frontpagemag.com By Wiesenthal.com Wiesenthal.com | February 11, 2003

Amid an anti-Jewish climate permeated by U.S. and Israel bashing, displays of anti-Semitism and physical assaults on Jewish participants, the Simon Wiesenthal Center was the only international Jewish non-governmental organization participating in the recent World Social Forum held in Porto Alegre, Brazil.

Throughout the city, a well coordinated, international solidarity campaign was launched by the Palestinian Social Forum with their distribution of violently anti-U.S. posters, anti-Israel t-shirts and diaries praising suicide bombers (see photos).

Dr. Shimon Samuels, the Center's International Liaison and Sergio Widder, Latin American Representative, expressed concern over the safety of the city's Jewish community to Porto Alegre's mayor and asked that he "raise his voice to condemn the anti-Semitism that has invaded the city." They added that the anti-Israel poster campaign that appeared throughout the city in three languages reinforced "the anti-Jewish atmosphere at the World Social Forum endangering Porto Alegre's small Jewish community."

At the same time, Center officials protested to Brazilian President Luiz Inacio Lula da Silva over the pending ruling in the Supreme Court over a Holocaust denial publisher who has asked the court to cancel his sentence on the grounds that "his incitement to anti-Semitism is not a racist crime, as Jews are not a race." Samuels and Widder asked that the President take measures to ensure that Brazil's Supreme Court not "be abused in the service of hate" and "to personally condemn incitement to anti-Semitism as a racist crime."

www.brazzil.com Brazzil Economy March 2003

Brazilian Finance Minister, Antônio Palocci, the former Trotskyist,  is saying the right things. He is honest and sincere, although his successor as mayor of Ribeirão Preto has discovered plenty of unpaid bills from Palocci's administration.

Lula has returned triumphantly from a whirlwind trip to Europe, after his appearance at the World Social Forum in Porto Alegre. He was a hit in Davos at the World Economic Forum. Lula is the only president to have appeared at both gatherings. He is being touted as a link between the First World and The Third World. Lula provided a bit of optimism to the conference that was preoccupied about war and recession. His promises of fiscal responsibility together with increased social emphasis has set well with observes in Europe.

Not everyone in Porto Alegre was pleased with Lula's participation in the World Economic Forum. One woman, upset by the way that Lula's party, the PT (Workers' Party) and the President are behaving now that they are in power, hit PT president José Genoíno in the face with a cream pie during one session.

Brazil's best interests were served by Lula stellar performance in Davos. Antônio Palocci, Brazil's Minister of Finance, met in Davos with Anne Kruger the number two person at the IMF. The encounter took place in the hospital room of Henrique Meirelles, central bank president, who had slipped and fallen on ice breaking an ankle.

In Paris, Lula and Palocci had a productive meeting with IMF president, Horst Köhler. A cordial relationship with the IMF, who has another US$ 24 billion to disburse this year under the present agreement, is crucial for Brazil to meet foreign debt payments and pay for essential imports. An IMF team of technicians is due in Brasília in mid February to review figures and make recommendations to the board. There should be no problem in releasing this next US$ 6 billion as it appears as if Brazil is meeting the previously established targets.

Palocci has said that his objective is to reduce the Brazil risk factor and regain the confidence of the international financial community. The government's stated goal is to reduce dependence on foreign sources of credit. It is not easy to achieve credibility by words that are the direct opposite of what Lula proclaimed in the early days of his 2002 presidential campaign. Palocci, the former Trotskyist, is saying the right things. I believe he is honest and sincere although his successor as mayor of Ribeirão Preto has discovered plenty of unpaid bills from Palocci's administration.

Both Gerhard Schröder and Jacques Chirac warmly received Brazil's new President. Vague promises of friendship and cooperation were exchanged. France has enlisted Brazil's help in developing Africa. Lula did not make progress on the matter of agricultural subsidies and tariff barriers. As a man of humble origin and limited education who has risen to such prominence, Lula is somewhat of a novelty. The European media gave him excellent, positive press coverage. He was careful not to be critical of George Bush, merely stating that a diplomatic solution for the Iraq situation would be preferable to war. Brazil is not on the UN Security Council nor is it expected to provide any military help.

The reality facing Lula's government, so far intact, is tough. The economy is in the doldrums with unemployment at record heights. Inflation continues. The financial markets are uneasy. This is due not necessarily because of doubts over the capacity of Lula and the PT to achieve progress toward fulfilling some campaign promises, but because of the real prospect of a war of uncertain duration and consequences. Promised austerity has not yet been tested, although there is talk of increasing the target of the primary budget surplus above the present 3.75 percent and none of the bankrupt states have received handouts from the federal government.

Recent opinion polls show Lula has a record level of approval. Thus far there has been much talk and few measures of a concrete nature, other than an increase in interest rates and pay raises and other benefits for legislators. The population is patiently waiting to see what will happen. School vacations will soon be over and life will return to normal before long. Until Congress reconvenes there may be little excitement.

Lula could have luck in persuading Congress to pass the many announced reforms. Tax, political, labor and social security reforms as well as the matter of central bank independence are the principal items on the agenda. It appears that ex-president José Sarney of the PMDB will be elected as president of the senate. The PT promoted this by interfering in internal matters of this big party in order to gain their legislative support. Many jobs at the second and third level of government have not yet been awarded. PMDB will no doubt receive its share.

Good at PR

Many federal deputies are changing parties in order to be aligned with the government. The PT is fairly rigorous in accepting new members so these turncoats are joining other parties that theoretically back the government. Since few, if any, legislators have any ideological convictions, this musical chairs game is quite common. It is much easier for a deputy to obtain favors if he is "government" rather than opposition.

Hypothetically the government, with the support of the PMDB and other parties of a more leftist nature that have ostensibly supported Lula since the first round, has a majority sufficient to make constitutional amendments and pass other urgent legislation. The PT when in the opposition obstructed many of these same proposals that FHC tried to get through Congress when he was president. Now if the other two big parties that backed FHC most of the time, the PFL & PSDB, were to support these necessary reforms, Lula might make some progress. I wouldn't count on this happening.

My prediction is that little will be accomplished in Congress very soon. If Brazil's credibility abroad depends upon what happens in the legislative area, it will be a long time coming. Marketing and PR, at which so far this government excels, have their limit. Eventually tangible results must be evident.

Lula has now unveiled the much heralded "Zero Hunger" program. How it will work is a mystery. Brazil does not lack food but many people do not have the money to buy it. Hopefully funds doled out to poor people for them to acquire food will not be spent on soda pop, beer, candy, cigarettes and cachaça, Brazil's cane spirits that is the world's second most consumed distilled beverage after sake.

It will be interesting to see if administrative and distribution costs can be controlled in order that some benefit from this noble cause accrues to those who should enjoy better nutrition. The danger is that the government will create an inefficient bureaucracy that will minimize the benefits to those who need help.

Richard Edward Hayes first came to Brazil in 1964 as an employee of Chase Manhattan Bank. During the past thirty-eight years, Hayes has worked directly and as an advisor for a number of Brazilian and international banks and companies. Currently he is a free lance consultant and can be contacted at 192louvre@uol.com.br

news.ft.com By Jonathan Wheatley Published: February 12 2003 20:37 | Last Updated: February 12 2003 20:37

One of the final acts of Fernando Henrique Cardoso as Brazilian president was to modify a fuel tax called Cide, created in 2001 primarily to pay for much-needed investment in transport infrastructure.

At the request of his successor, Luiz Inácio Lula da Silva of the leftwing Workers party (PT), Mr Cardoso released Cide funds - about R$10bn (US$2.7bn) this year - for use at the government's discretion.

This will help the government to pay debts and meet fiscal targets. It is the kind of thing that has earned Mr Lula da Silva the approval of international financial markets but it has left the transport industry up in arms - not only at potentially losing funds but also at the cost to the economy.

"There is a clear crisis in the sector," says Clésio Andrade, president of the National Confederation of Transport (CNT) and vice-governor of the powerful state of Minas Gerais. "Taking away its funding is a bad start."

Some 65 per cent of Brazil's freight is carried by lorry; similar to small countries such as Belgium but more than twice the level of other continental countries such as the US, Russia and China.

Of 1.5m kilometres of roads, just 160,000 kilometres are paved. Of these, more than 75 per cent are in "precarious" condition: dangerously potholed, with inadequate and often contradictory road markings.

Accidents are horrifically common and highway robbery is on the rise. There were 8,000 such robberies in 2001, up from 3,000 in 1994, at a cost of R$500m. Many hauliers who suffer these conditions are owner-drivers, accounting for about half of Brazil's 1.8m lorries.

The average vehicle is as dilapidated as the roads, having been in service for 18 years, while maintenance is a luxury few can afford. "Most of them hardly make enough to pay for their diesel and their food," says Geraldo Vianna, president of the National Cargo Transport Association (NTC).

There are few alternatives to the roads: Brazil's rail network is tiny for a country of its size and suffered years of underinvestment and neglect before privatisation in the mid-1990s. Some foreign companies that bought parts of the system have since quit the country.

One reason is the cost of capital in Brazil. Paulo Fernando Fleury of the Federal University of Rio de Janeiro says Brazilian railways produce twice the operating returns of US railways (30 per cent a year compared with 15 per cent) because of low labour costs.

But railways are much more capital-intensive than labour-intensive. While US railways produce return on equity of 9 per cent, Mr Fleury says, Brazilian railways make a negative return of 34 per cent.

Lack of investment capital has also stymied development of river transport. The previous administration's grand plans for intermodal transport systems - to open up the enormous agricultural potential of Brazil's interior - remain mostly at the planning stage.

The cost to the economy is hard to quantify. As an example, Mr Vianna at the NTC says transport inefficiencies force Brazilian companies to hold 21 days' more stocks than US firms, tying up US$30bn.

Optimists hope Mr Lula da Silva will reverse Mr Cardoso's ruling on Cide. More realistically, the government-owned National Development Bank (BNDES) shows signs of paying more attention to development and less, as in the recent past, to returns on its investments. This could signal new funding for the sector.

More help will come if the government succeeds in its drive to make early progress on long-awaited pensions and tax reforms. Both would create sources of investment capital, especially through long-term savings. "These two reforms are the basis of everything in Brazil today," says Mr Andrade at the CNT.

But there are reasons for pessimism, too. The transport ministry has gone to Anderson Adauto of the Liberal party, the PT's electoral ally, rather than to a figure closer to the president, as happened with key ministries.

Mr Adauto has made a shaky start and been accused of corruption in a previous job; senior figures in the PT have called for him to be dismissed. Many fear that transport is not getting the attention it needs.

Mr Vianna at the NTC says: "[Mr Lula da Silva] will only meet his campaign promises if the economy grows. With transport infrastructure in its present condition, that won't happen."

Previous articles in this series can be found at: www.ft.com/lula

www.forbes.com Reuters, 02.12.03, 5:17 PM ET BRASILIA, Brazil, Feb 12 (Reuters) - Brazil's Finance Minister Antonio Palocci said on Wednesday a review by a team of visiting officials from the IMF should proceed smoothly with no expected changes to the terms of a $30 billion loan accord with Latin America's largest economy. "There are no points of tension," Palocci said. "I believe we will have a calm review of the deal. There is no projection of any important change." The loan is the largest ever granted by the IMF. The IMF loan deal, struck last year amid a loss of investor confidence ahead of presidential elections, obliges Brazil to post a primary budget surplus of 3.75 percent of gross domestic product. The primary surplus excludes debt servicing costs. The new government of President Luiz Inacio Lula da Silva announced last week that it is targeting a budget surplus of 4.25 percent of GDP but it is not yet clear whether that will be incorporated into the terms of the IMF deal. The IMF team, which is expected to stay for two weeks, met with Central Bank officials on Wednesday. The review is necessary for the IMF to free up the next tranche of the loan -- of $6 billion -- which Brazil has the right to draw down as of March.

www.alertnet.org 12 Feb 2003 23:40

BRASILIA, Brazil, Feb 12 (Reuters) - Latin America's largest country, Brazil, threw its weight on Wednesday behind a proposal by France, Germany and Russia to reinforce arms inspections in Iraq to guarantee Baghdad has no arms of mass destruction.

The government of center-left President Luiz Inacio Lula da Silva had so far remained silent on the growing crisis over Iraq. But the Foreign Ministry said in a statement that Brazil "supports all peaceful efforts" in the United Nations to disarm Iraq of weapons of mass destruction.

"In this sense, Brazil's government was very interested in the common declaration by Russia, France and Germany about Iraq, which it supports," the statement said.

Although Brazil is not on the U.N. Security Council, it's position as the world's fourth most populous democracy gives it some status on the world stage.