores and schools to close to protest the treatment of their incarcerated leader, a notorious drug lord.
One of Mr. da Silva's biggest assets is a political party with a national base and a reputation for clean and effective government at the state and municipal levels. But the Workers Party will hold fewer than one-fifth of the seats in the lower house of Congress. Cobbling together a majority will require not only support from allied parties on the left and center-left but also voters from parties in the opposition during the campaign.
The irony of Mr. da Silva's victory is that, regardless of campaign rhetoric fraught with mixed messages, the realities of political fragmentation, economic constraints and international pressure will force him toward the political center.
"A country without a strategy will go nowhere," he told a news conference Sept. 30.
To be meaningful, that strategy must combine social justice with economic responsibility, an unenviable tightrope walk. Mr. da Silva will have to choose wisely each and every step of the way.
Jerry Haar is director of the Inter-American Business and Labor Program at the Dante B. Fascell North-South Center, University of Miami. Jeffrey Stark is director of research and studies at the center.
