Adamant: Hardest metal

Lula's reforms stand a real chance if foreign creditors keep calm

www.guardian.co.uk Sue Branford Monday January 13, 2003 The Guardian

Will the international financial community give Lula a chance? There is no doubt that Brazil's new left-leaning president is passionately committed to social reform.

As he repeatedly said in his electoral campaign, it is a national scandal that 9m families are going hungry in this vast country, almost the size of the United States. The Workers' Party would love to turn its back on neo-liberalism, as free market economics is called in Latin America, and introduce expansionist policies with an emphasis on economic growth, full employment and wealth redistribution.

Nothing would please it more than to develop the domestic market of 175m people, which has been stagnant for years because the poor have lacked the jobs and the income to be good consumers.

Yet the new government faces a predicament. Under the outgoing administration headed by Fernando Henrique Cardoso, Brazil adopted the familiar package of IMF policies: cuts in state spending, privatisation of state companies, deregulation, and so on.

At first the policies seemed to be working. Foreign investment poured in, growing eightfold between 1995 and 2000, but it did not deliver the promised high rates of economic growth. The abundance of dollars led to an appreciation in the value of the local currency, the real. With exports priced out of the market, Brazil began to suffer heavy trade deficits which the government had to cover by borrowing heavily at home and abroad.

Throughout the 1990s the country was hit by a series of external shocks. Each time government was able to restore confidence only by raising interest rates, which further depressed the economy and made it more expensive to service the internal and foreign debts. In August last year it seemed that Brazil would follow its neighbour Argentina into default but the IMF, fearful of the international repercussions, came up with its largest loan to date, of $30bn.

This loan, most of which is yet to be disbursed, is creating problems for the new government. Among its strict conditions, the IMF is demanding a budget surplus of at least 3.75% this year. If the government agrees, it can wave goodbye to reactivating the economy this year and shatter the hopes of millions of poor Brazilians. As financier George Soros has pointed out, the power of the "market" to determine Brazil's economic policy amounts to a serious infringement of the country's democratic rights.

Even though he confesses that the state of the economy is extremely serious, Lula believes there is a way out of the conundrum. He says that on the macroeconomic front Brazil must respect existing budget constraints for one or two difficult transitional years. Rather than spending more, the government will have to make progress by rooting out corruption and reallocating existing resources.

After consulting military chiefs, Lula has cancelled an order for military aircraft and said the armed forces will play a greater role in tackling social problems such as distribution of food to starving families, rather than preparing for anunlikely war with a neighbour. As his first act in office, the transport minister has frozen highway construction to allow time to review the transport needs of the poorer sectors.

Along with the economic caution, Lula has been radical on the social front. The environment minister, Marina da Silva, who was born into a family of poor rubber-tappers deep in the Amazon forest, has brought many of Brazil's most active environmentalists into her ministry and is preparing new policies for many controversial issues, including the Amazon rain forest.

The education minister, Cristovam Buarque, is a respected leftwing intellectual who is promising a radical overhaul of the country's education system, currently heavily skewed in favour of middle class children. The minister of agrarian reform, Miguel Rossetto, is an ally of the militant landless peasant movement, the MST, and is promising far-reaching agrarian reform.

Can the strategy work? On the plus side are the government's high level of legitimacy, given the enthusiastic backing of the population, and a slight easing of the external constraints because of the better than expected trade surplus, $13bn in 2002. On the down side is Brazil's heavy dependence on foreign money.

Although the markets have reacted calmly to Lula's first fortnight in office, few expect this to last. If the government's radical social reforms begin to alarm foreign creditors, millions of dollars could again start haemorrhaging out of the country. Lula will be faced with the stark choice that he wishes to avoid: back-pedal on the reforms and disappoint millions of poor Brazilians, or impose capital controls and provoke the ire of foreign creditors.

Lula's conciliatory approach deserves a chance. Latin America is seething with discontent after 20 years of free market economic policies that have failed to deliver prosperity or social reform. If Lula fails, Latin America faces a bleak and violent future.

· Sue Branford has co-authored Politics Transformed: Lula and the Workers' Party in Brazil, to be published this month by Latin America Bureau, London

Lula reaches out to Brazil's poorest

Lula reaches out to Brazil's poorest by Raymond Colitt in Recife Published: January 12 2003 20:33 | Last Updated: January 12 2003 20:33

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 Braslia 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 Braslia Teimosa (Fearsome Braslia). 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."xref www.ft.com/Brazilpoll

State tones down its rhetoric on Petrobras

news.ft.com By Raymond Colitt Published: January 12 2003 17:03 | Last Updated: January 12 2003 17:03

After several months of the threat of increased government intervention in Petrobras, Latin America's largest listed company in terms of sales, investors are beginning to shed their worst fears.

The left-wing government of Luiz Inácio Lula da Silva, who took office as president on January 1, last week began toning down its nationalist and interventionist pre-election rhetoric to suggest the state-controlled oil company would continue to be run along corporate lines.

José Eduardo Dutra, Petrobras' new president, said he would maintain the company's four-year $32bn investment plan, continue to seek private-sector participation and apply technical rather than political criteria in the company's public tenders.

"We will respect the strategic planning of the company," he said.

In his election campaign Mr Lula da Silva criticised Petrobras for "exporting Brazilian jobs" by contracting the construction of offshore oil platforms abroad.

Mr Dutra said "Petrobras would apply technical and commercial criteria" in tendering service contracts. "It's the government that practises industrial policy giving incentives or conditions for Brazilian companies to construct [platforms]." He suggested the government could aid domestic suppliers with preferential financing.

Dilma Roussef, energy minister, said fuel prices would no longer be set by Petrobras but by the government, but this would not affect its bottom line. "Petrobras needs to be profitable and efficient," she said.

The government was studying the use of taxes to mitigate the impact of currency fluctuations on fuel prices and inflation, Ms Roussef added.

Financial turmoil turned last year's fuel price liberalisation into one of the principal pressures on Brazil's recurring inflation.

The statements generated cautious optimism among several analysts.

"They reinforce our views that there should be no major pricing control risk [or] changes to the company's strategy of expanding production and diluting costs, thus improving profitability," said UBS Warburg in a report last week.

Jorge Alberto Campos, pricing manager at Texaco, said: "I don't think the government will back-track on liberalisation. The private sector is relatively relaxed about that issue."

Petrobras' share price bounced back more than 50 per cent from their pre-election low in October, albeit in part due to rising oil prices.

Yet many analysts remain sceptical and are waiting for policies to follow the government's initial market-friendly statements.

"The signals have been mixed and I am still very cautious," said Carlos de Leon, Latin America oil and gas analyst with Deutsche Bank in London.

The appointment of Mr Dutra, a senator from the president's Workers' Party, has disappointed investors who had hoped for more of a technocrat and less of a politician. He is a geologist and formerly worked for CVRD, the world's largest iron ore exporter.

The bottom line is that the government will continue to have the final word on Petrobras, says Alejandro Bertuol, oil analyst with Fitch.

"In spite of the infusion of corporate culture and the strengthening of its finances over the last two years, the company's link to sovereign risk remains very strong."

A stitch of hope for poor Brazilian town

www.milforddailynews.com By Liz Mineo Sunday, January 12, 2003

FRAMINGHAM -- In northeast Brazil, one of the country's poorest regions, rural women make a living, stitch by stitch, creating fine embroidery and lace they sell for next to nothing.

More than 4,000 miles away in Framingham, Brazilian native Ilma Paixao is determined to change that.

A Framingham resident for the past 17 years, Paixao, 40, plans to start a business that will help her fellow countrywomen reap the benefits of their craft.

Rendeiras, as the lace makers are called in Portuguese, often earn less than Brazil's monthly minimum wage -- $60 -- for pieces that take months to sew. Many don't have access to big markets, and sell their crafts to wholesalers, who often prey on them. For a tablecloth that takes two months to make, rendeiras get $30 from wholesalers who later will sell it for up to $250.

"They've always been taken advantage of," said Paixao at her Lohnes Road home. "They take a lot of pride in what they do, but they have to give it away for whatever they can get. They have no choice."

The arid northeast of Brazil, where recurring droughts hamper the region's economy, is home to 45 percent of the country's poor. With no industry in this impoverished area, most men work the land while women make lace and embroidery to support their families.

Brazil's current president, Luiz Inacio Lula da Silva, was born in this region, the son of farm workers. His family moved from the state of Pernambuco to Sao Paulo when da Silva was 7 years old, seeking a better life.

It's a hard life in a harsh region, said Lucilia Gondim Harrington, a librarian with the Brazilian Embassy in Washington, D.C.

"It's a less developed area," said Harrington, who was born in the city of Fortaleza in the northeast of Brazil. "There aren't too many industries, and people work with ther hands. They're very creative, and arts and handicrafts are widespread in the region."

The work of the rendeiras is well known in the region, said Harrington, who took lessons on how to make laces in the late 1960s while she was growing up in Brazil.

"These women are underpaid," said Harrington. "They live in the countryside and have no way to get to the markets. They often end up selling their products to more than one middleman who marks up the prices."

Through her business, "Linens and Lace," Paixao plans to purchase fine embroidered tablecloths, bedding and children's clothes from the rendeiras in the village of Pocao in the state of Pernambuco and sell them here.

Part of the profit will go to the rendeiras, said Paixao, and to a cooperative she hopes to start with the artisans in the village of 10,000 people. The cooperative will provide a place where the craftswomen can work together and receive training, health care and some other benefits, and preserve their culture.

"Many women lose their eyesight and suffer from arthritis when they get old," said Paixao. "They work without any benefits, and when they get old, they have nothing."

The desire to help is not new to Paixao. Since she moved here in 1984, Paixao has been involved with up to 10 projects helping the disadvantaged in several states in Brazil.

With Paixao's help, groups of street kids in Governador Valadares -- where many of Framingham's Brazilian residents hail from -- learn arts; street kids in Rio Grande do Norte do activities with the local firemen; and low-income women in Sao Paulo learn how to sew, do nails and cut hair. By helping the rendeiras of Pocao, Paixao hopes to benefit the whole village.

"Why not?" said Paixao, who worked as a nurse before moving to the United States. "It really takes little to make a huge difference in people's lives."

Brazilian community leaders praised Paixao's social work.

"Ilma is one of the most involved people in the community," said Urbano Santos, president of Framingham's Brazilian American Association. "She's well known in the community for her work helping the poor in Brazil. She doesn't forget her people. Others should imitate her."

To make sure her venture goes well, Paixao registered for a Community Entrepreneurs Program at the Center for Women and Enterprise, CWE, a non-profit organization sponsored by Citizens Bank designed to help women start and grow business. Over the past seven years, the center has trained more than 5,000 women in Massachusetts and Rhode Island. Paixao's project called the attention of center officials.

"The most impressive thing about Ilma's project is that it's not only going to create a better life for her and her family, but for this whole village in Brazil," said development director Jennifer Bennet, who founded the program four years ago.

Bennet said she's impressed with Paixao's perseverance, tenacity and passion, and hopes the program -- which is similar to a street-smart MBA -- will help Paixao hone her business skills to succeed.

During the course, Paixao learned to establish a budget, write a business plan and how to do market research. While working part-time jobs and caring for her children, ages 13 and 15, Paixao is selling the items locally in crafts shows. And until she can get enough money to open a store, Paixao plans to run her business out of her home.

Surrounded by dozens of samples of embroidery and lace she brought from Brazil, on a recent evening Paixao reflected on her business venture, the situation of the rendeiras and the hopes for change.

"If my business fails, I can do something else," said Paixao. "But what about those women? They have nothing else. They've learned the trade from their mothers and grandmothers. They put so much love in their craft. They deserve better."

(Anyone interested in contacting Ilma Paixao, may call her at (774) 323-3483.)

Filmed on Location: The Gangs of Rio de Janeiro

www.nytimes.com Miramax Films

Li'l Ze's gang in "City of God" by the Brazilian director Fernando Meirelles. The movie has been hotly debated in Brazil. It shows the world "that hell is here, just behind Ipanema," another director said. By LARRY ROHTER

RIO DE JANEIRO A CAST composed almost entirely of unknown actors, a setting that is none too attractive, a lot of violence and no sex scenes. If ever a studio wanted a formula for a film to fail, that would be it," said the Brazilian director Fernando Meirelles.

As he was shooting in the slums here two years ago, Mr. Meirelles worried about the commercial viability of the movie he was making. Yet "City of God," which opens in New York and Los Angeles on Friday, has become a watershed cultural and political event in Brazil, and has now been seen by more Brazilians than any film in nearly 30 years. Advertisement

Every aspect, from its unblinking portrayal of criminality to its innovative cinematography, has been endlessly analyzed and discussed, to the point that Brazil's new president, Luiz Inácio Lula da Silva, is reported to have said that seeing the movie made him change his policy on public security.

"City of God" ("Cidade de Deus") takes its title from the best-selling novel by Paulo Lins, which in turn is named for a gigantic housing project built here in the 1960's and where some 120,000 people live today. Mr. Lins grew up there, knew the real-life characters portrayed in the book and film, and watched as drug gangs gained a stranglehold over the community.

"The book was the fruit of 30 years of observation and 10 years of research," he said in an interview at his apartment in the middle-class neighborhood where he now lives. "From the time I was a little kid, I watched what was going on around me, so everything that appears in the book is real, and that reality is exactly what the filmmakers wanted to capture."

When "Cidade de Deus" was published in 1997, it became an immediate critical and popular success in Brazil, in large part because it showed slum life from the inside — and did so without condemning the people who live there. A friend of Mr. Meirelles gave the director a copy of the book with the suggestion that it might make a good movie.

As it happened, Mr. Meirelles (pronounced mere-ELLIES), who is 47, was then at a crossroads in his career. He had always wanted to make feature films, and had directed several television programs and documentaries, but had drifted into advertising and become probably the most successful director of commercials in Brazil.

"I had won Clio awards and all the other prizes you can win, but I was at that point when you start asking if there isn't something more," he recalled.

Mr. Meirelles's proposal to film "City of God" was one of eight that Mr. Lins received, including some from directors much better known and with experience filming in Rio's favelas, or hillside squatter slums. But when Mr. Meirelles outlined his calculatedly risky plan to cast amateurs from Cidade de Deus and other slum neighborhoods, the balance shifted.

"It was the idea of using actors from the favelas that really moved me and won me over," Mr. Lins said. "The money was almost the same in all of the offers, but Fernando's vision of the project was the most interesting."

Once that hurdle was overcome, the sheer Dickensian sweep of the novel offered Mr. Meirelles his next challenge. At 550 pages, "City of God" has nearly 300 characters and covers three decades in the slum's history: an early 160-page draft of the script won a prize at a Sundance Institute workshop held in Brazil, but even so, a dozen drafts were required before a filmable version was completed.

As a white raised in a middle-class São Paulo neighborhood, Mr. Meirelles faced an additional problem, that of credibility. The American equivalent of the situation he confronted would be a native of the Upper West Side of New York City deciding to go into Los Angeles' South Central to make a movie about black gangs and expecting to be received with open arms.

To ease his way, Mr. Meirelles decided to enlist a co-director, Kátia Lund. Originally from São Paulo, Ms. Lund is of Norwegian descent and a Brown University graduate but had made several Brazilian rap videos in the favelas and had also filmed "News From a Private War," a highly praised documentary about the drug gangs of Rio's slums.

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