A Month in Office, Brazil's Lula Full of Surprises

reuters.com Fri January 31, 2003 06:46 AM ET By Carlos A. DeJuana and Todd Benson

SAO PAULO, Brazil (Reuters) - Brazil's new president, Luiz Inacio Lula da Silva, has spent his first month on the job doing everything he can to break protocol.

The burly, gruff-voiced former metalworker cries in public and drives his security detail nuts by jumping out of the car unexpectedly to chat with supporters outside the presidential palace. Recently he flew to Europe on a commercial flight to save his penny-pinching government some cash.

Lula, it seems, is surprising just about everyone, supporters and detractors alike.

"The critical question was always Lula's capacity to lead, and so far he has shown that he is quite adept and frankly better prepared than we thought for the presidency," said Riordan Roett, director of the Western Hemisphere Program at Johns Hopkins University in Washington.

Lula, 57, was elected Brazil's first working-class leader in October, winning a landslide in his fourth bid for the presidency. To get there, he had to overcome serious doubts that he -- a former left-wing union leader who never went beyond elementary school -- could aptly steer the world's fourth-most populous democracy and ninth-largest economy.

Spooked by Lula's radical past, financial markets plumbed to record lows before his victory, expecting him to default on the country's $250 billion public debt and drive Brazil -- and perhaps the rest of Latin America with it -- to ruin.

So far, he appears to be proving the skeptics wrong.

"On the economic front, the government has only put out positive signals," said Sergio Abranches, a political columnist and consultant based in Rio de Janeiro.

Lula's top economic chieftains, Finance Minister Antonio Palocci and Central Bank President Henrique Meirelles, have repeatedly stressed the administration's commitment to low inflation and austere fiscal policies, evoking cries of betrayal from the far left of Lula's own Workers' Party.

Investors took notice and sent Brazil's stocks, bonds and currency soaring in the first half of January before the threat of a U.S. war against Iraq cast a pall over global markets.

LULA SUPERSTAR

Brazilians too are rallying behind their new president who is mobbed like a rock star wherever he goes. A poll this week showed nearly 80 percent of Brazilians believe Lula will do a good or a great job of leading the country.

If anything, Lula has spent his first month in office trying to temper those hopes, saying it will take time to narrow Brazil's yawning income gap, create more jobs and get the economy running at a healthy rate.

Analysts say he is spending his political capital wisely.

While the finance ministry is busy cutting spending across the board, Lula spends the bulk of his time talking up social programs like his flagship "Zero Hunger" project. Some of his first acts as president were to suspend a $700 million fighter jet contract, arguing the money would be better used on social programs, and to take his entire Cabinet on a reality tour of Brazil's poorest ghettos to "look misery in the eye."

He has also been careful to cultivate allies in Congress, skillfully brokering the nomination of former President Jose Sarney to lead the Senate over a rival candidate who was more hostile to the president's agenda.

On the international stage, Lula has won praise from anti-globalization protesters and the world's financial elite alike, while leading a push among six nations to negotiate a peaceful end to Venezuela's political crisis.

"Both in terms of the political handling internally and the foreign policy initiatives, what we've seen so far is very encouraging," said Roett.

STRESS POINTS

But Lula, and Brazil, aren't out of the woods yet.

If the honeymoon is to last, analysts warn, Lula is going to have to move swiftly to pass much-needed economic reforms, like overhauling Brazil's costly pension and tax regimes.

Abranches, the political analyst, fears Lula's penchant for opening each policy initiative to debate with the public could hamper the reform efforts.

"Every time you allow more players in the game, the chances of maintaining the status quo increase violently," he said.

Lula will also to have to get even tougher on the fiscal front to reduce Brazil's crushing debt burden, now equivalent to 56 percent of gross domestic product.

One way to do this would be by pushing up the government's budget surplus above the current target of 3.75 of GDP -- something Finance Minister Palocci has said is in the works.

While raising the surplus would certainly win Lula and his economic team more points on Wall Street, fickle financial investors are unlikely to give the new president an easy ride.

"Lula is beginning to acquire credibility, but this process is far from being consolidated," said Paulo Leme, managing director of emerging markets at Goldman Sachs in New York. "The demanding part will come, which is delivering the goods."