www.forbes.com Reuters, 01.30.03, 4:02 PM ET By Todd Benson

SAO PAULO, Brazil, Jan 30 (Reuters) - Brazil's currency strengthened on Thursday as investors waded back into the market after a recent spate of losses, encouraged by fresh data showing the country's fiscal health on the mend.

Stocks, however, backtracked as investors, spooked by the possibility of a U.S.-led war against Iraq, took profits following Wednesday's 3 percent surge.

"The outlook here is fine, the problem is the market climate abroad right now," said Tomas Taterka, a stock broker at Concordia brokerage in Sao Paulo. "When you've got a war looming, investors are going to cash in profits every chance they get, and that's what happened today."

After jumping more than 1 percent in early trading, the Sao Paulo Stock Exchange's benchmark Bovespa <.BVSP> index slipped 1.04 percent to 10,750.7 points in choppy trade.

In the currency market, the Brazilian real gained ground against the dollar for the second straight day, firming 1.1 percent to 3.56 to the greenback.

The gains came as the government posted a record primary budget surplus of 52.4 billion reais ($14.7 billion) in 2002, easily beating its target agreed on with the International Monetary Fund for the fourth year in a row.

The surplus, which excludes debt servicing costs, was the equivalent of 4.06 percent of gross domestic product, leaving the new government of President Luiz Inacio Lula da Silva with ample room to shoot for a higher number, traders said.

"The 4.06 number was very good," said Gustavo Alcantara, a fund manager at Banco Prosper in Rio de Janeiro. "That means the government can easily raise the target to above 4.5 percent without resorting to a harsh fiscal shock."

Lula's finance minister, Antonio Palocci, said on Wednesday the government intends to raise its primary surplus target for 2003 to above the current 3.75 percent of GDP goal mandated by a loan agreement with the IMF.

By increasing the surplus, the Lula administration would be sending a signal to investors that it is taking the necessary steps to reduce Brazil's hefty debt-to-GDP ratio, which ended 2002 at 56 percent.

In the stock market, losers outpaced winners by a ration of 35 to 13, while six shares settled unchanged. Final trading volume was modest, totaling 404.9 million reais.

Bellwether stock Tele Norte Leste Participacoes (Telemar) <TNLP4.SA>, Brazil's biggest fixed-line telephone company, led the market lower. Telemar shares skidded 1.52 percent to 26.50 reais.

Long-distance carrier Embratel Participacoes <EBTP4.SA>, the Brazilian unit of troubled telephone giant WorldCom Inc. <WCOEQ.PK>, was among the few stocks settling on the upside.Embratel shares, among the most volatile at the exchange, shot up 3.77 percent to 3.58 reais.

In the banking sector, stock in Banco Bradesco <BBDC4.SA>, Brazil's No. 1 private bank, retreated 2.42 percent to 9.68 reais despite news it had offered 50 million euro bond.

Among exporters, shares in mining giant Companhia Vale do Rio Doce (CVRD) <VALE5.SA> settled unchanged at 89.50 reais after the company announced it would pay a minimum of $400 million in dividends in 2003.

news.ft.com By Raymond Colitt in São Paulo Published: January 30 2003 19:19 | Last Updated: January 30 2003 22:12

President Luiz Inácio Lula da Silva on Thursday launched an ambitious campaign to eradicate famine in Brazil, his first big policy initiative to tackle the country's infamous social inequalities.

"It is much more than an emergency donation of food. We need to attack the causes of hunger, to give fish and teach how to fish," Mr Lula da Silva said.

The success of the government's flagship welfare programme will be key in sustaining the popularity Mr Lula da Silva requires to implement much-needed structural reform to alleviate Brazil's economic problems. Reducing social inequalities, the president has argued, is not only a moral obligation but also essential to maintain political stability.

José Graziano, the government minister charged with the programme, said a pilot project would begin next week in the drought-plagued north-eastern state of Piauí, one of the country's poorest. Families would receive electronic debit cards with which they can withdraw R$50 each month from public banks to buy food.

He also announced an increase of funds for day care centres and school lunches. The programme, which is to include numerous welfare projects such as job training and scholarships, will rely heavily on local community organisation for its implementation and control.

The programme is to be funded by the government, multilateral lending agencies and corporate donations.

Mr Lula da Silva has earned applause at home and abroad for his emphasis on hunger eradication. Many people have donated food and celebrities, such as super model Giselle Bundchen, have given money. Unlike sub-Saharan Africa, famine in Brazil is localised and the food supply is ample. But since taking office a month ago, Mr Lula da Silva has found that implementing policies to eradicate famine is no easy task.

"The programme is as complex as the enemy [hunger] it tries to conquer," Mr Lula da Silva said on Thursday. "It won't be eliminated over night."

Surprisingly, the anti-famine programme has generated con siderable controversy, particularly over who is to benefit and who is to control government aid.

Defining and identifying target populations has been difficult because of diverging statistics and methodologies, and politically sensitive due to competition among constituencies. Some 10m people are considered undernourished and 45m as living under the poverty line.

Some analysts cautioned that a broad-focused project, a large target population and unnecessary bureaucracy could dilute the impact of the project.

Critics even within Mr Lula da Silva's Wokers' party (PT) have opposed restricting the use of aid for food purchases, arguing family needs vary substantially. The more restrictions are imposed, the bigger the chance for fraud and the more difficult and costly control of the programme becomes, they say.

The government will launch an advertisement campaign in coming days in an effort to generate public awareness and involvement.

news.bbc.co.uk Thursday, 30 January, 2003, 21:10 GMT

The Brazilian president has launched an ambitious programme to eliminate poverty in Brazil, the biggest country in Latin America.

President Luiz Inacio Lula da Silva, better known as Lula, aims to make a real difference for millions of people by the end of this year alone.

Everyone... [will] eat a decent meal three times a day, every day, without needing donations from anyone

Lula Zero Hunger, as the programme is known, is one of the principal pillars of the new, leftist president's social agenda.

"We are going to create the conditions so that everyone in our country can eat a decent meal three times a day, every day, without needing donations from anyone," he said at the launching ceremony in Brasilia.

The president toured the vast country's poorest regions soon after taking office this month and promised help to the destitute.

The new programme is meant to supply 1.5 million of the poorest families, especially in the north-east, with a monthly income of $15 to buy basic foods by the end of the year.

It will also continue previous government initiatives, such as cash handouts given on condition that children are sent to schools where they get free meals.

Earlier this week, Lula called on world leaders in Davos, Switzerland, to set up a global anti-poverty fund.

Cash cards Lula launched the new programme in front of an audience of 500 invited guests.

The government, which has earmarked $500m of its funds for the programme, is also appealing to Brazil's wealthy to donate and supermodel Gisele Bundchen has already given almost $30,000.

Brazil's poor World's 10th biggest economy 46 m out of 170 m people live on less than a dollar a day

The president warned that hunger could not de defeated by "isolated government measures".

"Conquering hunger will demand a lot of effort, a lot of persistence, a lot of courage and dedication from all of us during the next four years," he said.

The BBC's Tom Gibb reports that most of Brazil's projects for the long-term elimination of hunger are still on the drawing-board, with serious arguments within Lula's administration on how to proceed.

Lula is asking the rich to pitch in like model Gisele

Initially, the centrepiece of the programme was to be through handing out coupons to buy food, but the idea was dropped after experts said it would merely create a black market in coupons.

So now recipients will be given an electronic card which will allow them to claim their $15 a month in cash to buy food.

The first recipients will be in Guaribas and Acaua, in the northeastern Piaui region, where more than 700 families will shortly collect their aid cards.

Areas badly hit by drought are being given special attention under the programme.

In Brazil, a nation of about 170 million, about 46 million people live on less than a dollar a day.

www.nytimes.com By TONY SMITH

ÃO PAULO, Brazil, Jan. 28 — Despite Brazil's smooth transition to a left-leaning government, two major American banks — J. P. Morgan Chase and Bank of America — announced today that they were reducing their operations in the country.

J. P. Morgan Chase said it was selling J. P. Morgan Fleming Asset Management, with 7 billion reais ($1.9 billion) of assets, to Banco Bradesco. It did not disclose the sale price. Morgan Fleming is based in São Paulo.

Bank of America, meanwhile, said it was cutting back its Brazilian operation sharply, eliminating at least three-fourths of its work force of 200. Bank employees in São Paulo said operations were "practically shutting down," with investment banking activities and the trading desk being deactivated. Advertisement

While the news was hardly a vote of confidence in the new government of President Luiz Inácio Lula da Silva, analysts said Brazil's major banks would be rubbing their hands at another sign they are gradually squeezing the foreign competition out of asset management and generally consolidating control of their home market.

With today's deal, Bradesco's asset management arm, BRAM, will manage more than 60 billion reais ($16.6 billion) of portfolios. Bradesco, Brazil's largest privately owned bank, has recently bought the local operation of Banco Bilbao Vizcaya Argentaria of Spain in a stock-and-cash deal worth over $800 million, and also acquired the asset management arm of Deutsche Bank.

Bradesco's rival, Banco Itaú, bought BBA-Creditanstalt from the HVB Group of Germany last year, after swallowing the private banking and asset management units of Lloyds TSB of Britain in 2001.

"Last year was a hard year for all of us, and it's difficult to paint an optimistic scenario for 2003," said Bruno Pereira, a bank analyst with UBS Warburg in Rio de Janeiro. "So either you make a bet that the markets will recover or you downsize."

"I think we must be getting close to the pinnacle of the mountain of risk aversion," said Tomás Awad at Itaú's stockbroker unit in São Paulo. "Some of the foreign banks simply weren't making the returns they expected and their headquarters must now deal with that in a bear, rather than a bull market."

J. P. Morgan Chase's president in Brazil, Patrick Morin, said the bank was staying in Brazil but would now give priority to investment and private banking and local markets.

In New York, a Bank of America spokesman, Jeff Hershberger, said the downsizing was part of a drive to reduce exposure to emerging markets worldwide.

"We have now decided to restructure our operations in Brazil and Argentina to focus on the bank's global treasury services business in both countries," Mr. Hershberger said.

Bank of America's asset management arm in Brazil, which manages some 2.1 billion reais ($580 million), was not affected by the cuts but could be up for sale, analysts said.

Bank of America's track record in Brazil has not been the best, said Carlos Coradi of EFC, a banking consultancy in São Paulo.

After buying Banco Liberal in 2001, it discovered a $40 million hole hidden away in the institution's offshore operations in the Bahamas. It also made loans to the troubled soccer club Vasco de Gama and the crisis-ridden business daily Gazeta Mercantil. Even loans to some of its foreign-backed clients turned sour. Elektro, a financially sound power generator in São Paulo state, was owned by Enron, while the local wireless operator BCP defaulted after ownership wrangles between BellSouth and a Brazilian banking family, the Safras.

"It looks like Bank of America got nothing right in Brazil," Mr. Coradi said. "It didn't do its homework and embarked on a few adventures."

Several Brazilian banks were swallowed by foreign institutions as the market opened up in the mid-1990's, but those that survived, like Bradesco, Itaú and Unibanco, have expanded and now have retail networks across Brazil. They enjoy better brand recognition and have millions of captive clients — Bradesco alone has more than 13 million — to sell products to.

"When the foreigners came in, there was a huge process of natural selection, but the Brazilian banks that survived have discovered how to position themselves well," Mr. Awad said. "Brazilian banks are obviously less risk averse in Brazil, it's the risk they deal with day to day."

www.economist.com Jan 30th 2003 | PORTO ALEGRE From The Economist print edition

PERHAPS no other world leader could have pulled off the feat achieved last weekend by Brazil's new president, Luiz Inácio Lula da Silva. First, an ebullient crowd of 75,000 at the World Social Forum, a global gathering of the radical left, hailed him as its leader. “He provides hope not only to his own people but to struggling people all over the world,” said Thomas De Castro, a Canadian trade unionist, as he listened to Lula at the forum in Porto Alegre, a tidy state capital in southern Brazil. Then Lula flew directly to Davos, the Swiss town that hosts the World Economic Forum. There, his speech was greeted ecstatically by the assembled businessmen and bankers who symbolise everything that the Porto Alegre event was set up two years ago to oppose.

A month into his term, Lula does not discourage the idea that his Brazil will provide the world with a new paradigm. In Porto Alegre, he cited several Latin neighbours which, he claimed, “have high expectations” of his government. In Davos, he called for the creation of a fund, backed by rich countries and multinationals, to “fight misery and hunger” in the third world. We'll look into it, replied the head of the Davos forum.

World Social Forum, World Economic Forum, Workers' Party (in Portuguese), Brazil's presidency (in Portuguese), Free Trade Area of the Americas, Brazil and the IMF

Yet what brings joy to Davos Man ought to alarm Porto Alegre Woman, and vice versa. The Porto Alegre “progressives”, as they call themselves, are strident folk. Many routinely equate George Bush with Adolf Hitler. The proposed Free-Trade Agreement of the Americas (FTAA) amounts to crimes against humanity. Capitalism itself is thought to be toxic. But while Davos Man may be a little crestfallen of late, his faith in capitalism has been stirred, not shaken.

Ironically, if Lula is to satisfy them both, it will not be by creating a new paradigm but by working creatively within an established one. There are two reasons to think this. The first is that Lula is a reconciler. The marchers' slogan “Don't spill blood for oil” becomes, in Lula's mouth, “the world needs peace, not war,” and drew cheers in Porto Alegre nonetheless. “Down with the FTAA” turned in Davos into “we want free trade” but with “reciprocity”. And for leftists disenchanted with traditional democracy, Lula's election represents the possibility of reprieve.

Second, Lula seeks to achieve progressive ends largely with means that Davos would endorse. His economic team has swallowed the IMF's remedy for countries with weak finances and rising inflation: budget surpluses and high interest rates. Last month, the central bank raised interest rates, already astronomic, by half a percentage point. Brazil's currency and its bonds have weakened recently, but that has more to do with investors' war jitters than with any financial wobbling by the Lula government.

Nevertheless, some of the features of Lula's new paradigm are acquiring definition. In local government, his Workers' Party (PT) pioneered ways to bring ordinary citizens into policymaking through “participatory budgeting”. It plans to take the principle to the federal level, through a new Council of Economic and Social Development. This is supposed to build consensus on reforms within “civil society” and industry. The foreign minister, Celso Amorim, is expected to visit the PT's trade-union arm to discuss trade policy. “We never had ministers consult us before,” said a union official in Porto Alegre.

The government's flagship programme, to be launched over the next few days, is Fome Zero (“zero hunger”), a national version of Lula's proposed international fund to fight misery. But this programme, like others of Lula's policies, is not nearly as novel as he and his supporters claim. It is likely to expand and improve upon anti-poverty schemes set up by Lula's predecessor, Fernando Henrique Cardoso.

Asked to define the new model, Tarso Genro, head of the new council, mentions first “realising the vast possibilities of the internal market”. This entails such unexceptionable measures as investing in infrastructure and research and development and giving small enterprises access to credit. Does the government want to raise taxes, already a weighty third of GDP? No, it would prefer to lower the burden and widen the revenue base, says Mr Genro. This would be done partly by bringing into the formal economy the half of the labour force that works off the books. The new model “is not a radical change,” he admits.

Caution is no guarantee of wisdom. The government could err in many ways that would pass unnoticed by the financial markets, at least for a time. Money could be squandered on badly designed poverty programmes or on bail-outs of failing companies. Rather than trying to prise open North American markets, Brazil could close the door to its own. This week it took action to stem imports of textiles from East Asia to protect its domestic industry.

Porto Alegre progressives would cheer each retreat from “market fundamentalism”, but the Lula government looks unlikely to give them many such satisfactions. What, then, does the PT's pragmatist majority have in common with the Porto Alegre radicals? Opposition to “neo-liberalism”, says Mr Genro. But that convenient political swear word means different things to the two groups. For radicals, the term stands for capitalism; for Lula, a narrow conservative version of it.

Already it is clear that the obstacles to Lula's success may come less from Davos than from within his own camp. On the one hand, he has accepted the support of backwoods political barons whose problem with “neo-liberalism” is that it means a smaller state to plunder. And on the other, his most vocal public critics are on his party's left, preparing to oppose the IMF, and the pension and labour reforms which Lula has accepted are essential to generate the growth and resources needed to fight poverty. If he does show that Davos is no obstacle to economic and social justice, his welcome may be chillier in Porto Alegre by the end of his term.