Iraq War Could Rock Lula's Brazil

news.pacificnews.org News Analysis, Roger Burbach, Pacific News Service, Mar 13, 2003

The "zero-hunger" programs of recently elected Brazilian President Luiz Ignacio Lula da Silva -- and the country's whole economy - may be threatened by a U.S. war in Iraq.

RIO DE JANEIRO--In Brazil, the U.S. war with Iraq hangs heavily over the country's future, threatening its economy and putting in jeopardy the hunger-fighting programs of recently elected President Luiz Ignacio Lula da Silva.

"We have no idea what the war will mean. We could be thrown back to a period like the 1930s, when all of Latin America was in a depression," says Marcos Arruda of PACS, an independent research center. Arruda fears that war will make it virtually impossible for Brazil to continue paying its immense foreign debt.

Lula, as the president is known popularly, won election three months ago by promising to mitigate the country's tremendous social and economic inequalities. His "Zero Hunger" program has been launched with pilot projects nationwide, and, as he promised in his campaign, he has formed councils comprised of members of civil society to make recommendations on key policy issues.

Francisco Meneses, a member of the newly formed Council on Food Security, says that the council in its first meeting in January doubled the amount of free food distributed to schools. In February, Meneses says, the council directed the Ministry of Agriculture to move away from its historic policy of supporting agribusiness interests and instead "support cooperatives, small-scale agricultural producers, and food self sufficiency at the local level."

But Lula's plans for transforming Brazil are threatened by the nation's longstanding economic difficulties. One challenge is a bankrupt social security system. Cesar Benajamin, a social policy analyst and leader of the Popular Consultative Movement, blames former president Fernando Henriquez Cardoso's neo-liberal free market policies, which "undermined the country's stable work force, greatly expanded the informal sector, and thereby curtailed the number of contributors to social security."

The number of retired beneficiaries in major states like Rio de Janeiro now significantly exceeds the number of people paying into the system.

"Lula faces a financial time bomb that could explode at any time," says Reinaldo Gonzalves of the Economic Institute of the Federal University of Rio de Janeiro. "The government is facing a major fiscal crisis because of the skyrocketing debt, both internally and internationally. In the medium or long term, it is unpayable."

When Lula took office, the debt burden had expanded dramatically due to a significant drop in the value of its national currency, the real, in international markets. Today, Brazil's debt is equal to 56 percent of the country's gross domestic product.

To the dismay of many leading figures in Lula's Workers Party, the new government has so far adopted fairly traditional economic measures to deal with its economic problems. To help meet payments on the debt, the Minister of Economy has ordered the government to cut expenditures and to raise the expected budgetary surplus, not including debt payments, from 3.75 percent to 4.25 percent. To stop capital flight the Central Bank has raised interest rates from an already astounding 25.5 percent to 26.5 percent.

The agricultural and anti-hunger policies have not faced the immediate budgetary squeeze of other government programs because the U.N. Food and Agricultural Organization, along with the World Bank, see Lula's Zero Hunger program as a global model and pump around $5 billion into Brazil to support it. But "this is only a temporary fix," Gonzalves notes. "These are almost exclusively loans that will add to Brazil's already enormous international debt."

A U.S. war with Iraq will almost certainly affect even the hunger program. Lula's economic advisers already recognize the conflict will have a shock effect on the Brazilian economy, causing a drop in exports and upsetting the country's ability to deal with its debt and capital flows. Threat of war has already shaken Brazil's financial markets.

Lula, who has been outspoken in his opposition to war in Iraq, declared in a recent phone conversation with Chancellor Gerhard Schröder of Germany that he would join Mexico, Chile and Angola -- three members of U.N. Security Council with which Brazil has historic ties -- in voting against a new U.S. resolution authorizing attack on Iraq.

Though few here are optimistic the war can be stopped, some think it may compel Lula to follow through on a more radical agenda. "Sooner rather than later, Lula and his economic advisers will have to break with the past," Meneses says. "A war may well compel him to call for popular mobilization and the formation of participatory councils at the grass roots to challenge the stranglehold of the domestic and the international elites over the Brazilian economy."

PNS contributor Roger Burbach (censa@igc.org) is director of the Center for the Study of the Americas (CENSA) and has written extensively on Latin America and globalization. His next book, "The Pinochet Affair: State Terrorism and Global Justice," will be released by Zed Books this fall.