www.brazzil.com Brazzil Nation March 2003

It would be wise for Lula to try and push for the urgent reforms Brazil needs, before his popularity erodes because of inflation. He is still riding a crest of popularity due to his homey style and the Zero Hunger program that helps a few in Piauí state.

Most of the schools have resumed their classes and in spite of the heat and periodic flooding, life is returning to its normal pace. Congress met briefly to confirm their salary and benefit increases and elect the presiding officers of both houses and committee chairmen. They are expected to reconvene February 17.

Lula and his ministers have acted quite responsibly since a few minor mishaps in early January. There exists a general feeling of good will toward his government even from segments of the society that a few months ago were aghast at the possibility of Lula's becoming president. A second cabinet meeting took place and differently from the first this one resulted in no gaffes on the part of ministers.

The main complainers are the radical elements of Lula's own Workers Party or PT. Since little else is happening locally, the press has given ample attention to these internal problems of the party. The radicals are themselves divided, but their main gripe is that on the economic front, Finance Minister Antonio Palocci seems to be following many of the sensible policies of his predecessor Pedro Malan.

The PT would like to maintain unity in order not to undermine their legislative base, which is quite fragile. As time goes on and Congress begins to function, I expect to see more sparks flying that will hinder progress in making changes that require legislation and/or constitutional amendments.

Inflation has been in excess of 2 percent per month for the last three months, but may be subsiding. It will quite difficult to keep it within the stated target of 8.5 percent for the year, in my opinion. Most of the blame is placed on the weakening of the real in the months leading up to the presidential election. Fears that Lula would "turn over the table" caused investors and speculators to short the real and hedge causing a run up in the value of the dollar that now seems to be stabilized in the US$1=R$3.50-3.60 range.

However fuel prices have increased causing transportation costs also to rise. The utilities will also be granted price increases adding to the burden of meeting bills especially among those who earn little, the vast majority of Brazilians. It would be wise for Lula to try and push for the urgent reforms before his popularity erodes because of inflation. He is still riding a crest of popularity due to his homey style and the Zero Hunger program that helps a few people in the state of Piauí.

Financial markets have begun to open up for Brazil, displaying a certain degree of confidence in what the government intends to do. Citibank announced that it would be renewing loans maturing this month and may add as much as $200,000,000 in new credits to finance foreign trade. A few banks and blue chip corporations that export have successfully placed overseas bonds and promissory notes for tenors not exceeding a year at interest rates up to 7 percent.

This has contributed to the stability of the real. The final investors in these instruments are more probably Brazilians with money abroad, who can access the potential risk, rather than the dentist in Stuttgart, the lawyer in Bologna or the retired schoolteacher in Kansas. The near term future of Brazil is still uncertain in no small way due to the specter of a war over Iraq.

The original proposal for the promised reforms of social security and pension benefits for government employees has already been watered down due to pressure from special interest groups. If and when Congress votes the changes, their positive effects will not be felt in the government budget for several years. This may displease the International Monetary Fund (IMF) and investors and creditors.

An IMF mission arrived in Brazil in February for a sojourn of two weeks or more. They will be examining statistics to see if Brazil lived up to its commitments last year. Except for inflation, a goal that was exceeded, things look acceptable. Palocci has announced voluntarily that a target for the primary surplus has been raised from the current 3.75 percent of GNP to 4.25 percent.

This will help in extending the easy relationship that has been established by the new government and the IMF. Brazil may ask that the expenditures for "investment" on the part of government owned companies such as Petrobras and Electrobrás be excluded from the calculations. This would free up more funds for social programs. I doubt if the IMF will accept this mechanism.

Recent articles in the Brazilian press have pointed out that taxation here is among the highest in the world as a percentage of GNP. The income from four months' work goes to pay local, state and federal taxes. Only the Swedes and Germans pay more of their income to their governments. What Brazilian taxpayers receive in return are decrepit schools and hospitals, underpaid teachers, poor streets and highways, inadequate public transportation and a complete lack of personal security.o Most of tax receipts go to pay active government employees and the absurdly generous pensions of retired judges, legislators and employees of all three branches of government.

Many of the states are in flagrant violation of the Fiscal Responsibility Law. One of the worse offenders is Itamar Franco, ex president and most recently governor of Minas Gerais. In keeping with old habits of impunity, in stead of being punished and publicly disgraced, Itamar will be rewarded with the ambassadorship in Rome, one of the most coveted overseas posts. Franco's ability as a diplomat was tested when Fernando Henrique Cardoso made him ambassador to Portugal. He amused and disturbed his neighbors in Lisbon by raising chickens in the back yard of the posh embassy residence. It seems that Lula and Cardoso have one thing in common and that is to have Itamar as far away from Brazil as possible. Franco wanted to be named ambassador to Argentina but was refused by Lula since this is an important post in the scheme of things and is also close by.

José Sarney, another former president who seems unwilling to gracefully fade away, will be attracting attention since he was elected president of the senate. Sarney, whose clan has controlled the backward state of Maranhão for nearly forty years, is currently a senator from the thinly populated state of Amapá, where I doubt if he has ever spent more than a few days. His daughter, at the time governor of Maranhão who was expecting to run for president, was involved in a yet to be explained scandal involving heaps of cash that were discovered in a safe of a company belonging to her and her husband. Sarney was peeved about the slandering of Roseana and blamed this investigation on José Serra, who also wanted to be president.

This caused José Sarney to throw his support in the presidential election to Lula, who had been a very vocal adversary when he was in the opposition and Sarney as president. Lula coerced the PMDB to nominate Sarney for president of the senate. His daughter was elected as a senator from Maranhão by a wide margin and the senate will be presided by a man who is there through a process of political intrigue after having been elected to the senate in the first place by a handful of voters. Such is democracy in the tropics. Whether Sarney can unite the unruly senate to act on the desperately needed improvements in tax and social security legislation, remains to be seen.

The next weeks may witness some executive measures and legislative activity before things shut down again for a week or more for Carnaval. Ash Wednesday is March 5 so serious business will only begin the week of March 10 unless Lula, who himself is a hard worker, can inspire some discipline and a sense of responsibility in Brasília.

Richard Edward Hayes first came to Brazil in 1964 as an employee of Chase Manhattan Bank. During the past thirty-eight years, Hayes has worked directly and as an advisor for a number of Brazilian and international banks and companies. Currently he is a free lance consultant and can be contacted at 192louvre@uol.com.br  

www.upi.com By Carmen Gentile UPI Latin America Correspondent From the International Desk Published 2/11/2003 5:47 PM

SAO PAULO, Brazil, Feb. 11 (UPI) -- Brazilian officials said Tuesday that the federal government was prepared to deal with economic and political hardships that might arise from a possible U.S.-Iraq confrontation.

"We have to work toward creating the best possible scenario and not the worst one so that we don't take unnecessary measures," said Jose Dirceu, Brazilian President Luiz Inacio Lula da Silva's chief of staff.

Dirceu went on to assure Brazilians that the president and the cabinet were prepared for the likelihood of a U.S. showdown with Iraq, although he didn't specify what measures Brazil would take.

On Monday, Minister of Finance Antonio Palocci issued assurances that a conflict wouldn't not disrupt Brazil's economy.

"It is evident that there are always uncertainties in the case of a war," said Palocci. "But we are working hard to achieve our goals," he added, referring to the new budget surplus goal of 4.25 percent of the gross domestic product, up from 3.75 percent.

On the same day Palocci touted the nation's ability to weather a possible war, Brazil announced drastic cuts in its budget for 2003 to the tune of almost $4 billion to meet the surplus goal.

Visiting International Monetary Fund officials praised the move while evaluating Brazil's level of compliance with a $30 billion bailout awarded last August.

Still, Palocci did admit that a war would unnerve investors and make the international situation more complex for Brazil. But he added that there was no reason to think Brazil's economic outlook would change, even during prolonged conflict.

Despite the administration's professed preparedness for a war, South America's largest country and economy has already experienced the impact of flagging global markets shaken by fears of a U.S. war with Iraq.

Its currency -- the real -- had been making small gains against the dollar until the prospect of war was ratcheted last week up by U.S. State Department Secretary Colin Powell's presentation to the U.N. Security Council. Powell claimed that Iraq was hiding chemical and biological weapons capabilities from U.N. inspectors in Iraq.

Lula, who won a landslide victory in October on a campaign touting "Peace and Love," countered the U.S. war drums by voicing his ardent support for the United Nations and its role in preserving "international peace and security."

"The resolutions of the Security Council should be faithfully carried out. International crises, such as the one in the Middle East, should be resolved by peaceful means and through negotiation," said Lula in a speech last week.

In the same address, he also urged the Iraqi government to accept the measures determined by the U.N. Security Council and expressed his administration's concern over the possible use of force by any U.S.-led force.

sg.biz.yahoo.com Wednesday February 12, 4:51 AM By Mike Esterl Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--Trying to breathe new life into flagging hemisphere-wide free trade talks, U.S. officials offered Tuesday to slash tariffs on a wide range of imports from struggling Latin American and Caribbean economies.

In the most important concession, U.S. Trade Representative Robert Zoellick said Washington is prepared to scrap duties on textile and apparel imports by 2010. In return, the U.S. wants, among other things, better access to financial services in a region that groups together nearly 800 million people.

"It's a nice first step. There's a possible problem in that they have shown their hand a little bit here, but you've got to do it," said Richard Fisher, a managing partner at Washington-based business consultancy Kissinger McLarty Associates and former Deputy USTR during the Clinton administration.

The U.S. plan would ax tariffs on 65% of U.S. consumer and industrial goods from the hardscrabble region and eliminate 56% of agricultural tariffs immediately after inking a comprehensive agreement.

But trade watchers say Washington will probably have to take several more steps if it hopes to clinch the 34-nation Free Trade Area of the Americas initiative by its 2005 target date.

While Zoellick said "everything is on the table," he made no mention of eliminating huge subsidies for U.S. farmers, long a sticking point for major agricultural exporters like Brazil and Argentina.

"To start a conversation, the U.S. has to review its policy of protectionism," said Walder de Goes, head of the Brazilian Institute of Political Studies in Brasilia.

Last year, U.S. lawmakers approved a record-setting $180 billion in agricultural subsidies over 10 years - the kind of support that Latin American officials argue makes it impossible to compete on a level playing field for consumers in the world's most lucrative market.

De Goes predicted the region is still "very, very far from an accord."

A public opinion poll carried out last month by CNT/Sensus in Brazil, Latin America's most populous country, found that only 15% were in favor of FTAA, compared with 39% against. The remainder are sitting on the fence, waiting for more fine print to arrive.

Brazilian President Luiz Inacio Lula da Silva, who assumed office Jan. 1, is expected to be a tough negotiator. The former union leader said last year that he wasn't interested in U.S. "annexation." Late last month, he announced an agreement with German Chancellor Gerhard Schroeder to try and seal a free trade pact between the European Union and Mercosur, a customs union linking Brazil with Argentina, Uruguay and Paraguay, before the FTAA deadline.

Nonetheless, a U.S. offer to open the heavily protected textile and apparel sectors is seen as significant. The U.S. imports around $20 billion in those sectors alone from Latin America and the Caribbean.

That particular proposal should be greeted warmly in a region that has watched lower-priced Chinese exporters make huge inroads. China is currently the largest supplier of apparel to the U.S., where import quotas are slated to be dropped in 2004.

The biggest battle on that front will likely be in places like North Carolina and South Carolina, where domestic U.S. textile manufacturers already are hanging on for dear life.

"The domestic textile lobby is still tremendously powerful. The USTR is going to have a tough time selling this to Congress," said Robin Rosenberg, deputy director of the North-South Center at the University of Miami.

In another development, the USTR said Tuesday it plans to speed up the collapsing of tariffs for exporters from the region's smallest, poorest countries while allowing them to phase out their own trade barriers more slowly.

That proposal eventually could pit smaller countries against regional giants like Brazil, instead of battling exclusively with Washington.

In another bid to ratchet up the pressure on wary Latin American negotiators, the USTR has said it's comfortable inking bilateral trade deals while engaged in the hemisphere-wide discussions. It finalized a free trade pact with Chile at the end of December and recently began talks with smaller Central American countries.

Tuesday's initiative also appears aimed at convincing skeptical governments in the region that Washington hasn't forgotten about its neighbors to the south even as preparations for a U.S. invasion of Iraq reach a fever pitch.

Many Latin America voters, frustrated with the lack of progress against poverty after a decade of free market reforms, have begun voting for left-leaning politicians less compliant to U.S. business interests. The Bush administration is hoping to reverse that trend by offering the region a chance to export its way out of its economic woes.

"Trade is strategic, trade is everything there is. When Zoellick does this, it's diplomacy, it's the only diplomacy in Latin America," said Rosenberg, who has been participating on an advisory panel of Florida's FTAA task force.

-By Mike Esterl, Dow Jones Newswires; 201-938-4026; mike.esterl@dowjones.com

www.forbes.com Reuters, 02.11.03, 6:40 PM ET By Carlos A. DeJuana SAO PAULO, Brazil, Feb 11 (Reuters) - Ricardo Berzoini trained as an engineer and earned a living as a congressman before Brazil's new president, Luiz Inacio Lula da Silva, tapped him to run the social security ministry. But 42-year-old Berzoini should have studied to be a magician, because the task at hand -- restructuring a pension system that drained $15 billion from government coffers last year -- may require him to pull a few rabbits out of a hat. If he hopes to rein in the chronic deficits that plague Brazil's public-sector pension system, Berzoini will have to shake up "a hornet's nest of interest groups," from teachers to civil servants, one analyst noted. The system -- including both public and private sector workers -- produced an enormous deficit equal to 5.5 percent of gross domestic product last year. "If you turn that around, it is the single most positive thing you can do for the country," says James Barrineau, vice president of emerging market research at Alliance Capital Management in New York. The reform has become a Holy Grail of sorts for Lula's center-left government. Even before taking office on New Year's Day, Lula flagged it as one of the government's most important projects this year. So entrenched is the regime, however, that the past administration of President Fernando Henrique Cardoso tried and failed numerous times to make it work properly. If Berzoini succeeds, he may be responsible for one of the most important changes to the Brazilian economy in years. Economists say the current system for state workers will become increasingly unsustainable as more and more Brazilians retire. The ratio between those making pension payments to retirees slid to 1.2 in 2002 from 3.0 in 1980 and 7.9 in 1950. "The pension reform is a necessity for the country, not just from a fiscal point of view, but for its sustainability," Berzoini has said. But perhaps just as important, overhauling the system would prove to skeptical investors that Brazil is serious about controlling spending and in turn, able to service its delicately balanced $250 billion debt. If Lula can convince investors that the Brazilian economy is on sound footing, he can more easily keep his promises to improve the lot for Brazil's poor and create more jobs as money starts to flow into the country. "It's more of a medium-term reform. But the impact on confidence in the country's sustainability would be pretty powerful," says Barrineau at Alliance Capital Management. CONSENSUS BUILDING Lula has said he wants to send Congress a reform that has already won the approval of most sectors of society by May. In search of consensus, Berzoini has been making the rounds with labor leaders to seek out their views. Although there is still no official proposal, the government is expected to try to unify the private and public sector pension systems to cut costs. That could prove a difficult task, however, as government workers would lose the right to retire with pension payments equal to their last salary. Their social security benefits would instead be capped as they already are for retirees from the private sector, whose pension system was reformed under the previous administration. According to a report by BBV Banco in Sao Paulo, government retirees on average receive about $357 a month. Private workers are paid $109 and their benefits are limited to $438. At a meeting with the Confederation of Brazilian Public Workers, civil servants made it clear they were not about to give up benefits so easily. Berzoini, the former head of Sao Paulo's banking labor union, looked on quietly. "It wasn't the social security system that bankrupted the state, but the state that bankrupted the social security system," Joao Domingos dos Santos, the confederation's president, shouted to loud applause. The military has also said it won't give up rights to special pensions and, so far, Lula has capitulated. Supreme Court Chief Justice Marco Aurelio Mello, last month created a stir by saying it might be unconstitutional to deprive workers of their "acquired rights." His comments were interpreted to mean the court will block any attempt to change retirement terms for current employees or those already drawing their pension. But after meeting with Berzoini last week, Mello appeared more amenable to a reform that would transition workers from one system to another. The uproar has led Sergio Abranches, a Rio de Janeiro-based political consultant, to warn that Lula's drive for political consensus could backfire. "Opening up the debate to society would appear to be a positive thing. But what it really does is increase the number of obstacles," he said. "It creates a much more complicated negotiation." THE BIGGER THE BETTER Even though it is early in the game, some analysts are worried Lula may have to bow to too many interests to push the reform through Congress, thereby lessening its bite. One debate is centered on exactly who will be affected by the changes -- current retirees and employees or just new workers. Although the latter may be more feasible politically, it will delay the impact on the government's accounts. "If you exempt all retirees and all current civil servants, then you will have to find the fiscal benefits of this reform with a magnifying glass," says Arturo Porzecanski, head of emerging markets at ABN Amro in New York. As it is, a reform that affects at least portion of current workers could take more than four years to impact the government treasury, according to BBV. Indeed, the reform should cost the government more money initially as it will have to start paying social-security tax on its own employees as companies do now for their workers. Regardless, analysts are optimistic. Lula, a former metalworker and union leader, may be the only president with enough credibility with labor groups to successfully push through a social-security reform, they say. Just like no one could accuse U.S. President Richard Nixon of coddling Communists when he visited China in 1972, no one can accuse Lula of being insensitive to Brazil's working class, says Riordan Roett, director of the Western Hemisphere Program at Johns Hopkins University in Washington. "The labor people realized that they're never going to get a better deal from the Planalto (presidential palace) than having Lula as president. So it's certainly not in their interests to see him fail," he says. "I think they're going to come up with a reasonable reform package that they all can live with."

frontpagemag.com By Wiesenthal.com Wiesenthal.com | February 11, 2003

Amid an anti-Jewish climate permeated by U.S. and Israel bashing, displays of anti-Semitism and physical assaults on Jewish participants, the Simon Wiesenthal Center was the only international Jewish non-governmental organization participating in the recent World Social Forum held in Porto Alegre, Brazil.

Throughout the city, a well coordinated, international solidarity campaign was launched by the Palestinian Social Forum with their distribution of violently anti-U.S. posters, anti-Israel t-shirts and diaries praising suicide bombers (see photos).

Dr. Shimon Samuels, the Center's International Liaison and Sergio Widder, Latin American Representative, expressed concern over the safety of the city's Jewish community to Porto Alegre's mayor and asked that he "raise his voice to condemn the anti-Semitism that has invaded the city." They added that the anti-Israel poster campaign that appeared throughout the city in three languages reinforced "the anti-Jewish atmosphere at the World Social Forum endangering Porto Alegre's small Jewish community."

At the same time, Center officials protested to Brazilian President Luiz Inacio Lula da Silva over the pending ruling in the Supreme Court over a Holocaust denial publisher who has asked the court to cancel his sentence on the grounds that "his incitement to anti-Semitism is not a racist crime, as Jews are not a race." Samuels and Widder asked that the President take measures to ensure that Brazil's Supreme Court not "be abused in the service of hate" and "to personally condemn incitement to anti-Semitism as a racist crime."