Brazil's Lula Starts Work With Chavez,

Leftist Leader Elected To Head Latin America's Largest Country Reuters POSTED: 1:33 p.m. EST January 3, 2003

BRASILIA, Brazil -- Brazil's President Luiz Inacio Lula da Silva hosted meals for fellow leftists Hugo Chavez of Venezuela and Cuba's Fidel Castro Thursday as his government pledged responsible economic policies on its first working day.

During his first morning in the Planalto presidential palace, Lula had breakfast with Venezuelan firebrand Chavez, who together with Castro has cheered the election of a leftist to lead Latin America's largest country of 170 million people.

In the evening Lula dined with Castro, a long-time friend, at a presidential ranch on the outskirts of Brasilia.

Lula, the first Brazilian president elected from a leftist party, was sworn in Wednesday. Jubilant supporters hope he will be able to help Brazil's millions of poor.

While Lula has promised to reduce the gap between rich and poor, analysts said his decision to break bread with prominent leftists on his first day in office did not signal future rocky relations with the United States, like Chavez and Castro have.

"This has no significance," said political analyst Ricardo Caldas from the University of Brasilia. "As he made many concessions to conservatives in the naming of his Cabinet, this is just for internal consumption."

Lula also met with several other foreign leaders who had come for his inauguration, including Sweden's prime minister and Portugal's president.

While Castro has long attracted the ire of the United States, a lengthy general strike to oust the Venezuelan president is of more immediate concern to Washington. The populist Chavez faces a crippling work stoppage at home by opponents who say he has destroyed the economy.

Venezuela's troubles have helped send oil prices close to two-year highs as the strike cut deeply into fuel supplies to the United States from the world's fifth largest oil exporter.

At Chavez's request, Brazil has sent an oil tanker to Venezuela loaded with fuel, outraging the striking opposition.

The populist Chavez said he was impressed with Lula's "zero famine" policy, which Lula has made his top priority to help Brazil's estimated 54 million poor.

"Change is the key word, he (Lula) said," Chavez told journalists after the breakfast meeting. "Change, agrarian reform, social justice."

Cuba's Castro described his dinner with Lula as a "family meeting to remember the first time I visited him."

"He has a very nice family which is very humble and very hospitable," Castro added.

Great Challenges Ahead

But for all the hopes of Latin American leftists that Lula will take South America's largest country toward greater social justice, he faces great challenges.

First of all, Lula won the presidency this time after sharply moderating the socialist rhetoric he espoused in three failed presidential bids, including respecting strict fiscal goals included in a $30 billion IMF loan deal.

He also inherits an economy hobbled by low growth, rising inflation, high interest rates and investor concerns over Brazil's $260 billion debt burden.

Antonio Palocci, who took up his post as Lula's finance minister Thursday, promised there would be no surprises in economic policy but that the government would maintain tight spending, low inflation policies and a floating exchange rate.

"We are not going to reinvent the basic principles of economic policy," he said as he formally replaced Finance Minister Pedro Malan. "In a country like Brazil, lasting stability only comes with the conquest of sustained growth and social stability."

Palocci's comments attracted nearly as much support from business leaders as Lula did from Chavez and Castro.

"This is just what Brazil needs, he is 100 percent correct and it is up to everybody to help him achieve this as soon as possible," said Benjamin Steinbruck, head of a major Brazilian steel firm.

Lula has promised to boost growth and lower interest rates but with some investors still wary of the former union leader it will be no easy task, especially since it would take time to get key reforms of the pension and tax systems through Congress.

Still, financial markets rose on the first trading day of the year, cheered by Lula's inauguration speech on Wednesday of the need for reforms, as well as greater social policies.