Da Silva meets with Chavez and Castro, but government promises free-market route KEVIN G. HALL Knight Ridder

RIO DE JANEIRO, Brazil - On his first day in office, Brazilian President Luiz Inacio Lula da Silva met Thursday with the leftist leader of Venezuela but also sought to calm investors' fears that he would abandon the free-market policies that Brazil has followed for more than a decade.

As president of Latin America's most populous nation, da Silva's first steps are being closely watched in Washington and throughout the Americas amid concern that he might team up with leftist leaders from the region.

Da Silva had a long working breakfast with Venezuela's embattled socialist president, Hugo Chavez, and was scheduled to dine with Cuban strongman Fidel Castro.

Da Silva's first day in office fell behind schedule because Chavez arrived almost an hour late for breakfast, after staying up until 4 a.m. talking with Castro. Chavez said da Silva agreed to consider his request to send state oil workers to Venezuela to help reactivate oil production there, which has been hurt by a monthlong national protest against his government. Chavez also wants state oil companies in the region to unite and form what he calls Petroamericas, one large, regional oil company.

Mindful that investors fear da Silva's leftist past and may be spooked by his chumminess with Castro and Chavez, his government signaled that Brazil would stick to the free-market policies that previous governments followed, which brought in more than $150 billion in direct foreign investment.

The new finance minister, Antonio Palocci, announced Thursday that da Silva will ask Brazil's Congress to grant operational autonomy to the Central Bank. That indicates to investors that da Silva seeks to remove politics from decisions about monetary policy. In a nod to investors last month, he named Henrique Meirelles, a former head of U.S.-based BankBoston, as Central Bank president.

Palocci also promised Thursday to announce economic goals for the da Silva administration by midmonth.

"These goals will make clear our commitment to management of a budget that is responsible and consistent," Palocci said, adding that incoming ministers will be ordered to cut their budgets.

He repeated da Silva's commitment to honoring agreements that predecessors had signed. Under the terms of a $30 billion rescue package that the International Monetary Fund provided in 2002, the new government must have a budget surplus equivalent to 3.75 percent of gross domestic product, the sum of all the country's goods and services.

Da Silva's presidency also began with a direct challenge to U.S. trade policy. His new foreign minister, Celso Amorim, named a vocal critic of U.S.-led regional trade negotiations as Brazil's second-highest-ranking diplomat Thursday. Amorim, Brazil's top trade negotiator, named Samuel Pinheiro Guimaraes the foreign ministry's secretary general. Amorim's predecessor fired Guimaraes from his post heading the ministry's International Relations Research Institute after he criticized Brazil's participation in talks to create a Free Trade Area of the Americas by 2005.

Brazil's President Luiz Inacio Lula da Silva hosted meals for fellow leftists Hugo Chavez of Venezuela and Cuba's Fidel Castro on Thursday as his government pledged responsible economic policies on its first working day.

During his first morning in the Planalto presidential palace, Lula had breakfast with Venezuelan firebrand Chavez, who together with Castro has cheered the election of a leftist to lead Latin America's largest country of 170 million people.

In the evening Lula dined with Castro, a long-time friend, at a presidential ranch on the outskirts of Brasilia.

Lula, the first Brazilian president elected from a leftist party, was sworn in on Wednesday. Jubilant supporters hope he will be able to help Brazil's millions of poor.

While Lula has promised to reduce the gap between rich and poor, analysts said his decision to break bread with prominent leftists on his first day in office did not signal future rocky relations with the United States, like Chavez and Castro have.

"This has no significance," said political analyst Ricardo Caldas from the University of Brasilia. "As he made many concessions to conservatives in the naming of his Cabinet, this is just for internal consumption."

Lula also met with several other foreign leaders who had come for his inauguration, including Sweden's prime minister and Portugal's president.

While Castro has long attracted the ire of the United States, a lengthy general strike to oust the Venezuelan president is of more immediate concern to Washington. The populist Chavez faces a crippling work stoppage at home by opponents who say he has destroyed the economy.

Venezuela's troubles have helped send oil prices close to two-year highs as the strike cut deeply into fuel supplies to the United States from the world's fifth largest oil exporter.

At Chavez's request, Brazil has sent an oil tanker to Venezuela loaded with fuel, outraging the striking opposition.

The populist Chavez said he was impressed with Lula's "zero famine" policy, which Lula has made his top priority to help Brazil's estimated 54 million poor.

"Change is the key word, he (Lula) said," Chavez told journalists after the breakfast meeting. "Change, agrarian reform, social justice."

Cuba's Castro described his dinner with Lula as a "family meeting to remember the first time I visited him."

"He has a very nice family which is very humble and very hospitable," Castro added.

Great challenges ahead

But for all the hopes of Latin American leftists that Lula will take South America's largest country toward greater social justice, he faces great challenges.

First of all, Lula won the presidency this time after sharply moderating the socialist rhetoric he espoused in three failed presidential bids, including respecting strict fiscal goals included in a $60 billion IMF loan deal.

He also inherits an economy hobbled by low growth, rising inflation, high interest rates and investor concerns over Brazil's $520 billion debt burden.

Antonio Palocci, who took up his post as Lula's finance minister on Thursday, promised there would be no surprises in economic policy but that the government would maintain tight spending, low inflation policies and a floating exchange rate.

"We are not going to reinvent the basic principles of economic policy," he said as he formally replaced Finance Minister Pedro Malan. "In a country like Brazil, lasting stability only comes with the conquest of sustained growth and social stability."

Palocci's comments attracted nearly as much support from business leaders as Lula did from Chavez and Castro.

"This is just what Brazil needs, he is 100% correct and it is up to everybody to help him achieve this as soon as possible," said Benjamin Steinbruck, head of a major Brazilian steel firm.

Lula has promised to boost growth and lower interest rates but with some investors still wary of the former union leader it will be no easy task, especially since it would take time to get key reforms of the pension and tax systems through Congress.

Still, financial markets rose on the first trading day of the year, cheered by Lula's inauguration speech on Wednesday of the need for reforms, as well as greater social policies.

January 3, 2003 BY ALAN CLENDENNING

BRASILIA, Brazil--Breakfast with Hugo Chavez, dinner with Fidel Castro.

The first day in office for Brazil's new president, Luiz Inacio Lula da Silva, projects the image of a leftist alliance in Latin America--one that Chavez, Venezuela's president, has already nicknamed the ''Axis of Good.''

Such an alliance could hinder U.S. efforts to create a Free Trade Area of the Americas stretching from Alaska to the tip of Argentina by 2005. www.suntimes.com Despite the perception of a new Latin American troika, doubts abound that Silva really wants to form a bloc with such close ties to Chavez and Castro, Cuba's leader.

But by giving Latin America's other two leftist leaders such a warm welcome a day after his inauguration, Silva gets huge political mileage in Brazil, where Castro and Chavez are revered by the far left of his party.

Silva angered his party's left wing by appointing fiscal moderates to key cabinet posts, but needs its help to push programs through Congress, where he lacks a majority.

The United States sent trade representative Robert Zoellick to the inauguration, seen by the Brazilians as something of a snub because Zoellick suggested last October that Brazil's only trading partner would be Antarctica if it did not join the hemispheric trade zone.

Silva responded by calling Zoellick ''the sub secretary of a sub secretary of a sub secretary'' during his election campaign. AP

Posted on Fri, Jan. 03, 2003 ALAN CLENDENNING Associated Press

BRASILIA, Brazil - Breakfast with Hugo Chavez, dinner with Fidel Castro.

The first day in office for Brazil's new president, Luiz Inacio Lula da Silva, projects the image of a leftist alliance in Latin America - one that Chavez, Venezuela's president, has already nicknamed the "Axis of Good."

Such an alliance could hinder U.S. efforts to create a Free Trade Area of the Americas stretching from Alaska to the tip of Argentina by 2005.

Despite the perception of a new Latin American troika, doubts abound that Silva really wants to form a bloc with such close ties to Chavez and Castro, Cuba's leader.

But by giving Latin America's other two leftist leaders such a warm welcome a day after his inauguration, Silva gets huge political mileage in Brazil, where Castro and Chavez are revered by the far left of his party.

The United States sent trade representative Robert Zoellick to the inauguration, seen by the Brazilians as something of a snub because Zoellick suggested last October that Brazil's only trading partner would be Antarctica if it did not join the hemispheric trade zone.

Silva responded by calling Zoellick "the sub secretary of a sub secretary of a sub secretary" during his election campaign.

At the breakfast meeting, Chavez asked Silva to send technical experts from Brazil's state-owned oil company to replace some of the 30,000 Venezuelan state oil workers who have joined a crippling nationwide strike. Silva said he would consider the request.

And before dining Thursday night with Silva, Castro told Associated Press Television News that Brazilian-Cuban relations will grow stronger now that Brazil has its first elected leftist president.

Arriving at Silva's rural retreat 20 miles outside Brasilia for dinner, Castro shook hands and signed autographs for about 50 cheering Silva supporters. He did not speak with reporters.

Castro and Chavez had front-row seats in Congress at Silva's inauguration Wednesday, where an estimated 200,000 Brazilians waved red flags. Many were dressed in red and white clothes, the colors of Silva's Workers Party.

The Cuban and Venezuelan leaders had dinner together, and talked until 4 a.m. Thursday at the Brasilia hotel where Castro is staying.

But experts said Silva's efforts to accommodate Castro and Chavez in Brasilia could be carefully calculated political window dressing.

Silva angered his party's left wing by appointing fiscal moderates to key cabinet posts, but needs its help to push programs through Congress, where he lacks a majority.

"Embracing Castro and Chavez, the symbols of anti-U.S. influence in Latin America, gets Silva political capital in Brazil," said Stephen Haber, a Latin American expert at the Hoover Institution at Stanford University. "But this is a dangerous game, you go too far one way or the other and this will blow up in your face."

Silva doesn't want to scare away investors, who already sent the value of the Brazilian currency, the real, down 40 percent last summer over fears that his administration might not follow responsible economic policies.

So far, Silva seems to be pleasing his supporters without spooking financial markets. The real, which ended down 35 percent last year, finished stronger Thursday as the market reacted positively to second-tier finance ministry appointments.

Named to the posts were a mix of left-leaning, moderate and liberal economists with strong credentials, along with officials from the administration of former President Fernando Henrique Cardoso who will keep their posts.

Chavez coined the "Axis of Good" term after Silva was elected in October, hailing the victory and saying Venezuela, Brazil and Cuba should team up to fight poverty.

"We will form an 'axis of good,' good for the people, good for the future," Chavez said at the time.

But Brazilian political scientists dismissed the possibility of an "Axis of Good" being created by the meetings between Silva, Castro and Chavez.

"There is no way this represents the beginning of Chavez' 'Axis of Good' and much less the 'Axis of Evil' imagined by right-wing Americans," said Luciano Dias, a political scientist at the Brasilia-based Brazilian Institute of Political Studies.

Silva, who is popularly known as Lula, "would never even consider creating a nucleus of leftists in Latin America, he is too smart for that," Dias said.

U.S. State Department spokesman Richard Boucher would not comment Thursday on the possibility of the alliance.

Chavez left his strikebound and politically riven country despite the crippling work stoppage aimed at toppling him from the presidency of the world's fifth largest oil producer.

Silva also has a compelling reason for staying on friendly terms with Chavez: The long border the two countries share.

"Brazil worries very much about violence in Venezuela spilling over into Brazil," Haber said. "So you want to have peaceful relations with the Venezuelan, regardless of who is in charge."

During his breakfast with Silva, Chavez also brought up the idea of increasing cooperation among Latin American state-owned oil industries and set up a company called Petro-America.

"It would become a sort of Latin American OPEC," Chavez said. "It would start with Venezuela's PDVSA and Brazil's Petrobras," and could come to include Ecopetrol from Colombia, PetroEcuador from Ecuador, and PetroTrinidad from Trinidad and Tobago."

Last week, Cardoso's outgoing administration sent a tanker to Venezuela carrying 520,000 barrels of gasoline, but that barely dented shortages around the country.

If Silva decides to help Chavez with Brazilian oil workers, it probably won't accomplish much either, said Albert Fishlow, who heads Columbia University's Brazilian studies program.

"If he does it will be minimal and not enough to affect the situation," Fishlow said.

Brazilian president Luiz Inacio Lula da Silva first day in office began with an early meeting with embattled Venezuelan president Hugo Chávez and ended sharing dinner with another close friend, Fidel Castro from Cuba.

However Mr. Lula had time for interviews with other distinguished heads of government and state from Europe and Africa who participated in his inauguration ceremony in Brasilia, the first time in forty years that a left leaning president leads Brazil and the first democratic change of government in decades between elected presidents.

Mr. Lula confirmed Brazil’s support to the Chavez regime recalling that in his inaugural speech he committed his administration to “peaceful, democratic solutions in the constitutional framework of each country”.

Venezuelan opposition has been standing strong on a month long strike that has paralysed the country, including the key oil industry, and is demanding fresh elections to oust Mr. Chávez. However the Venezuelan president still has considerable support from poor masses that idolatrize him and from most Latinamerican leaders who fear “institutional adventures” and “mob rule”, even when it comes from the business community and middle classes.

After meeting with President Lula, Mr. Chávez rejected what he described as the “satanization” of Latinamerican leaders who favour reform and “peaceful revolutions”.

“There’s a revolution in South America and it’s not communist, it’s hunger”, said Mr. Chávez adding that blocked peaceful revolutions can turn into “violent revolutions”.

“The key work here is “change”, as president Lula brilliantly anticipated in his inaugural speech”, added Mr. Chávez.

Brazil under former president Fernando Cardoso supported the Chavez administration by sending an oil tanker with half a million barrels of gasoline for energy thirsty Venezuela where refineries are under strikers control.

Mr. Lula confirmed the Cardoso policy and through his Mines and Energy Minister Dilama Rousseff, revived a project to associate both countries government oil companies, Petrobras and Petróleos de Venezuela.

The Brazilian president also met with Swedish Primer Minister Goran Persson, Spain’s heir to the Crown Prince Felipe, Portuguese president Jorge Sampaio and representatives from Canada, Germany, South Africa, United Nations, among others. Mr. Lula ended his long first day over dinner with Fidel Castro, a meeting expected to last well into early Friday as both leaders enjoy talking, and the tropical night air.

Fiscal responsibility “We are going to preserve fiscal responsibility, the control of inflation and our floating exchange rate”, was the clear message from incoming Brazilian Finance Minister Antonio Palocci, one of president Lula’s closest aides and the man responsible for the “non turbulent” transition of the new administration.

While president Lula was hosting the outstanding representatives of the “left axis” that has emerged in Latinamerica, presidents Chavez from Venezuela and Fidel Castro from Cuba, Mr. Palocci insisted that “we are not going to re invent the basic principles of economic policy, rather reinvent the Brazilian state and its place in society”.

With a third of Brazilians living in poverty Mr. Lula who won by a landslide is seen as the man sent to rescue them, and in his inaugural speech publicly committed himself to fight hunger and ensure all Brazilians three meals a day, “if in four years I accomplish this, I will have fulfilled the mission of my life”.

With his strong message of basic economics Finance Minister Mr. Palocci was only following the new Brazilian president’s promises of change, employment and a fairer wealth distribution for the 175 million Brazilians, which Mr. Lula described in his inaugural speech as “change, with courage but also with awareness”.

Even before his election Mr. Lula had agreed to honour the International Monetary Fund’s terms that include a 3,75% primary budget surplus, a stable currency that should help ensure foreign investors that Brazil will respect a crippling debt burden of over 260 billion US dollars. In exchange the IMF promised a 30 billion US dollars credit, with a first disbursement in 2002.

Mr. Palocci and the incoming Central Bank president, a former Bank of Boston CEO, have before them a titanic task: recovering the soundness of the Brazilian currency (Real) and the trust of investors whose fears slumped the country’s stock exchange as the leftist candidate came closer and closer to the Planalto, government house.

The Real lost a third of its value against the US dollar during the presidential campaign.

However President Lula’s speech and Palloci’s confirmation words managed a first calm reaction from Brazilian markets.