By Shihoko Goto UPI Senior Business Correspondent www.washtimes.com

     WASHINGTON, Oct. 29 (UPI) -- U.S. officials continued to voice their support for Brazil's incoming president and talk up the country's economic prospects Tuesday, but despite such public optimism, wariness that Latin America's most populous and largest economy could falter continues to keep investors at bay. Top Stories • Israeli Labor ministers resign • Bush meets with Blix • Suspect probed in alien smuggling • Ventura mulls independent substitute • Romania moves ahead • Virginia referendum ties builders, politicians • Parents see tough moral rival in popular culture

     President-elect Luiz Inacio Lula da Silva "is not a (Fidel) Castro or a (Hugo) Chavez," said James Carragher, the State Department's director of Brazilian and Southern Cone Affairs, pointing out that unlike Lula, the Cuban and Venezuelan leaders by constitutionally questionable means.      "We would rather deal with a democratic government any day," he added, speaking as a panelist at a U.S.-Brazil relations conference hosted by the Center for Strategic and International Studies.      His comments echoed those from senior Bush administration officials, including Treasury Secretary Paul O'Neill, who welcomed Lula's victory, at least publicly. Yet, financial markets have reacted tepidly to the election of a new Brazilian leader, as the country's currency remains weak and the stock market continues to languish.      But former U.S. ambassador to Brazil Anthony Harrington brushed off Wall Street's fears that Lula's administration would default on its foreign debts and lead the country into bankruptcy, as has been the case of neighboring Argentina.      "Brazil is undervalued...I am very hopeful for what lies ahead, " Harrington said. He also pointed out that according to a recent U.S. Chamber of Commerce survey, Brazil is the most popular emerging market for U.S. investments, and most companies are likely to keep their investments in the country as the current rate.      To be sure, there is no doubt that the Brazilian Workers' Party leader struck a chord with the electorate, having won last weekend's election with over 60 percent of the votes cast. Lula's drive to become president is also undeniable, given that he had to try four times before finally winning the top spot.      At the same time, however, the former factory worker will be leading a country that struggles with $260 billion in public debt, while over 100 million people continue to live in dire poverty.      The question is how he will address the demands from the left and their social concerns on the one hand, and meet its financial obligations to investors on the other. Many analysts have pointed out that Brazil's public debts have reached unsustainable levels, and that the country will have no choice but to default, or at least considerably restructure, its debts.      Speculations of a debt default sooner or later has led foreign investors to flee Brazilian markets, which has slashed the value of the real by 40 percent in recent months, while interest rates on debts remain above a staggering 20 percent.      Lula himself has attacked the International Monetary Fund as well as the Bush administration earlier on in the campaign trail, suggesting that there was no need for Brazil to meet obligations imposed upon it. In August, the IMF promised to provide $30 billion to the country, the largest sum it has offered to any country at once. But the loans will not be disbursed until next year, when the IMF can better gauge how Lula's government will service its debts.      Harrington suggested that the IMF could consider rescheduling or indeed restructuring some of Brazil's loans, given that the new government will be under considerable pressure both internally and externally to meet high expectations.      "It's in our interest, both the United States and Brazil, for Lula to succeed," Harrington said, adding that there was "room for realism...to note the political and social circumstances of a struggling leader."      Certainly, domestic demand for reform will be just as high, if not higher than demands from Brazil's creditors. Addressing issues such as increasing the minimum wage will be critical for Lula's political success, but at the same time, such moves could hurt hamper Brazil's economic prospects, particularly in attracting foreign investors, who are often lured by the country's cheap labor costs.

By Ian Campbell UPI Chief Economics Correspondent www.washtimes.com

     His family was poor. He did not finish secondary school. He was a metal worker. In many respects Luiz Inacio da Silva, universally known as Lula, who is likely to win the presidency of Brazil later this month, reflects his countrymen far more than previous Brazilian presidents. The question is whether one of their own will do his poor countrymen any good. Top Stories • Congress approves resolution • Manassas killing was sniper • Democrats hit GOP on 'bumpy' economy • Motorists taking cover at filling stations • Stewart's new ads puzzling • Israelis rule out open trial • Heritage duo had right stuff

     Lula's left-wing politics reflect the harsh lives of ordinary Latin Americans. It is the current, outgoing Brazilian president, Fernando Henrique Cardoso, who is more typical of the region's leaders. An academic and author of a famous book on Latin American development before becoming a politician, Cardoso, a social democrat, hails from the educated minority that runs Latin America.      Most observers would judge that Cardoso did a goodish job as president. Inflation was slashed from thousands of percent to less than 10 percent. Some of the worst fiscal nonsense has been cleaned up, at the federal, state and even municipal level. The economy has grown, though no more than slowly. But the poverty of most Brazilians has not been eased; about that there can be no question.            That creates a problem. Who or what do we blame?            In the eyes of the poor, the conquest of inflation was something good, for high inflation tends to hurt the poor more than the financially sophisticated, dollar-rich rich, with their second homes in Miami and their stock accounts on Wall Street. But the poor would not judge that privatization and deregulation and opening up the economy to foreign trade have helped them. In the slums that surround the big cities or ascend the steep hills of Rio de Janeiro, and in the dirt poor countryside, grinding poverty prevails. What might Lula do about that?            There are ironies here.            Having taken 46 percent of the vote in the first round of the election Sunday, Lula appears poised for victory in the runoff Oct. 27 -- his fourth attempt to win the presidency. But in order to get to this point he has had to don a suit and tie and tone down his left-wing rhetoric and express his approval of some of those changes, such as privatization, from which the poor have so far drawn little benefit.            Soon it may be the poor, rather than the middle class, who are asking whether Lula's colors have changed.            But the deepest irony of all, and the most troubling, is that there is only one way for Lula to help the poor and that is to do what Cardoso did better -- just as Cardoso's chosen successor, Jose Serra, who faces Lula in the second round run-off, promises to do.            Many in Brazil and many critics of free markets outside Brazil blame "globalization" or the "Washington consensus" or "neo-liberalism" for the failure to improve the lot of the poor in Brazil and the rest of Latin America. What the critics tend to recommend are policies that, if suggested for domestic consumption in the United States or Europe, would generally be decried -- and with reason. Close off Brazil's markets, they say, so that local jobs can be protected against the might of foreign competition. But it's been done before, for decades, has never worked and helps more than anything else to explain why Latin America is where it is now.            The poverty of the region reflects protectionism, which was a by-product late in the 19th century of government tariffs on imports and, since World War II, a conscious policy tool. Protected markets, state monopolies, government industries: This was the way to develop, Latin America decided. What it led to was inefficiency, lack of competitiveness, small, weak economies, and, ugliest of all, corruption that enabled a small number to prosper from what wealth there was while the majority remained low-paid, uneducated, without opportunity: poor.      It is opportunity that the poor need. The way to bring it to them is to continue unraveling the entangling web woven in Latin America for at least decades and perhaps centuries.      The poor need the education Lula himself was denied. They need health care. These should be priorities for Lula. But to provide them will require government spending. And here we have the crunch seen traditionally as that between left and right but which, in reality, ought to unite both against privilege, special interests and corruption.      Brazil's government is permanently in deficit. It pays benefits, such as lucrative pensions, not to the poor but to wealthy people who have served as senior civil servants. The pensions deficit absorbs about 4 percent of GDP. The government is obliged permanently to issue debt at very high interest spreads on which investors and banks, mostly Brazilian ones, make very high profits. Brazil's bankers are not poor; some of them count among the world's richest citizens.      Lula would have the money to help the poor without causing the government's budget to explode or defaulting on debt, if he attacked the privileges the state grants to the rich, cut bureaucracy and unproductive jobs in the state sector, and stopped feeding excessive interest payments to banks because the state cannot get its finances in order.      By cutting Brazil's very high public spending, Lula could at last get fiscal finances under control. Interest spreads on government debt, which have climbed now to over 20 percent above the rates on U.S. Treasuries, because of the radical Lula's likely election success, could be slashed if Lula turned out to be a wise radical, one who spends government money where it is needed, not where it does no more than make the middle class still more comfortable.            Could Lula do this? He could, but it seems unlikely that he will. It is more likely that he will find he has no money to devote more to the poor and no will to cut away at the perquisites of the middle class.            And if he grows frustrated, simply spends more rather than spending better, then the market will quickly take fright, the debt will become unmanageable, and default and financial crisis and recession and currency collapse and inflation and worse poverty will follow, just as they have done in Argentina.            Lula is a man of the poor. His sincerity does not seem to be in doubt. His policies are. We do not expect him to help the poor but hope he does.      -0-      Comments to icampbell@upi.com.

By Roger Burbach, AlterNet October 29, 2002

On Jan. 1, 2003, Luis Inacio Lula da Silva – elected in a landslide victory with over 61 percent of the vote – will become president of Latin America's largest country. Lula, as he is commonly known, received three million more votes for president than George W. Bush did in the United States in 2000.

Leonardo Boff, a progressive theologian in Brazil, declares that Lula's triumph represents "the victory of a project from below, one of the poor." Lula's first act as president-elect was to create the Secretariat for Social Emergencies. Its primary responsibility is to end hunger and malnutrition among more than 20 million Brazilians.

"If at the end of my presidential mandate every Brazilian has three meals a day then I will have realized my life's mission," proclaimed Lula.

This was Lula's fourth run for president. In this campaign he abandoned much of the leftist platform of previous campaigns, forging an alliance with more centrist political forces. This shift is symbolized by his choice of vice-president, Jose Alencar, Brazil's largest textile magnate and a leader of the centrist Liberal party. Alencar declares that the alliance is the product of a "novel political society," reflecting a new social pact, "where Lula represents labor and I represent capital."

Asked why he accepted the position of vice president, Alencar notes: "In the history of civilization labor came first, and then capital. And also in my personal history...it was labor that built my capital."

But it is an open question whether the United States and international bankers will adopt as enlightened a position as Alencar. Brazil has a public debt of $240 billion, the largest in Latin America. In the run up to the election on Oct. 27, foreign capital began to flee Brazil, leading to a depreciation of the country's currency, the Real, by over 40 percent. Much of Lula's campaign questioned the free trade policies launched under the "Washington Consensus" during Ronald Reagan's administration in the 1980s. The consensus has meant not only the opening of Latin American markets to U.S. trade, but also the privatization of state enterprises and the slashing of social spending in health and education.

According to a Brazilian financial advisory firm, ABM Consulting, the 10 largest banks in Brazil, including Citibank and BankBoston, earned returns of 22 percent on their holdings in Brazil in 2001 compared to 12 percent on a global level. George Soros, a forward-thinking international financier with significant holdings in Brazil, declares: "The system has broken down;" it "does not provide an adequate flow of capital to countries [like Brazil] that need it and qualify for it."

In its initial response to Lula's victory, the Bush administration declares it "looks forward to working productively with Brazil." But even before Lula's victory, the U.S. Under-Secretary of the Treasury, Kenneth Dam, stated, "we have a contingency plan" if Brazil declares a moratorium on its international debt.

Dam provided no details, but the International Monetary Fund (IMF), the leading financial institution backing the position of Washington, moved to lock the future government of Brazil into an economic straightjacket when it loaned $30 billion to the outgoing government of Fernando Henrique Cardoso in an attempt to prop up the Real.

Only $6 billion will actually be spent under Cardoso, while the remainder will be released to the incoming government if it has a budget surplus of 3-and-a-half percent. No government in South America has achieved such a surplus in recent years.

Right-wing pundits and policy strategists in the United States have already begun to criticize the Lula government. Constantine Menges, a Senior Fellow of the Hudson Institute who served as the Latin American adviser in the National Security Council under Ronald Reagan, recently released the study: "A Strategic Warning: Brazil." In it he decries the "Castro-Chavez-Lula axis" (referring to Fidel Castro of Cuba and populist president Hugo Chavez of Venezuela). Menges argues that these countries are "capable of pushing other South American countries to the Left and establishing a dangerous alliance with communist China, as well as with Iran and Iraq, two terrorist countries."

This would constitute a gigantic "South American Left bloc," which would have a domino effect in countries like Colombia, Bolivia, Ecuador and Argentina.

While Lula certainly is not intent on provoking the United States by consorting with Iraq, he is looking to other Latin American countries to strengthen an independent economic stance and to expand regional trade agreements. His first international trip will be to Argentina, which has defaulted on its international debt and is Brazil's leading partner in the regional trade bloc known as Mercosur.

Lula has made it clear that he will not support the trade initiative of the Bush administration, the Free Trade Area of the Americas (FTAA), unless the United States abandons trade policies that discriminate against Brazil. Among other provisions, the FTAA advocated by the United States envisions the protection of Florida orange juice interests and Midwest soybean producers along with U.S. steel exporters. Brazil is the world's largest exporter of orange juice, a leading exporter of soybeans and also exports large quantities of steel. (Interestingly, Lula began working in the metallurgical industry when he was just 14 years old.)

If there is one position Lula consistently articulated in this presidential campaign, it was his call for "expanding Brazil's productive capacity." In his last presidential debate with Jose Serra, who represented the outgoing government, Lula stated: "Brazil is a great country. It has enormous resources that we have not even begun to turn to the benefit of our people."

The day after his election Lula proclaimed that budgetary restrictions would not prevent him "from expanding social programs," decreasing unemployment and "expanding educational opportunities for Brazil's poorest."

Roger Burbach is co-editor, with Ben Clarke, of "September 11 and the U.S. War" (City Lights, 2002), and author of the forthcoming book, "The Pinochet Affair: Globalizing Human Rights." He is director of the Center for the Study of the Americas (CENSA) in Berkeley, Calif.

www.nybooks.com

WHAT a mess in Venezuela. 2003-01-04 www.newsok.com

A national strike that began Dec. 2 is entering its second month, its organizers -- an unusual alliance of business and union leaders -- calling for an immediate referendum on President Hugo Chavez's continued rule.

The stoppage has put hundreds of thousands of Venezuelans in the streets in a stormy atmosphere the Los Angeles Times likened to a chair- throwing episode of "Jerry Springer."

Some are protesting Chavez's dabbling in Cuban-style socialism and an economy in recession. Others are marching in support of the president, who claims he is trying to distribute the country's oil wealth to the poor, which make up about 60 percent of the population.

Venezuela's oil industry, the world's fifth-largest, has been crippled. Long gas lines are common in Caracas. Recently the unthinkable occurred: importation of gasoline from neighboring Brazil. The U.S., which gets about 15 percent of its oil from Venezuela, is watching carefully.

The Bush administration has been criticized for meeting with members of Chavez's opposition. It was no more than a pro forma meeting, standard practice for U.S. governments, but still it drew a letter of protest from a handful of Democrats.

"While the Venezuelan president is trying to confiscate property, militarize the civilian government, take over the labor unions and squash a free press, congressional Democrats believe the biggest threat to life and liberty in Venezuela is America," the Wall Street Journal editorialized.

Others are criticizing the administration for not doing enough.

President Bush is taking the proper course for now: maintain contact but at a safe distance.

Venezuela's stalemate is largely Chavez's own doing. According to the country's El Nacional newspaper, 67 percent of those who supported Chavez now think there should be a new election.

America should let the Venezuelan drama run its course and stand ready to assist responsible leaders when the dust settles.