Analysis www.infobrazil.com by John Fitzpatrick          Jan 11 - 17, 2003

John Fitzpatrick is an occasional guest Editor on InfoBrazil. He is a Scottish Journalist who first visited Brazil in 1987 and has been based in São Paulo since 1995. His 27-year career in journalism includes stints as a Reporter in Scotland and England, Deputy Editor of an English-language daily newspaper in Cyprus, News Editor of a radio station in Switzerland, Financial Correspondent in Zurich and São Paulo, and Editor of a magazine published by one of Switzerland's largest banks. He currently runs Celtic Comunicações, a São Paulo company which specializes in editorial and translation services for Brazilian and foreign clients.

No sooner had Fernando Henrique Cardoso handed over the presidential sash to Luiz Inacio Lula da Silva on New Year's Day – knocking his own glasses off in the excitement as he did so – than he headed for the airport and set off for Paris. The haste with which he left Brasilia makes one wonder whether he knows something the rest of us don't.

Perhaps his abrupt departure after eight years may have been meant to show the Brazilian people that they are on their own now, with Lula and his team. Since it is unlikely that Lula would seek any advice from his predecessor, it may not matter that Cardoso practically fled. But the manner in which he departed leaves a rather sour taste in the mouth.

We are now in the hands of Lula, and for the sake of Brazil let us hope he learns fast because the honeymoon is over. Electors will no longer be satisfied with the ear-to-ear grins and the tearful descriptions of his life and hard times, with which he has been regaling them since his victory in October.

Behind the scenes, the Worker's Party (PT) team has been busy assembling a government. This is obviously a complex process and appears to have been handled fairly well. At the same time, failing to win over the PMDB, the largest party in the Congress, was a setback. However, the PMDB is as greedy for power as any other party, and this door has not been completely slammed shut. In the months to come we will start seeing shifting political alliances, as the familiar mosaic of Brazilian politics shapes and reshapes itself.

Despite the grouping of disparate parties in his election coalition, Lula's government is top heavy with PT members. The key ministers have started outlining their priorities in line with the PT's electoral programme. The focus will be on ending social inequality although with no drastic moves, such as defaulting on international or domestic debt obligations. Finance Minister Antonio Palocci has said the right things and pledged to reform the scandalous situation in which millions of former civil servants, some only in their 40s or early 50s, enjoy generous inflation-linked pensions, mainly paid for by those in the private sector, who have no such cushion to fall back on.

In the first few days of the new administration we have already seen some changes. For example, the state-owned oil company Petrobras, the largest company in South America, has had its board shaken up. The new company president is a PT senator from the Northeast, and new company board members include Finance Minister Palocci and Lula's Chief of Staff and campaign strongman, José Dirceu. Moves have already been made to reduce the effects of oil price increases on the final consumer by tinkering with taxes. To be fair here, even the Cardoso government interfered in Petrobras pricing policies at times, although it left the company in the hands of professionals rather than politicians.

The new energy minister has spoken against further privatizations in the sector, and of the need for more investment and lower prices. The defence minister announced that Lula had suspended for a year a multi-million dollar contract to renew the air force fleet of fighter planes. According to the minister, priority would be given to fighting hunger.

So far so good, but your correspondent is still apprehensive and a bit fearful of what lies ahead. Lula is untried as a national – as opposed to a party – leader, and we do not know how he will cope with the constant crises that mark Brazil and the day-to-day political bargaining in Congress. One must hope Lula will stick to the script, and let his team, which appears to be fairly competent, get on with things. The problem is that Lula has little patience for the ins and outs of politics, and seems incapable of sticking to a script. An example of the Lula style was the casual manner in which he announced the name of his finance minister during a visit to Washington in December. This was the key appointment, eagerly awaited in Brazil, yet Lula tossed it out to some journalists as though he was making a banal comment on the weather.

The inaugural ceremony itself showed the perils of this informality. By bussing in hundreds of thousands of supporters from all over the country, the PT enlivened the dreary avenues and concrete squares of Brasilia, but gave the security forces a headache they could have done without. Lula's open-top car was soon swamped by well wishers, one of whom even managed to jump inside and give Lula a hug. Later, even when the security had been beefed up, a young woman still managed to get through and Lula posed for a picture with her. Presumably one of the bodyguards took the picture.

During the inaugural ceremony in the Congress a Senator from the Northeast, whose constitutional role was to wind up the ceremony, started speaking off the cuff and congratulated Lula, who was born in the Northeast, as though they were in a bar. None of this mattered to Lula who said at one point? “Vamos quebrar o protocolo mas nem tanto.” (“We'll break with protocol but not too much.”)

Afterwards, Lula allowed every Tom, Dick and Harry congressman to give him a hug and slap on the back and even gave autographs. One wonders what Fernando Henrique Cardoso was thinking as he watched this display, while awaiting the arrival of Lula at the Planalto Palace to receive the sash of office. OK, it was Lula's big day but he will soon have to stop being a man of the people and become the leader of the people.

Finally, it was disappointing to see that no major democratic leader took the pains to turn up at the ceremony. If George Bush was busy planning to invade Iraq, then why did he not send his vice-president? In recent years the French, German and British government leaders have all visited Brazil and pledged to support the country's maturing democracy and efforts to get a fairer deal in international trade. But where were they on New Year's Day?

At least the American Trade Secretary, Robert Zoellick, the man Brazilians love to hate, attended. The result of this pitiful turnout was that two high-profile despots, Fidel Castro of Cuba and Hugo Chavez of Venezuela, were the main ”guests of honour.” A sorry sight indeed when, for the first day since the return to democracy in Brazil, one elected president passed power over to another elected president.                                

Related sites: Official transition website, created by the Worker's Party to provide details of the transition process (Portuguese only) transicao.lula.org.br

www.infobrazil.com by Alcides Ferreira          Jan 11 - 17, 2003

President Luiz Inácio Lula da Silva's first few days in office offered the news media an abundance of photo opportunities. He visited poor towns in the Northeast and brought his entire cabinet with him for a close-up look. In many ways, Lula is still behaving as if he were in the middle of an election campaign – at times, he seems more like a pop star than a president in his public appearances.

Probably the last time Brazil had such a popular president was in the fifties, with the late Juscelino Kubitschek. This is not negative, but the big hopes for change that carried him to victory may well work like a double-edged sword, and turn into deep disillusion in a while. All it would take is a return trip by reporters to the same impoverished locations Lula visited in recent days, and their subsequent stories showing that not much has changed.

As I predicted here, Lula's economic team has so far produced the best performance among all cabinet members. Markets are reacting positively to that. There is, however, one important exception: new Labor Minister Jacques Wagner, who declared that the past administration's proposal to change Labor Legislation Consolidation (Consolidação das Leis do Trabalho, in Portuguese) – a proposal that gathered dust in Congress since the end of 2001 without being voted on – will now be set aside.

In fact, this is consistent since the Worker's Party was among the biggest opponents of the changes proposed. The fact remains that Brazil's labour regulations are a road to hell paved with nothing but good intentions. More than one thousand specific labour rules clutter the Constitution and the Labor Legislation Consolidation The end result of one of the most detailed and strict set of labor laws in the world is that just 40 percent of Brazilian workers are formally registered employees. The majority of workers in Brazil are informal, unregistered, without basic benefits.

As I have been saying here *, a thorough revision of Brazil's labour laws is a vital pre-requisite for employment growth. As things stand, when a company hires someone in Brazil it has to follow every detail in the law, and that means offering the new employee a number of benefits called for in legislation. It makes no difference whether the employer is in a poor state, or if it's a startup company – it will have to put out just as an established enterprise in a bustling city would have to.

Not only has this led to Brazil's enormous informal labour market, but there is also an incredible amount of labor litigation in Brazilian courts. According to University of São Paulo Professor José Pastore, one of Brazil's foremost labor law specialists, there are currently two million litigations making their way through the court system, all related to employment issues. In Japan, which has a labor market equivalent in size to Brazil's, there are just 1,500 lawsuits under way.

As Americans like to say, only a person who has never met a payroll would push aside this issue. Labour Minister Wagner said he intends to modernize labour regulations, and mentioned, for instance, the idea of ending the payment of a fine every time a company fires someone without just cause. Under current legislation, the company pays the employee a fine equivalent to 40 percent of the Employees Severance Indemnity Fund, known as FGTS account, when it fires a employee. FGTS are the initials, in Portuguese, of this fund. Every registered worker in Brazil has an FGTS account, which receives monthly deposits from the employer. These accounts are managed by the government, and can only be drawn in three circumstances: if the employee buys a home, opens a business, or is fired without just cause.

This penalty paid by the employer was created in 1988, when the Brazilian Constitution was given a thorough review in Congress. It was the result of a bizarre negotiation between right and left-wing parties. Leftists, led by the Worker's Party, wanted to re-introduce employment stability as a constitutional guarantee, something that was dropped in the 60s and replaced by the FGTS accounts. The left didn't get its way, but obtained this fine. **

The idea of penalizing a company because it fires someone is nonsense. The result of this is clearly visible in Brazil. What it has generated is a growing informal market, as well as giving rise to yet another very Brazilian "solution" for regulations that don't make a lot of sense. It is quite common for companies and employees to reach informal agreements, in which the company agrees to fire the employee. This allows the worker to draw the funds from the FGTS account. To return the "favour", the employee agrees to give back to the company the 40 percent fine. This money returns to the company under the table, since this type of deal between employer and employee is not recognized in the law books.

Labour unions in Brazil consider this fine is a hard-earned "conquest" and a form of insurance for employees, so predictably, reaction against the new Labour Minister's suggestions was strong. And not surprisingly, Jacques Wagner was forced to backtrack, saying he never really intended to remove the fine specifically. This was another clear indication of the contradictions the Worker's Party will face in government. On one side, part of its members recognize the need to continue reforms and modernize the economy, in spite of the fact that in the recent past, the Worker's Party voted against all major reforms.

On the other side, there are those within the party, as well as key supporters in the labour movement, who will continue to react strongly to these changes, much as they did while in the opposition. In the case of this specific change involving labor regulations, those who might benefit most – the unemployed – have no way of applying pressure, since there are no lobbies or unions acting for the jobless. Barring an unexpected burst of internal defiance, the unfortunate likelihood is that we'll continue to see union leaders grabbing headlines, calling on the new government to preserve, and never extinguish these "worker's rights".

• See also: InfoBrazil Year III, issue 125, week of December 01-07, 2001: Labour Insanity: The True "Cost" Of Hiring, by Alcides Ferreira;

InfoBrazil Year III, issue 125, week of December 01-07, 2001: Outdated Labour Laws: Struggling To Modernize, by John Fitzpatrick;

InfoBrazil Year II, issue 55, week of July 28-August 03, 2000: Employment Rebounds, In Spite Of Red Tape, by Alcides Ferreira;

** See also: InfoBrazil Year II, issue 56, week of August 04-10, 2000 Workers' Fund: Ticking Time-Bomb, by Alcides Ferreira;

news.ft.com Comment & analysis By Raymond Colitt Published: January 13 2003 4:00 | Last Updated: January 13 2003 4:00

Like a firefighter in a rescue operation, Luiz Inácio Lula da Silva leaned from a shanty over a 10ft drop into filth and mud and shouted "I'll get you out of there," to the occupant of the next hut, promising a new home.

The rickety construction on stilts risked collapse from the crowds of supporters that had flocked to see Brazil's newly elected president in Brasília Teimosa, a slum on the outskirts of Recife.

It was the second of three stops on a two-day "reality tour" on which Mr Lula da Silva took his cabinet through some of Brazil's poorest regions in the north-east. Himself a former shoeshine boy and lathe turner, Mr Lula da Silva said: "I want my ministers to look misery in the eye."

He is off to a quick start to try and fulfil his campaign promise of radical action to tackle Brazil's infamous social inequalities. The trip marks a new style of government in Latin America's largest country, in which not only the president but, he hopes, the entire government will be working more closely with the people.

Brazil has one of the world's most unequal income distributions. While regions in the country's south boast living conditions similar to those of Spain, between 10m and 30m of the 175m inhabitants live in conditions similar to those in sub-Saharan Africa. Pockets of misery are concentrated in the drought-stricken north-east and in city slums.

The mayor of Recife, also of Mr Lula da Silva's Workers' party (PT), seemed to have missed the point of the trip, sending in cleaning crews to pull out 10 tonnes of garbage before the distinguished guests arrived.

Still, there was no hiding the sub-human living conditions in Brasília Teimosa (Fearsome Brasília). There is no running water and latrines are little more than a hole in the floor. On particularly stormy days huts are washed out to sea.

Several of Mr Lula da Silva's ministers were deeply impressed. "I have seen this only in movies," said Celso Amorim, foreign minister, who had just returned from the comforts of being ambassador in London.

With teary eyes and a choking voice, Luiz Fernando Furlan, one of the few businessmen in government, admitted the experience would mark his tenure as industry and trade minister. "Without a doubt I'll be more socially aware. Look at their eyes. In all that misery, they are still hopeful."

Wherever he goes, Mr Lula da Silva is greeted with spontaneous celebration and requests for help. Geazi Belarmino da Silva was one of many in the crowd hoping to pass the president a letter. He would like to get back his job as a mailman, which he lost 12 years ago.

One of numerous signs hung from windows read: "Brazil is 1000 times bigger than its problems - congratulations Lula." Another read: "Lula you have been sent by God to save the poor. Now keep your promises - thank you!"

Mr Lula da Silva is walking a fine line between meeting demands and generating even higher expectations. Critics say his high-profile anti-poverty campaign is beginning to smack of populism. Yet, well aware that the post-election honeymoon could soon fade, he must show results to maintain the support he needs to implement much-needed and often controversial reforms.

Stern-faced and visibly tired from the first two intense weeks on the job, the former metalworker did not appear to be basking in his massive popularity at the weekend. "This is not about him, he is a humble person," said Mr Amorim.

While talking of a gradual social revolution to Brazil's masses, Mr Lula da Silva's discourse of economic austerity has also encouraged Wall Street in recent days.

Travelling between "poverty hot spots" on the presidential aircraft, he detailed plans to address investors at the World Economic Forum this month. Deep budget cuts that could help meet International Monetary Fund targets were also on the agenda.

Pledging to grant property titles and expand housing resettlement projects for slum dwellers, Mr Lula da Silva asked the poor for patience. "I cannot promise you that tomorrow everything will be resolved. The government is like a baby. It takes nine months to be born and another 11 to walk."

www.infobrazil.com Analysis by Alcides Ferreira          Jan 11 - 17, 2003

President Luiz Inácio Lula da Silva's first few days in office offered the news media an abundance of photo opportunities. He visited poor towns in the Northeast and brought his entire cabinet with him for a close-up look. In many ways, Lula is still behaving as if he were in the middle of an election campaign – at times, he seems more like a pop star than a president in his public appearances.

Probably the last time Brazil had such a popular president was in the fifties, with the late Juscelino Kubitschek. This is not negative, but the big hopes for change that carried him to victory may well work like a double-edged sword, and turn into deep disillusion in a while. All it would take is a return trip by reporters to the same impoverished locations Lula visited in recent days, and their subsequent stories showing that not much has changed.

As I predicted here, Lula's economic team has so far produced the best performance among all cabinet members. Markets are reacting positively to that. There is, however, one important exception: new Labor Minister Jacques Wagner, who declared that the past administration's proposal to change Labor Legislation Consolidation (Consolidação das Leis do Trabalho, in Portuguese) – a proposal that gathered dust in Congress since the end of 2001 without being voted on – will now be set aside.

In fact, this is consistent since the Worker's Party was among the biggest opponents of the changes proposed. The fact remains that Brazil's labour regulations are a road to hell paved with nothing but good intentions. More than one thousand specific labour rules clutter the Constitution and the Labor Legislation Consolidation The end result of one of the most detailed and strict set of labor laws in the world is that just 40 percent of Brazilian workers are formally registered employees. The majority of workers in Brazil are informal, unregistered, without basic benefits.

As I have been saying here *, a thorough revision of Brazil's labour laws is a vital pre-requisite for employment growth. As things stand, when a company hires someone in Brazil it has to follow every detail in the law, and that means offering the new employee a number of benefits called for in legislation. It makes no difference whether the employer is in a poor state, or if it's a startup company – it will have to put out just as an established enterprise in a bustling city would have to.

Not only has this led to Brazil's enormous informal labour market, but there is also an incredible amount of labor litigation in Brazilian courts. According to University of São Paulo Professor José Pastore, one of Brazil's foremost labor law specialists, there are currently two million litigations making their way through the court system, all related to employment issues. In Japan, which has a labor market equivalent in size to Brazil's, there are just 1,500 lawsuits under way.

As Americans like to say, only a person who has never met a payroll would push aside this issue. Labour Minister Wagner said he intends to modernize labour regulations, and mentioned, for instance, the idea of ending the payment of a fine every time a company fires someone without just cause. Under current legislation, the company pays the employee a fine equivalent to 40 percent of the Employees Severance Indemnity Fund, known as FGTS account, when it fires a employee. FGTS are the initials, in Portuguese, of this fund. Every registered worker in Brazil has an FGTS account, which receives monthly deposits from the employer. These accounts are managed by the government, and can only be drawn in three circumstances: if the employee buys a home, opens a business, or is fired without just cause.

This penalty paid by the employer was created in 1988, when the Brazilian Constitution was given a thorough review in Congress. It was the result of a bizarre negotiation between right and left-wing parties. Leftists, led by the Worker's Party, wanted to re-introduce employment stability as a constitutional guarantee, something that was dropped in the 60s and replaced by the FGTS accounts. The left didn't get its way, but obtained this fine. **

The idea of penalizing a company because it fires someone is nonsense. The result of this is clearly visible in Brazil. What it has generated is a growing informal market, as well as giving rise to yet another very Brazilian "solution" for regulations that don't make a lot of sense. It is quite common for companies and employees to reach informal agreements, in which the company agrees to fire the employee. This allows the worker to draw the funds from the FGTS account. To return the "favour", the employee agrees to give back to the company the 40 percent fine. This money returns to the company under the table, since this type of deal between employer and employee is not recognized in the law books.

Labour unions in Brazil consider this fine is a hard-earned "conquest" and a form of insurance for employees, so predictably, reaction against the new Labour Minister's suggestions was strong. And not surprisingly, Jacques Wagner was forced to backtrack, saying he never really intended to remove the fine specifically. This was another clear indication of the contradictions the Worker's Party will face in government. On one side, part of its members recognize the need to continue reforms and modernize the economy, in spite of the fact that in the recent past, the Worker's Party voted against all major reforms.

On the other side, there are those within the party, as well as key supporters in the labour movement, who will continue to react strongly to these changes, much as they did while in the opposition. In the case of this specific change involving labor regulations, those who might benefit most – the unemployed – have no way of applying pressure, since there are no lobbies or unions acting for the jobless. Barring an unexpected burst of internal defiance, the unfortunate likelihood is that we'll continue to see union leaders grabbing headlines, calling on the new government to preserve, and never extinguish these "worker's rights".

news.ft.com By Raymond Colitt Published: January 13 2003 4:00 | Last Updated: January 13 2003 4:00

Like a firefighter in a rescue operation, Luiz Inácio Lula da Silva leaned from a shanty over a 10ft drop into filth and mud and shouted "I'll get you out of there," to the occupant of the next hut, promising a new home.

The rickety construction on stilts risked collapse from the crowds of supporters that had flocked to see Brazil's newly elected president in Brasília Teimosa, a slum on the outskirts of Recife.

It was the second of three stops on a two-day "reality tour" on which Mr Lula da Silva took his cabinet through some of Brazil's poorest regions in the north-east. Himself a former shoeshine boy and lathe turner, Mr Lula da Silva said: "I want my ministers to look misery in the eye."

He is off to a quick start to try and fulfil his campaign promise of radical action to tackle Brazil's infamous social inequalities. The trip marks a new style of government in Latin America's largest country, in which not only the president but, he hopes, the entire government will be working more closely with the people.

Brazil has one of the world's most unequal income distributions. While regions in the country's south boast living conditions similar to those of Spain, between 10m and 30m of the 175m inhabitants live in conditions similar to those in sub-Saharan Africa. Pockets of misery are concentrated in the drought-stricken north-east and in city slums.

The mayor of Recife, also of Mr Lula da Silva's Workers' party (PT), seemed to have missed the point of the trip, sending in cleaning crews to pull out 10 tonnes of garbage before the distinguished guests arrived.

Still, there was no hiding the sub-human living conditions in Brasília Teimosa (Fearsome Brasília). There is no running water and latrines are little more than a hole in the floor. On particularly stormy days huts are washed out to sea.

Several of Mr Lula da Silva's ministers were deeply impressed. "I have seen this only in movies," said Celso Amorim, foreign minister, who had just returned from the comforts of being ambassador in London.

With teary eyes and a choking voice, Luiz Fernando Furlan, one of the few businessmen in government, admitted the experience would mark his tenure as industry and trade minister. "Without a doubt I'll be more socially aware. Look at their eyes. In all that misery, they are still hopeful."

Wherever he goes, Mr Lula da Silva is greeted with spontaneous celebration and requests for help. Geazi Belarmino da Silva was one of many in the crowd hoping to pass the president a letter. He would like to get back his job as a mailman, which he lost 12 years ago.

One of numerous signs hung from windows read: "Brazil is 1000 times bigger than its problems - congratulations Lula." Another read: "Lula you have been sent by God to save the poor. Now keep your promises - thank you!"

Mr Lula da Silva is walking a fine line between meeting demands and generating even higher expectations. Critics say his high-profile anti-poverty campaign is beginning to smack of populism. Yet, well aware that the post-election honeymoon could soon fade, he must show results to maintain the support he needs to implement much-needed and often controversial reforms.

Stern-faced and visibly tired from the first two intense weeks on the job, the former metalworker did not appear to be basking in his massive popularity at the weekend. "This is not about him, he is a humble person," said Mr Amorim.

While talking of a gradual social revolution to Brazil's masses, Mr Lula da Silva's discourse of economic austerity has also encouraged Wall Street in recent days.

Travelling between "poverty hot spots" on the presidential aircraft, he detailed plans to address investors at the World Economic Forum this month. Deep budget cuts that could help meet International Monetary Fund targets were also on the agenda.

Pledging to grant property titles and expand housing resettlement projects for slum dwellers, Mr Lula da Silva asked the poor for patience. "I cannot promise you that tomorrow everything will be resolved. The government is like a baby. It takes nine months to be born and another 11 to walk."