abcnews.go.com March 4 — By Carlos DeJuana

RIO DE JANEIRO, Brazil (Reuters) - Rio de Janeiro's famed Carnival parade came to a close at dawn on Tuesday after tons of body glitter and 20 hours of samba dazzled millions of viewers in Brazil and beyond.

Under threat from drug gangs that terrorized Rio last week, the two-day competition between 14 samba schools took place under its heaviest security yet as 3,000 army troops were called in to back up 30,000 police safeguarding the city.

It was the first time the army had to be deployed to help keep the city safe during the annual bash, an anything goes farewell to sin that ushers in the 40 days of Lent.

But the military presence did little to spoil the globally broadcast party, which was expected to draw nearly 400,000 out-of-town visitors, including 40,000 foreigners.

"You don't think you're going to make it, and then you hear all those people screaming and you get another burst of energy and just keep going," said Larry Karpen, a 34-year-old New Yorker who spent $125 to don a costume and parade before 70,000 cheering fans in Rio's massive "Sambadrome" stadium.

Decked out in elaborate, shimmering costumes, or as little as possible to avoid breaking the no-nudity rule, thousands of revelers in each samba school parade down a 700-yard (635 meter) runway backed by a thundering drum section and giant floats.

Each group is made up of about 4,000 people, many of whom have spent months rehearsing, and has 80 minutes to finish the course. They are judged on criteria including music, percussion, costumes, floats, originality and enthusiasm.

SOCCER AND VIOLENCE

This year's themes ranged from Brazil's African roots to its other national pastime, soccer. The Beija-Flor school used the event to denounce the poverty and violence rife in Brazil.

Beija-Flor's floats depicted smoky visions of hell, a violent car-jacking, hungry prisoners in squalid jail cells and, at the end, a massive likeness of Brazil's popular new president, Luiz Inacio Lula da Silva, who has promised to fight hunger and bridge the country's gaping income disparities.

"What we're telling is the story of humanity, and to do that we have to talk about what's going on in Brazil," said Beija-Flor's director, who is known simply as Laila.

Although purists complain Carnival has become too commercial as companies sponsor schools in exchange for what they say are ads disguised as samba themes, those who take part in the parade swear it is a one-of-a-kind experience.

"It was my first time but it won't be my last. I adored it," gushed Thais Nogueira, a 23-year-old drag queen and "Miss Gay Brazil" who paraded with the Unidos da Tijuca school.

The winning school will be announced on Ash Wednesday, when the festivities across the country officially come to a close.

Like every year, some sporadic violence flared up outside the Sambadrome and in the block parties that take place across a city as known for its crime as it is for its natural beauty.

Six people were shot and one was killed by police outside the stadium on the first night of parades after thieves swept through the area and assaulted passers-by. But police said the second night went off without any reported problems.

Over the weekend, an American tourist was shot in the leg while being mugged, but has already left the hospital.

Still, the incidents were a far cry from the coordinated attacks that rocked Rio last week, when drug gangs torched buses, set off firebombs and shot at police. Eleven people died in the violence.

Hoping to keep the city safe even after the tourist hordes go home, Rio's state authorities have asked that army troops remain in the city until month's end.

"People are scared, and they see an extra protection in the troops," said Jose Quintal, Rio's state security chief. (Additional reporting by Todd Benson)

news.ft.com By Raymond Colitt Published: March 3 2003 18:32 | Last Updated: March 3 2003 18:32

In four attempts over the last 14 years to win presidential elections, Luiz Inácio Lula da Silva was seen as too radical to govern Brazil. Now that he is in office, he is concerned at being seen as too conservative.

Having run on a platform of far-reaching social and economic change, Mr Lula da Silva has come under fire from critics on either extreme of the political arena. Austere economic policies including tough budget cuts and tight monetary policy, they say, are a continuation of the government of Fernando Henrique Cardoso, his social democratic predecessor.

In response, Mr Lula da Silva has gone out of his way in recent weeks to justify economic austerity and explain that his plans for a more equitable society will take time. Behind the message is an attempt to manage enormous expectations and sustain his popularity.

Last week the Lula da Silva administration fired back at critics with an advertising campaign on national television and radio that sought to justify his gradualist approach during the first two months in office. Comparing Mr Lula da Silva's reform plan with the restoration of a house, a young actress against the backdrop of a Brazilian flag said: "You cannot tear down all the old walls at once. You need a lot of patience and care." The one-minute television spot continued: "President Lula's commitment is not with haste but profound change with security and serenity."

Earlier in the week, Mr Lula da Silva sought to rebuff criticism that too much debate within his government was delaying proposals for structural reforms. "Structural reform will happen but it's like harvesting fruit," he said. "You cannot be hurried and pick it while it is still green. The people will taste it, not like it and spit it out."

During an unusual visit to congress in February, Mr Lula da Silva sought to blame recent interest rate rises and draconian budget cuts on the threat of war in Iraq. Yet in the attempt, the Brazilian president sounded more of a continuity man than an agent of change, repeating almost verbatim the same justification Mr Cardoso had given congress in 1999.

"Basically his words are the same as ours a few years ago," says Tasso Jereissati, a prominent senator in PSDB, the social democratic party. "I think it's great that Lula speaks our language," he mocks.

The PSDB launched its own media campaign, belittling Mr Lula da Silva's policies - particularly his flagship "zero hunger" social programme - as a continuation of their own. "The battle against hunger is not starting from zero," said José Anibal, PSDB president, in an advertisement also aired on national television. The PSDB's broadcast sought to showcase the party's achievements in education, housing and health during its eight years in government.

Radicals within Mr Lula da Silva's own Workers' party (PT) have been equally disappointed with their leader's about-face. A handful publicly criticised his choice of central bank chief, interest rate rises, and reform plans to cut social security and labour benefits.

Mr Lula da Silva's public relations management in coming months will be the key to selling his ambitious legislative agenda to congress and the general public. For now, many are still giving him the benefit of the doubt and his new image as a moderate reformer seems to have worked for public opinion.

"The PT came into government with a number of untested projects and ideas but quickly had to adapt them to the adverse economic reality of the country," says Walder de Goes, a Brasilia-based political analyst. "It was inevitable this would trigger criticism but I think they are handling it well. I give Lula's honeymoon a year, which is more than many other presidents had."

reuters.com Mon March 3, 2003 12:36 PM ET By Axel Bugge

BRASILIA, Brazil (Reuters) - The end of annual Carnival celebrations this week will mark an important testing period for Brazil's new President Luiz Inacio Lula da Silva.

The country traditionally comes back to life after slumbering between New Year's Day and the pre-Lenten festival, and Lula, who was inaugurated on Jan. 1 as the country's first elected working-class leader, will face his first real challenges as public attention refocuses on politics.

His government has sought to encourage Brazilians to be patient by running television advertisements that explain a house is renovated not by destroying it, but by reconstructing it wall by wall. Analysts say this campaign aims to make it easier for him to undertake unpopular measures.

"I think people are getting the notion that things are going to be harder than expected," said Christopher Garman, a political scientist at the Tendencias consultancy.

Political analysts estimate that Lula, who enjoys strong popularity, has six months to a year before his charm with voters fades. His first tasks are likely to be reforms of the country's antiquated pension and tax systems, a program that may be tough to sell to Brazilians.

Since taking over the helm of Latin America's largest country, the Workers' Party government has taken tough economic measures such as sharply cutting spending and hiking interest rates to contain rising inflation, which is subduing growth.

Those moves have won favor for the former metals worker among investors, but they have also irked some members of his party who accuse him of following the previous government's policies.

And the moves are probably not quite what Lula had in mind when he promised during his election campaign to create millions of jobs and fight one of the world's worst income distribution gaps.

But the former firebrand labor leader knows that steering of his party toward the center and embracing market-friendly policies not only ensured him electoral victory but also meant he would have to defend such policies in government.

GREATEST EXPERIMENT IN HISTORY?

Vinod Thomas, the Brazil country director of the World Bank, which has thrown its weight and millions of dollars behind Lula's "Zero Hunger" program to feed the country's estimated 40 million poor, summed up the test Lula faces.

"Brazil is carrying out one of the greatest experiments in history of pursuing a bold social program with fiscal responsibility in an unusually tough external environment," he said.

Lula is spending Carnival on a farm with his family, and after festivities wind midweek, the time to deliver on the "experiment" will come.

According to Carlos Lopes, a political scientist at the Santa Fe Ideias consultancy in Brasilia, the Lula government appears to still be testing the waters. "This government has shown a certain worry about concretely doing things," he said.

In a traditional switch of many "new left" governments around the world, Lula has pledged to overhaul the debt-ridden public pension and cumbersome tax systems, reforms his Workers' Party opposed for years.

As public pensions sap $15 billion a year from government coffers, any reduction in costs would send a powerful signal to markets that Brazil's $250 billion debt burden -- which has been a persistent concern for investors -- can be contained.

Lula dedicated much time to the reforms during his first weeks in power, including establishing a special council of business, labor and social leaders to advise him and held a meeting with Brazil's powerful governors, who backed his push.

But despite his success in turning around strong popular opposition to these reforms dating from the center-right government of former President Fernando Henrique Cardoso, Lula has been slow off the starting blocks with concrete proposals.

Garman points out that Cardoso had legislative proposals on key issues ready in the second month of his rule.

Many observers agree that a quick success on these reforms could give him the space to turn to his social agenda.

HUGE POPULARITY

Still, despite high interest rates, high inflation, high unemployment and low growth, Brazilians adore him.

A poll at the end of January showed 78 percent of respondents expected Lula to do a good or great job, up from 71 percent in November. Nearly 70 percent in the same poll saw him living up to his campaign promises.

"He'll have a significant amount of time, this popularity won't evaporate this year," predicted Garman.

Carlos Pio, a politics professor at the University of Brasilia and partner at the Augurium consultancy, said Lula will probably decide to push votes in Congress "straight after Carnival," paving the way for the key reforms.

Even if all the largest centrist parties in Congress support reforms -- as they did when they were in power for eight years -- Lula should seize the moment to move quickly as waiting carries risks, analysts say.

For one, Brazil's Congress is infamous for moving at a snail's pace, meaning full passage of pension and tax reforms may not happen until well into the second half of the year.

"I am optimistic on the politics but pessimistic on the timing of reforms," says Garman.

One way to speed up the reform process would be to bring the largest centrist party in Cardoso's coalition into the government through talks which are intensifying. Inclusion of the Brazilian Democratic Party in the government would give it a healthy congressional majority which it now lacks.

The success of such talks, in turn, could depend on the extent to which Lula's government can escape being perceived as just continuing the tough economic measures of Cardoso's reformist, free-market administration.

"To what extent does this government have the force to carry out the policies of Fernando Henrique Cardoso?" asked Pio. "In six months that could become a risk. High expectations can fall rapidly."

www.nytimes.com By BLOOMBERG NEWS

ARLINGTON, Va., March 3 (Bloomberg News) — The AES Corporation, which generates power in 32 countries, said today that a unit defaulted on a $330 million payment due a Brazilian government bank, and the lender may take AES's stake in Latin America's largest electric utility.

The bank can demand immediate payment of $605 million after refusing to extend Friday's deadline, AES said. AES also missed a $35 million payment in January. The debt is backed by the AES stake in Eletropaulo Metropolitana, São Paulo's utility.

AES, which is based in Arlington, wants the bank to restructure its Brazilian debt, saying Eletropaulo has not generated enough cash to make the payments after the decline of Brazil's currency. President Luiz Inácio Lula da Silva faces political demands that he consider reclaiming the utility, part of a sell-off of state assets that attracted investment of $150 billion in the 1990's.

The Brazil National Bank for Economic and Social Development refused to postpone the payment.

www.upi.com By Bradley Brooks UPI Business Correspondent From the Business & Economics Desk Published 3/3/2003 11:05 AM

RIO DE JANEIRO, Brazil, March 3 (UPI) -- The Brazilian state development bank is likely to take control of a U.S.-owned utility that failed to meet its debt payments, local media reported.

The BNDES development bank has refused to roll over a $329 million debt payment owed it by a subsidiary of AES Corp., the U.S. electricity company, according to local reports.

The bank has the right to collect its collateral -- shares in Eletropaulo, Latin America's largest electricity company, which would give it control of the outfit.

Foreign investors have been keeping a close eye on this situation, as many fear it could signal the re-nationalization of privatized companies under the new leftist President Luiz Inacio Lula da Silva.

BNDES declined to comment, citing a confidentiality agreement. The bank said it was up to AES to inform its stockholders and the public of the decision, made at the start of Brazil's carnival season, when offices are closed.

AES has yet to comment on the matter.

AES has asked BNDES to renegotiate its debt, and BNDES had already rolled over an $85 million payment owed it by AES in January.

The Virginia-based AES owes BNDES some $1.2 billion in debt, money borrowed to invest in three Brazilian utilities during the aggressive privatization of the late 1990s.

In the past seven years, private investors have injected more than $30 billion into the power sector, which has seen turbulence since a 1999 devaluation and strict energy rationing in 2001 after a drought. Much of Brazil's power is hydroelectric.

Local and foreign analysts were confident that BNDES would not decide to take back control of Eletropaulo, though all were clear that it wasn't out of the realm of possibility.

"This is a very technical situation. It's not a political thing that the government is taking over the company," Oswaldo Telles, a Brazilian analyst with BBV Corretora in Sao Paulo, told UPI before the reports that BNDES was calling in the loan.

"You have to face it as a bank executing or not a past due debt."

Brazil's power companies were hit hard last year as the local currency lost 35 percent of its value.

Most companies have debts in dollars but revenues in reals -- the local currency -- contributing to tough times and an inability to meet debt payments.

It was in 2001 that Brazil was forced to ration energy, as a drought provoked a shortage of hydroelectric power, on which the country is largely dependent.

An aggressive energy conservation campaign has also had its effect, with demand for energy falling by nearly one-fourth since 2001.

Additionally, unknown changes look to be in store for the energy sector's regulating agency, which sets prices.

Lula and his economic team have harshly criticized Brazil's regulating agencies, saying they appear to be placing the betterment of corporations ahead of the needs of Brazil's citizens.

Analysts, however, say that a regulating agency that isn't independent of the government will never create an environment where the foreign investor feels confident, with worries that pricing policies will change radically with every new government.