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.

www.tuscaloosanews.com South American travel diary On the Web

By Sylvere and Martha Coussement February 13, 2003

• WEEK THREE: Sharing our room with lizards and tree frogs • WEEK TWO: Nice, unusual barge ride • WEEK ONE: Off to a good start

Related photo galleries:The Coussement Travels

PIRIPIRI, Brazil -- We had planned to report this week on our hunt for opals and the resort city of Fortaleza. It has been a busy and exciting time so we have decided to break this report into two columns. Changing plans is not unusual while traveling in South America. Although we try to firm up where to go and what to see, plans are often derailed by the unknown or “the local knowledge" that we glean from people we meet. There is so much to see that, unfortunately, time will not allow us to experience all that we would like. Some of the uncertainties are in the form of road conditions and the lack of road identification. It is dangerous to travel at night, because of the roads, the numerous stray animals and robbers. We always plan alternate stops in order to secure ourselves and the car before dark. As a last resort, should a breakdown or impassable road prevent this, we carry sufficient equipment and supplies to spend the night in the bush. Other little issues show up to create more fun. How about a young female cat who comes into heat earlier than expected? Talk about howling! Also this week Mia, one of our fox terriers, seems to have contracted a tropical disease. We are happy to report that the veterinarian services here are excellent, and she is on the mend, while the cat was “fixed" on Monday. A comment on the equatorial heat and humidity while all of you shiver in Alabama. Five days into our trip, we started feeling the full effects of this region. Well, almost all of our family, except, of course, for Flamenca, our Venezuelan cat. The natives that we meet and see never seem to perspire. On the other hand we need only take a few steps away from the air conditioning to be quite wet. The sun's intensity is strong, to say the least. Our little car attracts a good deal of attention, since Buicks are not distributed in this country. I describe the size as ëlittle' with tongue in cheek. The cost of gasoline in Brazil is high (nearly $3 per gallon at the present time) and the quality is poor (they use as much as 26% alcohol in their mix), so gas mileage suffers by as much as 20 percent. The auto industry of Brazil has adjusted by marketing cars much smaller than ours and which are far more economical to operate. Our car has been serving us well with little maintenance in the 2,800 miles that we have driven on this trip. We give credit, in part, to Jack Leigh and his technical people who advised us on its preparation and spare parts list. Our drive from Sao Luis to the small town of Piripiri, in the state of Piaui, was without mishap, but punctuated by complaints of frustration from our cat. Using this town as our staging point for the opal mining region, we selected what was reported as the best lodgings in town. It is a good thing we did not select the worst. Although very clean, insect control is not an affordable option for these folks. Fortunately we carry spray cans of insecticide for just this use. By morning, our room and hallway looked like an insect battlefield. The little town of Pedro Segundo (population 21,000), in the hills of Serra dos Matoes, is the center of the only opal mining in South America. There are 30 active mines, all mined by hand, and the quality of the opals are rivaled only by those of Australia. They are manually cut and polished to draw out the very best of a particular gem. The brilliance and colors of the stones dazzled us. The jewelry design and quality were outstanding and the prices very good. We had good luck and made contact with a gentleman who is the premier dealer in opals for this region. Juscelino Sousa and his group at Opalas Pedro II were selected to craft a large mosaic representation of the map of Brazil made up of opals. This was an inauguration gift from his state to the new President of Brazil, Lula de Silva. Speaking of prices, now is the time to travel in Brazil. With the current strength of the dollar, very good lodging can be found for $25 per night, and good meals as low as $2 per person. Upscale dining will generally top off at $20 for two including cocktails and wine. The history is rich, the beaches magnificent, and the people are friendly and warm. All of this country is a great tourist destination, whatever area is chosen. Next week: Fortaleza and the dichotomy of the northeastern Brazilian culture.

www.bayarea.com Posted on Thu, Feb. 13, 2003 Associated Press

RIO DE JANEIRO, Brazil - Soaring fuel prices pushed inflation to 2.25 percent in January, the biggest jump for the month since 1995, the government said Thursday.

January's rise in consumer prices was higher than the 2.1 percent jump in December and above the 0.52 percent increase in January 2002, the IBGE statistics institute said.

In the past 12 months, prices measured by the key IPCA inflation index have risen 14.47 percent, compared to 12.53 percent in 2002, the institute said.

Fuel prices were the main culprit, rising 8.82 percent in January, while bus fares climbed 5 percent, the IBGE said. Food prices rose just 2.15 percent, compared to 3.91 percent in December.

The prospect of higher fuel and transport costs in the event of a U.S.-led war against Iraq could force the government to raise interest rates to keep inflation in check. The government hopes to limit inflation to 8.5 percent this year.

Many economists expect the central bank to raise its prime lending rate when its monetary policy committee meets next week. The rate now stands at 25.5 percent.

Higher interest rates would slow an already sluggish economy and could hamper the government's plans to create jobs, a top priority of leftist President Luiz Inacio Lula da Silva.

The government hopes the economy will grow 2.8 percent this year, up from an estimated 1.45 percent in 2002.

www.forbes.com Reuters, 02.10.03, 9:54 AM ET

SAO PAULO, Brazil, Feb 10 (Reuters) - Brazil's financial markets weakened in early trade on Monday amid growing worries a U.S. war with Iraq could stall the budding recovery of Latin America's largest economy. Traders said volume was low as investors held on to their cash awaiting a clear picture of how a possible war in Iraq will impact Brazil's sluggish economy. "This week is going to be lousy," said John Carioba, director at Indusval brokerage in Sao Paulo. "No one will want to take any decisions or invest because of the uncertainties," he said, adding that traders would be keen to see what United Nations weapons inspectors Hans Blix and Mohamed ElBaradei will report on Friday to the U.N. Security Council. The Sao Paulo Stock Exchange's benchmark Bovespa <.BVSP> index was down 0.3 percent at 10,348 points, putting it about 8 percent lower than where it started the year. Brazil's currency, the real , was also weaker by midday, trading 2 centavos lower at 3.61 per U.S. dollar. "Foreign factors, like the uncertainty about a war between the United States and Iraq, will continue to weigh on the market," said Jose Roberto Carreira, a currency trader at Novacao brokerage. He also noted traders would be on the lookout to see what kind of announcements President Luiz Inacio Lula da Silva makes after a Cabinet meeting this afternoon and how well the Central Bank manages to sell $900 million in dollar-linked notes. On Friday, it sold $1.35 billion in dollar-indexed notes, meaning it has already rolled over 54 percent of $2.5 billion coming due on Thursday. With international crude prices reaching 26-month highs, Brazil's state-run oil giant Petrobras <PETR4.SA> was up 0.22 percent at 45.10 reais. Investors are worried however that a U.S. war with Iraq could hurt Brazil's economy as foreigners curtail investments in emerging markets and the price of oil begins to drag on the economy. At the stock market, losses by the highly liquid telecommunications sector were leading the market into the red. Telesp Celular Participacoes <TSPP4.SA> was down 3.1 percent at 3.45 reais after it said it had raised its stake in its mobile phone unit Global Telecom to 100 percent and could have to make a negative provision on its earnings statement for the investment. Market bellwether Tele Norte Leste Participacoes, or Telemar <TNLP4.SA>, was down 0.4 percent at 24.95 reais. It accounts for about 14 percent of the Bovespa.

www.upi.com By Carmen Gentile UPI Latin America Correspondent From the International Desk Published 2/10/2003 7:52 PM

SAO PAULO, Brazil, Feb. 10 (UPI) -- Brazil's president convened his full Cabinet Monday as part of a 40-day gut check for his fledgling administration and to announce a series of economic and social reform measures.

Capping a weekend described by one newspaper as a "diagnostic of the federal machine," Luiz Inacio Lula da Silva, for only the second time since assuming the presidency Jan. 1, brought his entire Cabinet together to reveal to Brazilians the next phase for his administration.

The president of the leftist Workers' Party, known as PT, has quieted most of his critics up to this point with a series of relatively conservative moves on the monetary front, while making good on a pledge to work toward greater social equality in South America's largest nation.

"He (Lula) has determined that the administration is doing well," said presidential spokesman Andre Singer following Monday's meetings that proceeded a number of new announcements by the administration.

Despite Lula's optimism, said Singer, the Brazilian leader remains concerned about the nation's flagging economy, although he wants to continue with his social agenda, saving it from budget cuts.

That said, the administration did, however, announce that it would "hold back" $14.1 billion reals (almost $4 billion) already earmarked for the 2003 federal budget in order to meet the primary surplus goal for the year.

Brazil recently raised its surplus goal to 4.25 percent, up from 3.75 percent.

Singer added that as it is not a "budget cut," the funds could be spent later in the year if the Brazilian economy improves. The country's key economic indicator, the Bovespa, and its currency have been in a nearly yearlong slump along with global markets, and like U.S. markets, taken several recent hits based on concerns about the prospects of war with Iraq.

The cuts are not expected to affect Lula's top priority for reform since winning a landslide victory in October.

Dubbed "Fome Zero" (Zero Hunger), the project's initial goal is to assist 10 million people via an aggressive food allotment program over the next five years.

In fact, Lula went on to announce additional social reform moves, including the dispersion of some 203,000 hectares (more than 500,000 acres) of unproductive land in 17 states and the enlargement of some indigenous areas for Brazilian Indian tribes.

The president also went on to note the imminent creation of a new secretariat for racial equality.

Following the meetings in the capital, Brasilia, local media took the opportunity to ask the president's spokesman about whether his party's "radical" members were discussed during the meetings.

The PT radicals have been critical of Lula on several fronts, though mostly regarding his economic team, which has won kudos from both local and foreign investors for not deviating from the free-market policies implemented by former President Fernando Henrique Cardoso.

They insist that Minster of Finance Antonio Palocci and Central Bank President Henrique Meirelles have been far too conservative for the leftist PT.

Lula himself intervened on Friday in the ongoing spat among PT officials and other parties' members who are allied with him, taking the opportunity to defend his choices to lead Brazil's economy and other decisions made during his brief presidency.

Singer, meanwhile, noted that the radicals were not discussed, as the ministers would not be offended by the far-left members of the party.

"The ministers are very conscious of the measures that should be taken," said Singer, diplomatically refraining from further comment.