Reuters, 01.08.03, 1:58 PM ET

By Hugh Bronstein NEW YORK, Jan 8 (Reuters) - Brazilian sovereign bonds rose on Wednesday as investors gradually increased their bets that the country's new president, former metal worker Luiz Inacio Lula da Silva, will defy early market predictions and properly manage Latin America's biggest economy.

Benchmark Brazil C bonds <BRAZILC=RR> rose 3/4 to bid 71-1/4. The bonds have climbed back from trading in the 40s several months ago, when fear of Lula was at its highest.

Since winning October's election and being sworn in last week, Lula has eased investors nerves by signaling he will not abandon prudent economic policies in his quest to improve the lot of average Brazilians.

"We're seeing a snow ball effect in Brazil in terms of continuing good news out of the authorities," said Rafael de la Fuente, an emerging markets analyst at BNP Paribas.

Lula, a former union boss once notorious on Wall Street for suggesting the government default on foreign bondholders as a way of steering money toward the nation's poor, won points from those same investors on Tuesday when his government vowed to fight a potentially budget-busting court decision in favor of releasing federal government funds to Rio de Janeiro state.

The funds had been blocked due to Rio's failure to pay debts owed to Brasilia.

"The decision yesterday by the administration to stand firm on the application of the fiscal responsibility law is probably one of the best signs we've had from the new government," de la Fuente said.

Brazil's 27 states and 5,000 plus municipalities owe the federal government nearly 300 billion reais ($91 billion), or more than one third of the total public sector debt. If other states win release of funds it could compromise the federal government's debt servicing ability.

Emerging market bond spreads tightened by eight basis points to 705 over U.S. Treasuries, according to JP Morgan's Emerging Markets Bond Index Plus. Brazil's portion of the index tightened 45 basis points to 1223.

Tighter spreads reflect the perception of decreased risk as measured against safe-haven U.S. Treasury bonds.

"The market likes the news coming out of Brazil in spite of the hiccup yesterday with the legal ruling in favor of the State of Rio," said Fernando Losada, senior Latin American economist at ABN-AMRO.

"Lula continues to say the right things and the market also likes most of his economic team," Losada said.

VENEZUELA TRADES SIDEWAYS, UNCERTAINTY REIGNS Venezuelan bonds traded sideways on Wednesday, after having lost more than 5.3 percent in total returns so far this month as the South American oil exporting nation suffers through a general strike launched Dec. 2.

Venezuelan spreads tightened 12 basis points to 1243 on Wednesday. The country's bank workers' unions announced a 48-hour stoppage in support of the strike aimed at pressing leftist President Hugo Chavez to resign and hold early elections.

Union leaders said the action by employees at private and state banks across the country would halt services to the public Thursday and Friday.

Chavez was elected in 1998 vowing to wrest control from the country's corrupt elite and enact reforms to help the poor. But opposition has grown amid charges the president wants to establish a Cuban-style authoritarian state.

"I think Venezuela should sell off more than it has," de la Fuente said.

He warned of deep fiscal problems to come as the government is starved of oil and tax revenue.

"Irrespective of what happens politically, you still have an economy in deep recession and an oil company that is at a standstill," de la Fuente said. "It will take some time to get (state oil company) PDVSA running again. You can't just switch the tap on and off."

     Brazil's new President Luiz Inacio Lula da Silva is taking as a personal snub Washington's decision to send U.S. Trade Representative Robert B. Zoellick to Brasilia for his inauguration on Jan. 1. The Bush administration had sent "the subsecretary of a subsecretary of a subsecretary," Lula sniffed. In contrast, among the delegates from 191 nations present at the ceremony were Presidents Fidel Castro of Cuba, Venezuela's Hugo Chavez and South Africa's Thabo Mbeki. Spain sent the Prince of Asturias, heir to the throne.      -0-      Speaking of Lula, as he's commonly called, the CIA unit tasked to develop biographical profiles on all new international leaders to help Washington decision-makers formulate policy is going to have fun with the new Brazilian president. Among the interesting findings they have to evaluate is a July 1979 interview in the Brazilian edition of Playboy. Titled "Entrevista bomba: Lula o metalúrgico" ("Explosive interview: Lula the metallurgist"), the magazine detailed Lula's political views while running the Metalworkers Union. Lula expressed admiration for Hitler and Khomeini. "There are some figures that I admire very much, taking for granted Tiradentes (an early Brazilian fighter independence) and others that did a lot for the independence of Brazil and to better the conditions of the people....As for example, Hitler, who, even though he was wrong, he had that which I admire in a man, the fire of setting himself to achieve something and to go after it...I don't know much about Iran, but the strength that Khomeini showed, the determination to bring down the regime of the Shah, that was serious business." Lula tempered his comments by noting that he solely admired their political strength and dedication, but not their ideology.

By Roger Burbach* 13 December 2002

Luis Inacio Lula da Silva, the incoming president of Brazil, is demonstrating an uncanny ability to move forward a progressive agenda while keeping his conservative antagonists at bay. This was clearly demonstrated in his meeting with George W. Bush in Washington on 10 December 2002. Pablo Gentili, an Argentine international analyst at the State University of Rio de Janeiro, declares: "Da Silva reaped the support of the Bush administration while making it clear that his government will set its own agenda and priorities. He has an extraordinary capacity to build broad support for his left-leaning policies in the face of domestic and international adversity."

Before da Silva's arrival in Washington key Republican Congressional figures, along with right-wing conservatives identified with the Reagan administration's bellicose policies in Central America, were calling for Bush to take a tough stand against the incoming president who is commonly referred to as "Lula". They decried the new leftist threat in Latin America, asserting that a "Lula, Castro, Chavez axis" was in the making, referring to Presidents Fidel Castro of Cuba and Hugo Chavez of Venezuela.

Lula had also been hit by international speculators prior to his visit to Washington. Fearful that the social policies advocated by the new government will adversely affect Brazil's ability to make payments of its huge international debt totalling 240 billion US dollars, the investment bank of J.P. Morgan on 2 December downgraded its rating of Brazil from "neutral" to "negative". This shift led to a slide in the value of Brazil's currency, the real, and a slump in the country's stock market.

As Francisco Meneses of IBASE, an independent research institute in Rio de Janeiro, notes, "Before coming to Washington, Lula positioned himself so that international institutions and politicians like Bush would find it difficult to go after him." The day after he won the Brazilian election, Lula declared that his number one priority when he takes office on 1 January 2003 was to end hunger among 23 million Brazilians, approximately one-seventh of the country's population. The campaign will be accompanied by increased subsidies to poor families aimed at keeping their children in school, by a fairly radical agrarian reform programme and by significant government support for agricultural cooperatives.

"By making the ending of hunger his number one priority, Lula has inoculated himself against many of his detractors," says Meneses. As an expert on agrarian issues, Meneses has been participating in the planning meetings for the government's campaign against hunger. He says the World Bank, along with the United Nations Food and Agricultural Organization, have already informally committed their institutions to spending 5 billion US dollars over the next four years on the campaign against hunger.

Even the most orthodox international lending institutions have been checkmated by da Silva's announced policies. Just days before Lula left for Washington, the head of the International Monetary Fund, Horst Kohler, went to Brazil. After meeting Lula, Kohler proclaimed that the incoming president "is a leader for the 21st century". He even endorsed Lula's call for increased social spending and lamented J.P. Morgan's downgrading of Brazil's investment rating.

One major area of discussion between the Bush administration and Lula in Washington focused on the Free Trade Area of the Americas (FTAA). Bush has made this agreement the lynchpin of his Latin American policy, calling for all the countries of the hemisphere (except Cuba) to begin reducing trade barriers in 2005. Lula has repeatedly expressed reservations about FTAA, asserting that it favours US domination of Latin America.

Lula positioned himself strategically in the FTAA debate by meeting regional allies before going to Washington. As Marcos Arruda, a foreign policy consultant to the incoming government notes: "Lula intentionally visited neighbouring countries before visiting Bush to make it clear he would not grovel for US support and that Brazil has its own agenda and interests in South America." On 2 December Lula visited Argentina, Brazil's leading partner in MercoSur, the regional trade block that also includes Uruguay and Paraguay. Next he went to Chile, an associate member of MercoSur. In his major address in Buenos Aires Lula called for a strengthening of MercoSur "so we can take control of our destiny" and end "our dependency on international currency flows". In Argentina as well as Chile, Lula asserted that MercoSur should take priority over other trade agreements, and went on to call for a common currency among MercoSur nations and the formation of a regional Parliament.

In Washington Lula was able to seize the commercial high ground by pointing to a series of US protectionist measures that actually run counter to authentic free trade. Approximately 25 per cent of Brazil's exports valued at over 14 billion US dollars currently go to the United States. Twenty of the leading products face average US tariffs of 39 per cent. If the trade barriers were removed on just four products - orange juice, steel, meat and soy products - it is estimated that annual Brazilian exports to the US would jump by 2 billion US dollars.

Francisco Meneses of IBASE believes it is doubtful that the talks between Lula and Bush will actually lead to any significant reduction of US trade barriers, particularly on products like orange juice. "Bush's brother Jeb, as governor of Florida, obviously has a stake in keeping out Brazilian juice because of his alliance with local orange growers." Moreover, Meneses worries that even the apparently favourable rapport between Lula and George W. Bush will soon sour. "With Iraq and the Middle East, the administration has its hands full; it doesn't want to create a crisis with the Lula government for now. Bush is biding his time. He will wait for the inevitably deeper reactions of domestic and international interests opposed to Lula's progressive social policies before moving against the new government."

January 3 2003 By Hector Tobar Brasilia

Amid a swirl of red flags and a chorus of leftist slogans, Luiz Inacio Lula da Silva was inaugurated as President of Brazil on Wednesday. He promised to launch a crusade for social justice, but his aides announced that one of his first acts would be a fiscally conservative move to limit the size of government.

"When I look at my own life, I know with great certainty that we can do much more," said the man most Brazilians call simply Lula, recalling his rise from an impoverished rural family, to factory worker and union leader, and now President of Latin America's largest nation.

"We will bring about change with courage and humility," Mr da Silva said in an inauguration speech before the National Congress that lacked specifics on measures he will take to address the nation's economic crisis and its $A464 billion debt.

That didn't seem to matter at the inauguration: More than a few of his supporters greeted the arrival of Mr da Silva's caravan with the wild enthusiasm of rock fans. One man nearly pulled the new President out of his moving Rolls-Royce in an attempt to embrace him, while others jumped into the pools of water that surround many government buildings, waving their arms frantically.

Yesterday Mr da Silva was scheduled to sign his first decree. It will require all ministers to reduce their staffs by 10 per cent and will prohibit them from issuing new contracts for 30 days.    advertisement       advertisement

Such austerity defined the government of his predecessor, Fernando Henrique Cardoso.

"Change will be slow and gradual," said Luciano Dias, a political scientist. Yet, as was clear again on Wednesday, many of the voters who elected Mr da Silva in a landslide in October expect nothing short of a wide-ranging social revolution. They want quick action on the promises he reiterated in his inauguration speech, including agrarian reform and a "zero hunger" program.

"This is a victory of the people," said Odete Costa, an activist from the President's Workers' Party from the Amazonian state of Para. "We will have a new kind of government, we will do away with corruption, and we will fight hunger."

In all, more than 100,000 people, many of them Workers' Party activists, descended on the capital to celebrate.

Cuban President Fidel Castro was among the visiting dignitaries, as was beleaguered Venezuelan President Hugo Chavez - both fiery leftists.

In his speech, Mr da Silva received the loudest and longest ovation for a jibe at the Bush administration's war plans in Iraq. "International crises, like the one in the Middle East, should be resolved through peaceful means and negotiation," he said.

More than 100 countries sent representatives to the inauguration. The US sent its Trade Representative Robert Zoellick, who met Antonio Palocci, Mr da Silva's Finance Minister, for an hour on Wednesday.

"It was a listen-and-learn visit, in which the basic economic problems of Brazil were discussed," Mr Zoellick said.

While still a presidential candidate, Mr da Silva agreed to abide by an agreement with the International Monetary Fund to maintain a budget surplus of 3.75 per cent during his first year in office.

In the weeks before the inauguration, he filled key economic posts with men considered friendly to Wall Street and the international investment community, including his nominee for president of the Central Bank, Henrique Meirelles, a former executive at Bank Boston.

"One thing that the Workers' Party has learnt in these past eight months is that the markets have power and the party will have to abide by that," said Alexandre Barros of Political Risk Analysis, a Brasilia consulting firm.

• Los Angeles Times

Reuters, 01.05.03, 12:39 PM ET

BRASILIA, Brazil, Jan 5 (Reuters) - Brazilian President Luiz Inacio Lula da Silva has suspended all new road works in an effort to save money for social projects, local media reported on Sunday. The measure, which could save 5 billion reais ($1.46 billion), was announced this weekend by Transport Minister Anderson Adauto Pereira.

"I received from the president the judgment of defining clear priorities," Pereira was quoted as saying in daily Jornal do Brasil. "So we decided the priority is the upkeep of the road network." Under the decision, about 60 tenders for the building of new roads will be suspended but old roads will continue to be maintained. Pereira said he may ask the army to help in upkeep of existing roads.

According to this years budget, some 7.8 billion reais was destined to be spent on the road network in 2003, including new roads. The decision was the second cost-saving measure to be announced by Lula's new government since it took office last week. The first was the suspension of the purchase of 12 new fighter jets for $700 million.

Lula, who is Brazil's first president from a left-wing party, has made his top priority a "zero hunger" program to help Brazil's estimated 54 million poor.

With Brazil's finances constrained by strict fiscal targets under a $30 billion IMF loan, Lula needs to save money where he can to both meet spending targets and fulfill his promises of spending on the poor.

His justice minister, Marcio Thomas Bastos, also announced this weekend that the government intends to regularize ownership of shantytown housing, allowing owners of properties in Brazil's vast slums to legally own their dwellings.

While helping the poor in slums, the move could also help the economy as millions in Brazil have no access to credit because they have no formal address. Copyright 2003, Reuters News Service