by John Fitzpatrick

For better or worse, Brazil can now look forward to four more years with Luis Inacio Lula da Silva as its president. Lula´s overwhelming victory, in the face of hard evidence that the Workers Party (PT) he founded was mired in corrupt practices from day one of his administration, must seem astonishing to foreign observers. However, Brazilian voters are not idealistic and do not expect their political masters to be saints. They know that corruption is endemic and it will take more than one man or one party to end it. Lula won because he convinced most voters that he would serve their interests. Over the years, Lula has changed from a fiery trade union leader to a familiar avuncular figure to a huge section of the population. The main question now is whether he will use his second mandate to concentrate more on social policies at the risk of the economic stability which has marked his first term of office. 

Even before voting had ended, one of Lula´s top ministers, Tarso Genro, announced the end of the “Palocci era”, a reference to former finance minister, Antonio Palocci, whose stewardship of the economy won him many friends in business and many enemies in the PT and the government in general. Two other heavyweights – Lula´s chief of staff, Dilma Rousseff, and the PT president, Marco Aurelio Garcia – made similar comments later in the day and said it was now time to pursue economic development. Reports in the press claim that the Central Bank, which currently enjoys virtual independence, will be brought back under political control. This would mean that the next chairman of the Central Bank would be subordinate to the finance minister. The current chairman, Henrique Meirelles, reports directly to Lula and not to the finance minister, Guido Mantega. Meirelles is unlikely to stay on should his status change.

Observers here believe Mantega has a strong chance of remaining as finance minister in Lula´s next administration. Mantega was often critical of Palocci´s policies and is likely to want to make changes to the economic policy.

There are certainly lots of changes which need to be made, such as tackling the huge deficit caused by the public employee pension scheme, interest rates which are among the highest in the world, an exchange rate which is hitting some sectors while benefiting others, and an inefficient and unfair tax system. It is doubtful whether Mantega is the kind of person who would attempt to tackle issues like this. He simply does not have the conviction or strength of Palocci and is more likely to become a “yes man” for a powerful minister like Rousseff who represents the old-style PT. This wing is in favor of a state intervention in the economy, government spending rather than saving, and is distrustful of the free market, multilateral institutions like the IMF, and anything to do with the United States.

However, at the end of the day it is Lula who makes the decisions and, so far, he has shown no desire to rock the boat. Like everyone of his generation, he still recalls those terrible days when inflation was rampant. Inflation hit the working and middle classes most and was finally defeated by the Real Plan introduced by former President Fernando Henrique Cardoso in 1994 when he was finance minister in the Itamar Franco administration. For the last decade Brazil´s economic policy has focused on keeping inflation at bay. The main instrument to achieve this has been by keeping consumer demand from overheating through high interest rates. An inflation targeting system was introduced in 1999 and Lula has shown no desire to scrap it. The main problem is that this defeat of inflation has not been balanced by strong economic growth and Brazil has lagged behind other developing countries.

There has always been an influential circle within the PT which believed that the monetary policy could be relaxed and bring greater growth, even at the risk of higher inflation. The comments by Genro and Roussef show that this group feels it is time to raise this question once again and push for a change in policy. My belief is that Lula will be very cautious about accepting this kind of pressure. He has shown himself to be his own man and taken some very tough decisions over the last few years. These have included getting rid of trusty advisers, such as Palocci, and his former chief of staff, Jose Dirceu. I believe it is too early to state that the kind of change Genro and Roussef want is on the political agenda. Lula is unlikely to do anything which could reduce the value of people´s incomes and change a system which, while far from perfect, has worked over the last 10 years.  

As for the losing candidate, Geraldo Alckmin, the question is whether he has become a player on the national stage or will go back to being a regional player in São Paulo. It is doubtful if the PSDB will choose him as its candidate in four years´ time, especially as it has two ambitious potential candidates in the wings - Jose Serra and Aecio Neves, the governors of São Paulo and Minas Gerais respectively. However, Alckmin has gained much experience from this campaign and may feel he deserves a second chance. He showed resolve in beating Serra to become candidate and he gave Lula a tough time in the televised debates.

In fact, much of the blame for his failure should be laid at the feet of his PSDB colleagues who did little to help him. Former president Cardoso made a few interventions but these caused more harm than good and, instead of being an asset, he almost became a liability. Serra kept a low profile while Neves, although openly supporting Alckmin, kept his lines open to Lula and the government. It was a sorry affair – a candidate who was let down by his party.
© John Fitzpatrick 2006