New Brazil Leader faces high expectations, seeks Economic Balance

ALAN CLENDENNING Associated Press

SAO PAULO, Brazil - Brazilians like to say dreams are free, but when Luiz Inacio Lula da Silva becomes Brazil's president Wednesday, he'll learn the costs of turning hope into reality.

From Rio de Janeiro's hillside shantytowns to the skyscrapers of Sao Paulo, the country's financial capital, many Brazilians are convinced Silva's presidency spells a change for the better.

Voted in by a diverse coalition ranging from landless peasants to evangelical industrialists, the only certainty is that Silva will have to perform a delicate balancing act.

As a former radical union leader and Brazil's first leftist president in 40 years, Silva assumes the presidency of Latin America's largest country Jan. 1 amid widespread expectations that he cares deeply about improving the lot of the country's 50 million poor.

But to get elected, after three unsuccessful attempts, Silva was forced to reach out to former foes in the business and international investment community.

So his pledges to create millions of jobs and eliminate hunger are carefully coupled with promises of fiscal austerity and commitments to honor the country's foreign debt.

"He must please investors and financial markets to attract investments and avoid a liquidity or debt crisis, but at the same time Lula needs to maintain the social and political support he acquired in the electoral ballots," said Ricardo Amorim, head of Latin American research at IDEAglobal, a New York-based investment consulting firm.

It doesn't help that Silva takes office just as Brazil finds itself mired in recession with inflation, an almost-forgotten villain, creeping back up into the double digits.

No one questions Silva will have to quickly enact meaningful social reforms in a country where the division of wealth is among the world's most profound. Ninety percent of Brazil's land is held by 20 percent of the country's 175 million people, and the poorest 40 percent own just 1 percent.

The larger question is how to do that without defaulting on Brazil's mammoth $230 billion debt.

Investors alarmed at the prospect of Silva's left-leaning Workers' Party taking power sent the value Brazil's currency, the real, plunging 40 percent over the summer to nearly 4 to the dollar.

But the real rose in recent weeks to 3.5 to the dollar after Silva named fiscal moderates to key economic cabinet posts and a former global banking head at FleetBoston Financial Corp., Henrique Meirelles, to run the central bank.

"What you've got is a handful of executives versus millions living in shacks," said Stephen Haber, a political science professor and Latin American expert at Stanford University. "The people who voted for Lula expect him to do something about it."

Few experts believe Silva will steer Brazil toward the socialism he used to espouse.

"There's a clamor for change in Brazil, but people don't want socialist production, they want a job," Haber said.

That's certainly the case with Alex Alberto Pereira, a 28-year-old who shines shoes on the street of Sao Paulo in the shadow of skyscrapers where helicopter taxis land as they ferry executives to work.

Pereira says jobs are Brazil's biggest issue, because the more people work, the more shoes there are to shine.

"I think that the people now have a chance because Lula comes from the people," said Pereira, who struggles to support his wife, son and two relatives on less than $120 a month.

Silva can certainly relate.

The son of a poor farmer, he dropped out of school after fifth grade to work as a streetside peanut vendor and later shining shoes.

At age 14, he began working in a factory, where he lost his left little finger in a machine press. Silva became a radical union activist and was jailed as a subversive after leading strikes during Brazil's military dictatorship.

Silva may have traded in his red T-shirts and Mao caps for Italian suits, and his trademark brown beard has turned gray. But so far, he still has strong support from his core constituency.

A recent survey by the Brazil-based Ibope polling group found that 63 percent of Brazil's voters think life will be better under Silva's administration. Two thousand were questioned, and the poll had a margin of error of 2.2 percent.

In Rio de Janeiro's Rocinha slum, where 160,000 people live in ramshackle homes stacked on top of each other, many expect Silva will find a way to help the poor.

"It's about time," said Didi Trindade, a 51-year-old homemaker. "He's a serious, honest person, with the will to do whatever he can."

Silva has warned Brazilians not to expect big changes for now. After winning October's election, he said the country's troubles "cannot be solved with a stroke of magic."

He's already had to scale back promises on raising the monthly minimum wage and lowering interest rates.

Brazil's economic situation prevents Silva from enacting costly reforms that could scare investors, said Herbert Klein, a Latin American history professor at Columbia University.

"I think he has to be constrained," Klein said. "If it were boom economic times, if debt was being paid nicely, you would have had a general discussion of radical talk about serious redistribution."

Skeptics say Silva may seem different, but don't believe anyone can ease the country's misery.

As he drank a beer in a Rio bar, pharmacy owner Carlos Roberto Soares said the rich have always controlled Brazil and will find ways to protect their interests and assets.

"The whole system is corrupt," said Soares, 40. "Lula will be some kind of puppet in the hands of these people."