www.infobrazil.com by Alcides Ferreira          Feb 01 - 07, 2003

President Luiz Inácio Lula da Silva's honeymoon with the public is sweet. His political support among Brazilian voters, according to the latest surveys, is still at record high levels. And, as is usually the case following elections in Brazil, congressmen run to the parties that side with the high-flying Lula and his PT in Congress, expanding his support base in the federal legislature.

Conservative economists and analysts, mostly from banks, are surprised by Lula's early measures in the economic arena. As predicted here some weeks ago*, Lula's economic team has put forth a conservative start to this administration. They raised interest rates and, soon after, announced an even greater budget surplus than the target set by former President Fernando Henrique Cardoso.

These are quite logical moves. The economic team had to gain approval from the conservative side of public opinion, since the leftist or sympathetic segments had already voted to elect Lula. And, again as expected, reactions are already popping up, initially – and predictably – among diehard Lula supporters and PT members.

The past week saw a most interesting development in this context. Finance Minister Antonio Palocci met with the Worker's Party contingent in the newly-elected Congress, and although it was a closed meeting whose topics were never meant to reach the news media, one participant taped the proceedings and gave the recording to Brazil's top national news service, Agência Estado. The contents made it clear that while Lula's honeymoon with the public may be sweet, the same cannot be said about his Worker's Party and its relationship with the government economic team. Palocci had to address bitter arguments from party members, against his initial measures as Finance Minister. Party leaders were decidedly angry about the leak, saying this was the first time a PT meeting had been "bugged".

Also in the past week, Worker's Party Senator Heloisa Helena, who has become the most prominent voice for "far left" party members in opposition to what the government has announced so far, went further. In a raging interview published by Brazil's top weekly newsmagazine, Veja, she harshly criticized Lula and much of what he and his government have done in just over a month in office.

The fact is the Worker's Party was elected promising heaven, but the first items it delivered were precisely of the type that the extreme left within the party believed only the devil himself could offer up: even higher interest rates, and further budget cuts and restraint. Enough to make many within the PT who thought they were winners in the presidential election feel somewhat like losers.

More of this is likely to be on the horizon, since the government will soon have to announce the new salary levels for public servants. The amounts are likely to seem quite old, as the type of upward movement servants have been hoping for is not in the cards. Then there's the pension system reform, which will certainly affect what many in the public service consider to be unshakable rights. In May there's the annual Labour Day ritual, with the "new" minimum wage announced by the government, and again, there will be little to celebrate as any adjustment will seem remarkably like the meager raises of the past few years under President Cardoso.

Since there is no reason to state or believe the economy will suddenly begin to expand at a vigorous pace, the obvious conclusion is that bad news will begin to pile up. All of the above, plus high unemployment and low wages – frequent headlines in the final months of the Fernando Henrique Cardoso administration, which will not go away without strong, sustained economic growth.

The question then is, will Lula stay the course or be tempted to try a more populist approach, and perhaps hang on to the support he so obviously enjoys at this stage? Sticking to the current track means using monetary and fiscal policies to curb inflation, something that is caustic anywhere in the world. A populist approach in this case would mean trying to allow the economy to grow at a faster pace than the country can handle without allowing inflation to roar its way back into the lives of Brazilians.

Like many in Brazil, outside investors and companies that sell to, buy from or have a subsidiary in Brazil are likely asking the same question. And like many in Brazil, they will probably wait a bit longer before reaching any conclusions. This is already quite noticeable: in spite of several positive economic steps during Lula's first month in office, markets are hardly reacting at all.

One could argue the world is afraid of a possible war in Iraq, which would be partly true. It would also help to explain the behaviour of Brazilian markets. But clearly, with or without war in Iraq, players are still waiting for more reassurance from the Brazilian government itself before forging ahead.

In my opinion, Lula has enough political assets to stick with the conservative approach on the economy, while nourishing the social aspects and demands from society so dear to him and his party, with programs like "Zero Hunger". However, if his economic policies don't produce results in a reasonable amount of time – say, one year – such as lower inflation and faster growth, Brazil might then move to a dangerous scenario. Lula might find himself getting bad press, both because of his own failure, and because there is no social program in the world that will solve Brazil's entrenched, secular inequalities in such a short time span.

That's when Lula might be tempted to do "the right thing" in the wrong way.

• See InfoBrazil Year IV, issue 168, week of December 14 – 20, 2002: Lula's Economic Team: New Names, Old Policies? by Alcides Ferreira;

Related sites: Zero Hunger – unofficial website in support of the government's anti-hunger program (Portuguese only) www.fomezero.org.br

Veja weekly newsmagazine (Portuguese only) www.veja.com.br

ipsnews.net Mario Osava and Gustavo Capdevila

The efforts of the Asia, Caribbean and Pacific group (ACP) in Brasilia proved useless Friday, as the former European colonies failed to dissuade Brazil from following through on its complaint at the World Trade Organisation (WTO) against European sugar export subsidies

RIO DE JANEIRO, Feb 7 (IPS) - The Brazilian government's inter-ministerial Chamber of Foreign Trade had decided a day earlier to request the designation of a special WTO panel, a step in the dispute settlement process, to study the legality of both the European Union's subsidies for its sugar exports and the United States' subsidies for cotton producers. The previous step of consultations has been completed in the two cases, and now a decisive phase of arbitration can begin at the WTO. Brazil rejects the notion that a victory in the dispute would mean an end to the import preferences granted by the EU to the ACP countries for their sugar, or that it would hurt these mostly poor economies. Delegates from Mauritius, Fiji, Guyana, Swaziland and Belize, speaking in Brasilia on behalf of the 17 ACP sugar-exporting countries, said their exports to the EU are vital to their economies and that they fear a decline in sugar revenues. The sugar trade allows the ACP countries to obtain income that would be impossible through other products, as the EU pays them the rate set within the European bloc, which is more than three times the sugar price on the international market. EU Trade Commissioner Pascal Lamy also paid a visit to Brazil to pressure the government. Last week he warned the Luiz Inácio Lula da Silva government that its legal manoeuvres at the WTO would ultimately hurt the ACP countries. But Brazil's trade authorities argue that their complaint before the WTO, supported by Australia, is not aimed at the EU's preferential conditions for sugar imports from ACP countries, and therefore should not affect this form of development assistance to those nations. The target of the legal action, say the officials, is subsidised exports. The EU imports nearly 1.6 million tons of unrefined sugar from the ACP group at approximately 620 dollars a ton, and then refines and re-exports it to other markets at around 200 dollars a ton. On top of the sugar imported from the ACP countries are the 3.6 million tons produced within the EU, which the bloc also exports under hefty subsidies, for some 5.2 million tons of sugar competing on other markets under ”disloyal” terms, bringing down prices worldwide, say the Brazilian government and sugar industry leaders. The EU agreement with the ACP ”is not at risk,” says Elizabete Serodio, an international negotiations consultant for UNICA, the Sao Paulo sugar agro-industry union, an umbrella of farmers and companies representing two-thirds of Brazil's sugar output. The EU Court of Auditors report at the end of 2002 makes it clear that any adjustment necessary in the European sugar regimen will have to be in its domestic production, not in its imports from the ACP nations, Serodio told IPS. Furthermore, in the EU-ACP protocols of Lomé and Cotonou, the preferences for sugar imports, unlike for other products, were established for ”an unspecified period” and can only be modified if both sides agree, she pointed out. The EU is exerting pressure, including through the ACP countries, that are ”legitimate”, but Brazil and other exporters also ”have to fight to defend their interests” within the rules of the WTO, Serodio said. The international sugar trade stands at approximately 35 million tons a year, slightly more than a quarter of global consumption of 130 million tons. It is this context that makes the five or six million tons exported by the EU with subsidies such a distorting factor of unfair competition, she explained. Sugar industry analysts estimate that the European subsidies cause Brazil annual losses of 500 million dollars. Australia has already joined Brazil in the complaint filed with the WTO. Thailand could follow suit once it completes the consultation phase. As it waits for a decision from Bangkok, and to carry out further studies of the impacts of the EU sugar policy, Brazil has decided to put off requesting a WTO panel for two months. The sugar dispute is not the first time that developing countries have been on opposing sides, notes Rubens Ricupero, secretary-general of the United Nations Conference on Trade and Development (UNCTAD). ”And we will see many other examples of this kind of dispute in the near future,” Ricupero told IPS in Geneva. Just a few years ago was the banana case, in which Central America and countries like Ecuador and Colombia criticised the special conditions that the EU granted the product coming from the ACP nations, he said. Differentiated treatment by wealthy countries creates this sort of ”confrontation” between developing nations, ”which all compete among themselves, all trying to export their commodities, their agricultural or mineral products.” ”These arrangements are never the best solution” to help the poorest countries, says Ricupero. The ideal approach, he said would be to ”reduce the level of discrimination” and provide poor countries with security for development, allowing them to specialise in the areas in which they are most competitive. The smaller countries of the ACP ”will not have much of a chance” in competing with the geographically larger nations like Brazil and Australia ” for a simple reason: productivity in sugar is a function of the availability of new land,” said the UNCTAD chief. Sugar productivity depends on land because it is the kind of product that can only be profitable if produced on a massive scale, he said. (END)

www.sfgate.com BERND RADOWITZ, Associated Press Writer Saturday, February 8, 2003

(02-08) 11:02 PST RIO DE JANEIRO, Brazil (AP) --

President Luiz Inacio Lula da Silva -- a little more than a month in office -- has impressed financial investors, foreign statesmen and an overwhelming majority of Brazilians.

But his plans for putting Latin America's largest country on a path of economic growth and social justice have stirred up opposition from an unexpected side: legislators from his own Workers Party, known as the PT.

Silva, who was inaugurated on Jan. 1, has avoided any direct conflicts with fellow party members.

But several legislators have criticized the first economic policies adopted by the new leftist government as a continuation of the economic "neo-liberalism" of the previous government.

Silva was elected on Oct. 27 in a landslide by an electorate increasingly disenchanted by the government of President Fernando Henrique Cardoso, which capped years of high inflation but was only able to promote sluggish economic growth.

Finance Minister Antonio Palocci drew criticism Friday when he announced the government was hiking its target for the budget surplus before interest payments to 4.25 percent of gross domestic product to stabilize the country's ballooning debt.

"The cuts will hit the working class fully. The measure means less money for the social area and employment," Workers Party Para state Rep. Joao Batista Baba said in remarks published in Saturday's edition of O Globo newspaper.

Rio de Janeiro state Rep. Lindberg Faria said the measure would "touch the milk for children," and foresaw a "tragic end" of Palocci's policies.

A day earlier, Baba had attacked Palocci personally, saying he didn't trust the finance minister anymore, not even in his profession as a physician.

In January, prominent Workers Party Sen. Heloisa Helena voiced her indignation about Silva making former FleetBoston Financial Corp global banking head Henrique Meirelles the new Central Bank President. The PT barred Helena from a nomination session in the Senate to avoid public embarrassment.

The Senator also stayed away from a voting session that elected former President Jose Sarney from the centrist Brazilian Democratic Movement Party as Senate president in exchange for his support of Silva's government.

But while Helena and other leftists are angered by the appointment of fiscal moderates to key cabinet posts, Silva needs their help to push programs through Congress, where he lacks a majority.

Silva, who campaigned on promises to create 10 million jobs, lower interest rates and increased growth, has argued it will take time.

He and Palocci argue that the government needs a tough budget tightening now, to stabilize the economy sufficiently to be able to carry out ambitious social programs later.

At a meeting on Friday with Workers Party state presidents, he demanded that his party unite behind him and reportedly said "a little bit of patience has not harmed anyone yet."

Economists warn that statements by the prominent leftists, which have gained wide media attention in Brazil in the past weeks, could harm the honeymoon Silva and his moderate economic policies have enjoyed with financial investors.

"The PT needs to bring its radicals in line," Nicola Tingas, chief economist at West LB in Sao Paulo, told The Associated Press.

Fears that Silva might have trouble meeting Brazil's debt payments helped push the local currency, the real, down 35 percent last year.

Workers Party President Jose Genoino said Friday the inner party critics had no real backing in the party and should simply be ignored to dry out the media attention they receive.

The suggested tactics of Genoino, a former guerrilla fighter turned moderate, could work, analysts say.

"Only a small group of PT rebel legislators voices its criticism. Most have opted to stay silent as the government is very strong right now," Alexandre Barros, a political risk consultant in Brasilia, told The Associated Press.

www.sfgate.com BERND RADOWITZ, Associated Press Writer Saturday, February 8, 2003

(02-08) 11:02 PST RIO DE JANEIRO, Brazil (AP) --

President Luiz Inacio Lula da Silva -- a little more than a month in office -- has impressed financial investors, foreign statesmen and an overwhelming majority of Brazilians.

But his plans for putting Latin America's largest country on a path of economic growth and social justice have stirred up opposition from an unexpected side: legislators from his own Workers Party, known as the PT.

Silva, who was inaugurated on Jan. 1, has avoided any direct conflicts with fellow party members.

But several legislators have criticized the first economic policies adopted by the new leftist government as a continuation of the economic "neo-liberalism" of the previous government.

Silva was elected on Oct. 27 in a landslide by an electorate increasingly disenchanted by the government of President Fernando Henrique Cardoso, which capped years of high inflation but was only able to promote sluggish economic growth.

Finance Minister Antonio Palocci drew criticism Friday when he announced the government was hiking its target for the budget surplus before interest payments to 4.25 percent of gross domestic product to stabilize the country's ballooning debt.

"The cuts will hit the working class fully. The measure means less money for the social area and employment," Workers Party Para state Rep. Joao Batista Baba said in remarks published in Saturday's edition of O Globo newspaper.

Rio de Janeiro state Rep. Lindberg Faria said the measure would "touch the milk for children," and foresaw a "tragic end" of Palocci's policies.

A day earlier, Baba had attacked Palocci personally, saying he didn't trust the finance minister anymore, not even in his profession as a physician.

In January, prominent Workers Party Sen. Heloisa Helena voiced her indignation about Silva making former FleetBoston Financial Corp global banking head Henrique Meirelles the new Central Bank President. The PT barred Helena from a nomination session in the Senate to avoid public embarrassment.

The Senator also stayed away from a voting session that elected former President Jose Sarney from the centrist Brazilian Democratic Movement Party as Senate president in exchange for his support of Silva's government.

But while Helena and other leftists are angered by the appointment of fiscal moderates to key cabinet posts, Silva needs their help to push programs through Congress, where he lacks a majority.

Silva, who campaigned on promises to create 10 million jobs, lower interest rates and increased growth, has argued it will take time.

He and Palocci argue that the government needs a tough budget tightening now, to stabilize the economy sufficiently to be able to carry out ambitious social programs later.

At a meeting on Friday with Workers Party state presidents, he demanded that his party unite behind him and reportedly said "a little bit of patience has not harmed anyone yet."

Economists warn that statements by the prominent leftists, which have gained wide media attention in Brazil in the past weeks, could harm the honeymoon Silva and his moderate economic policies have enjoyed with financial investors.

"The PT needs to bring its radicals in line," Nicola Tingas, chief economist at West LB in Sao Paulo, told The Associated Press.

Fears that Silva might have trouble meeting Brazil's debt payments helped push the local currency, the real, down 35 percent last year.

Workers Party President Jose Genoino said Friday the inner party critics had no real backing in the party and should simply be ignored to dry out the media attention they receive.

The suggested tactics of Genoino, a former guerrilla fighter turned moderate, could work, analysts say.

"Only a small group of PT rebel legislators voices its criticism. Most have opted to stay silent as the government is very strong right now," Alexandre Barros, a political risk consultant in Brasilia, told The Associated Press.

abcnews.go.com Feb. 7 — By Pablo Bachelet

WASHINGTON (Reuters) - As it prepares for possible war on Iraq, the White House has only won tepid support from its allies in Latin America.

Rather than embrace the Bush administration's call for action against Iraqi President Saddam Hussein, Chile and Mexico, both members of the Security Council, want to give United Nations arms inspectors more time.

"We are in favor of intensifying and strengthening those inspections," said Luis Ernest Derbez, Mexico's foreign minister, after Secretary of State Colin Powell presented intelligence in a speech to the United Nations that he said showed Iraq was hiding weapons of mass destruction.

Brazil and Argentina have issued public statements calling for multilateral action on Iraq.

While Latin American reluctance to back a tough U.S. stance on Iraq partly reflects historical reservations about U.S. unilateralism, many analysts point to a feeling that the United States has failed to live up to its promises to the region.

Latin America's Iraq posture "was predictable because of the baggage of U.S. military intervention in Latin America," said Michael Shifter, of the Interamerican Dialogue, a Washington think-tank. "And another part of it is that Latin America feels the United States hasn't followed through on its commitments."

The United States has a history of intervention in countries such as Cuba and Chile, but this was set to change as President Bush ushered in what he called the century of the Americas. Washington was to lead the way with initiatives such as a free trade area and an immigration pact with Mexico.

Then, after Sept. 11, Washington shifted its focus toward terrorism, North Korea and Iraq.

Day-to-day handling of Latin American affairs devolved to mid-level officials at a time when the region was struggling with economic stagnation and a string of crises.

Mexico was irked when U.S. officials went cool on the migration deal. The Venezuelan economy is in shambles following a long strike against President Hugo Chavez and Argentina is slowly emerging from its worst recession its history.

Brazil came close to a default on its foreign debt and voters in Ecuador and Brazil showed their unhappiness by turning to leaders with populist credentials.

"It's easy to see when Bush is saying so much about the Middle East and North Korea and very little about Mexico or Argentina or Venezuela or Colombia, that perhaps there's something wrong," said Stephen Johnson, of The Heritage Foundation, a conservative think-tank.

SOME POSITIVE ASPECTS

But Johnson said there had been some positive aspects to U.S.-Latin American relations. Bush has met with many Latin American leaders, including Brazil's Luiz Inacio Lula da Silva, a socialist.

Bush managed to pass a trade bill that paved the way for a free trade pact with Chile and set the scene for a pact with the rest of Latin America. The administration also won bipartisan support for increased aid to Colombia.

But Arturo Valenzuela, director of Latin American Studies at Georgetown University, said these gains were attributable to a "sophisticated bureaucracy" implementing policies already in place rather than breaking new ground.

"The boxes are still being checked, the memos are still being sent out," he said.

What's lacking, he said, is a strong U.S. response to Latin America's ills. "You have to be proactive in a crisis."

"If you have a senior person that wants to work on these issues and shows interest, then things can be done," said the Interamerican Dialogue's Shifter.

In the end, Latin Americans may want an old fashioned diplomatic quid pro quo before endorsing Bush's stance on Iraq. "If the United States has not shown sensitivity to Latin America's problems, then its hard for Latin Americans to fully support where the U.S. is going," Shifter said.