Brazil's Lula Meets Governors to Discuss Reforms

reuters.com Fri February 21, 2003 04:28 PM ET By Axel Bugge

BRASILIA, Brazil (Reuters) - Brazilian President Luiz Inacio Lula da Silva asked powerful state governors on Friday to back key reforms as he opened a new front in his effort to reform public pension and tax systems.

Governors from Brazil's 27 states gathered at a presidential farm outside the capital for the center-left leader's first meeting with them to ensure their voice is also heard on policies that could reshape Brazil's economy.

"The president opened the meeting showing the importance and urgency of the reforms for the country," said a statement from the president's office.

The reforms have become a central element of the policies of the new Workers' Party government -- Brazil's first elected from a left-wing party -- which has pledged to fight for the poor but maintain market-friendly policies.

Success in reforming the public pension system, which costs the government $15 billion every year, would send a powerful signal to financial markets about Lula's resolve to reduce the country's large debts which are seen as a major economic risk.

The president hopes the huge popular backing that swept him into office in January will help him pass the reforms.

Lula has said the reforms are necessary to overcome an economy which faces rising inflation, sky-high interest rates, low growth and reduced government spending. War on Iraq could further undermine investment in emerging markets like Brazil.

But their own states' debts were at the top of the governors minds after many states have pleaded in recent weeks for renegotiation of their dues to the federal government.

Proposals to simplify the tax system worry the states because they fear they could lose out on revenues.

"The states have a lot of debt," said Gov. Eduardo Braga from the tropical forest state of Amazonas. "To a certain extent that makes understanding on tax reform difficult."

The meeting will end on Saturday with a large barbecue which has become Lula's trademark as a host.

Both reforms were discussed for years by former President Fernando Henrique Cardoso but no new laws were passed.

Lula personally went to Congress this week to urge it to quickly pass the government's reforms when legislation is ready, which is expected to be in May.

With the Workers' Party and its allies in Congress holding just a slim Congressional majority, the government will need support from other parties to pass the reforms.

But there are conflicting interests, not least public workers who are traditional supporters of the Workers' Party and have most to lose from cuts to their generous pension benefits. A labor union threatened strikes this week.

The business community overwhelmingly supports the reform and Lula has created a special council of business, labor and social leaders to advise him on the reforms. (Additional reporting by Sarah Rink and Carmen Munari)