Riding High in Brazil, Lula to Visit Neighbors

BY CARLOS A. DEJUANA Reuters www.bayarea.com SAO PAULO, Brazil - Luiz Inacio Lula da Silva makes his first trip abroad as Brazil's president-elect this week, traveling to Argentina and Chile to strengthen regional ties before a U.S. visit a week later.

A little more than a month after his election victory, the trip will be a test of whether the former union leader can recreate his surprising success at home on the international front. He leaves for Buenos Aires on Sunday night.

Throughout his campaign Lula stressed the importance of rebuilding trade links between Brazil and its Latin American neighbors, which are comparatively small and have been hit recently by economic and political turmoil.

"It's a reaffirmation, a reconsolidation of the entire regional trade bloc," said Marcelo Salomon, chief economist at ING Bank in Sao Paulo.

Lula and a small team of advisors are scheduled to meet with Argentine President Eduardo Duhalde on Monday and Chilean President Ricardo Lagos on Tuesday. He will meet with President Bush on Dec. 10.

FREE TRADE NEGOTIATIONS

At the heart of Lula's determination to strengthen South American ties is the desire to put up a common front against the United States in negotiations to create a free trade area that would stretch from Alaska to Argentina.

Lula has made it clear that Brazil, which is by far the region's largest economy and the linchpin in the proposal, will fight a tough battle to make sure its exporters get as good a deal as U.S. companies. Brazilians have long been irked by U.S. tariffs that put limits on key exports such as orange juice, sugar and textiles.

But cementing trade ties with some neighbors like Argentina will be difficult given the region's economic woes and political instability. Argentina, whose economic crisis the past two years battered Brazil and Paraguay and crippled the Uruguayan economy, will have elections in April of next year.

And trade relations between those four countries that make up the Mercosur trade bloc have already been strained by ongoing commercial spats.

Brazilian exports to Mercosur fell by more than half to $2.7 billion, or 5 percent of the total, in the 10 months to October this year compared with a year earlier.

Still, analysts say a united bloc will give the region more leverage in the negotiations.

"What (Lula) wants to say is that Mercosur is important and that, despite the difficulties, it's going to continue to be important, and that's key in trade talks with the European Union and United States," said Ricardo Caldas, a political scientist at the University of Brasilia.

RIDING HIGH AT HOME

At home, Lula has been beating expectations, say analysts.

Lula and his transition team have proved to be more fiscally conservative than expected by anxious investors, fueling a small recovery at Brazilian markets that were earlier battered by worries the former metalworker would mismanage the economy.

The benchmark Bovespa stock index rallied 3.4 percent in November, and the country's much maligned currency, the real, has been trading steady since the election after taking a beating for months.

Moreover, Lula has struck governability deals with political rivals and held off the radical wing of his leftist Workers' Party, known as PT, pleasantly surprising even his harshest critics.

"One of the key challenges for the PT government will be overcoming the credibility deficit they have with the market, and they have been doing that very well," said Christopher Garman, a political analyst at Tendencias, a Sao Paulo consulting firm.