Brazil's Lula Warns of Risks, Launches Key Body

abcnews.go.com — By Axel Bugge

BRASILIA, Brazil (Reuters) - Saying he had inherited a country in an "extremely serious situation," Brazilian President Luiz Inacio Lula da Silva unveiled on Thursday a key pillar to his center-left government's ambitious reforms and social agenda.

Lula, who took office in January, installed an advisory council of 82 leading business, labor and social leaders, promising that it could become the "most important element of my four-year mandate" in its proposals on reforming the debt-ridden pension and cumbersome tax systems.

Those reforms could become pivotal to secure the economic health of Latin America's largest economy and the success of its first elected leftist government as high debts, rising inflation and low growth undermine Lula's ambitions to help Brazil's millions of poor.

"As everybody knows we received the government of a country in a very serious situation, I would say extremely serious," Lula said. "It is enough to say that on the map of distribution income, Brazil is one of the worst on the planet and it simply didn't change over the last 30 years."

"But we have a common objective: to contribute to making Brazil pass the necessary reforms, overcome the current crisis and return to a path of sustained economic growth and true social justice," he told the councilors.

Lula said the council, whose only function will be to advise the administration, is part of the Workers' Party government's plans "to be in constant dialogue with society."

Former union leader Lula said the economy faced "extreme vulnerability," which had forced his government to take tough measures -- such as cutting spending sharply and hiking rates.

"But these (measures) are crucial so that the economic and financial situation of the country do not get out of control," Lula said. "The council is an instrument for the construction of solutions."

IRRELEVANT TALKING SHOP?

The Council has faced criticism from opposition politicians and some analysts that it is a ploy by the government to by-pass Brazil's sometimes painstakingly slow Congress, or that it risks becoming an irrelevant talking shop.

Analysts say Brazil could be hard hit by the fallout of a war on Iraq due to its dependence on imported oil and foreign financing. As Lula talked, the real currency fell sharply on Thursday as world markets fretted about a possible war.

Business leaders forming part of the Council said reform of the public pension system -- which bleeds $15 billion from public coffers every year -- was especially urgent.

"This is a key element of reestablishing savings for the country," said Jorge Gerdau Johanpetter, one of Brazil's leading industrialists. "We are already late. Every day that passes is important."

Pension reform -- which analysts agree could change the long-term fiscal outlook of Brazil's debt-ridden economy at a single stroke -- has been talked about off and on in Congress since the early 1990s.

Lula said the council would in no way substitute Congress but that the "search for consensus in society can be very useful for the legislature and executive."

With Lula becoming Brazil's most elected president in history but his party holding no clear majority in Congress, the government is hoping to take advantage of every bit of popular support to push its agenda.

Congress reopens next week after the summer recess, when the government is expected to aggressively mobilize its allies to get reforms moving.