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The shadows of South America are under new scrutiny from the media and the government. Could al-Qaeda be operating from a secret base in Brazil? Timothy Pratt investigates

IT is a notion that has gripped the US media: Middle Eastern extremist groups, including al-Qaeda, are reported to be creating a new terror base in the jungles of South America.

And despite a US State Department spokesman telling the Sunday Herald that 'the US has no information that al-Qaeda is present anywhere in Latin America', he admitted that investigating terrorism was 'a major component' of a recent visit by a department official to the so-called triple-frontier region where Paraguay, Brazil and Argentina meet.

Deputy director for counter- terrorism Brigadier General Jonathan Cofer met with officials from the three countries on December 18, and the State Department offered the governments $1 million to strengthen their intelligence-gathering and abilities. 'Future visits are absolutely planned,' added the source.

Terrorism experts agree that the area has all the ingredients of a global hotspot. 'The concept of having international terrorist groups in Latin America is consistent with the region,' says Timothy C Brown, chair of international studies for the Sierra Nevada College in Nevada and a former US diplomat in several Latin American countries during three decades. Brown says he has heard reports in the region of groups including Hizbollah, the Palestinian Liberation Organisation and Hamas, as well as Spain's ETA, 'since at least the 1960s and 1970s'.

Brown, who acted as a liaison between presidents Reagan and Carter and the anti-communist Contras of Nicaragua, has written extensively on guerrilla movements in Latin America. He recalls an incident in Managua, Nicaragua, during the early 1990s in which a bomb exploded at what he described as a safe house for terrorist groups. He says that, in the investigation that followed, documents linked to the PLO, ETA and the IRA were found.

The region currently under American scrutiny has long been a centre for Arabic expatriates: up to 15,000 are understood to live there . Myles Frechette, a 35-year American foreign service veteran who enjoyed a stint as consul in S‹o Paulo, Brazil, recalls being in the state of Parana when Iranian Shi'ite leader Ayatollah Khomeini died in 1989. 'I was in a small town in Brazil, and I remember being surprised to find three mosques full of Muslim Arabs mourning the death of Khomeini,' he says.

The area is also widely known for its leaky borders. 'This is of great concern, because we know there have been people from a variety of Middle Eastern countries coming through for a long time,' says Frechette. 'Most of the Middle Eastern people in the area are peaceful and industrious, but terrorists may be hiding among them.'

Douglas Unger, the author of several books on the region and of a forthcoming article on the guerrilla movements that combated Paraguayan dictator Alfredo Stroessner across the three borders from the 1960s to the 1980s, echoes the former consul's description of the area. 'The region is full of pirates and smugglers, and is sort of a catch-all for immigrants, many of whom are shady,' he claims.

Unger, a Pulitzer Prize-nominee whose last novel, Voices From Silence, was based on the thousands who disappeared under Argentina's dictatorships in the 1970s, also says the region would be an easy place to hide terrorist training facilities. Such camps are rumoured to exist north of Brazil's Igua?u Falls .

'It's possible to be a fringe group here and not be noticed,' he says. 'If you go back to the ongoing history of guerrilla activities, it's always been going on -- so why would it be a surprise that a group of Arabs is training when you have 50 years of this kind of thing?'

It has been suggested that left-leaning governments in Venezuela and Brazil will help create a safer haven for anti-US groups such as al-Qaeda -- but neither diplomat agrees.

Brown believes Latin governments have too much to lose by not at least giving the appearance of cracking down on terrorism: 'There may be sympathies among the left for anti-American ideals, but they understand which side their bread is buttered on.'

Frechette adds: 'President Hugo Chavez of Venezuela has been accused of sympathies to the FARC [a Colombian guerrilla army] and he's done some foolish things, but I don't think he has sympathies for Middle Eastern groups. Brazilian President-elect Lula is left of centre, but he is also nationalist and interested in helping Brazilians, and is trying to confront the problem of violence tied to drugs in his country. I have no reason to believe he is in the least bit sympathetic to Arabic terrorists.

'And in today's post-September 11 atmosphere, if there was anything serious going on there, the US would be johnny-on-the-spot.'

But the challenge, of course, will be finding out about something serious before it happens. As State Department official Francis Taylor said in a speech to leaders from Brazil, Paraguay and Argentina only three months after the September 11 attacks of 2001: 'We are worried ... not by the things we see, but by the things we do not see.'

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Brazil will pay off debts, he pledges BY KEVIN G. HALL     SAO PAULO, Brazil - A day after being elected president of Latin America's largest democracy, Luiz Inácio Lula da Silva sounded a conciliatory tone toward financial markets and asked Brazilians not to expect too much too soon.

  ''As we said in the campaign, our government will honor contracts established by the government. We will not lose control of inflation and . . . we will maintain . . . a position of fiscal responsibility,'' da Silva, the first Brazilian president to be elected from a leftist party, said Monday.

  Da Silva plainly was trying to reassure Brazilians and foreigners that Brazil would be safe in his hands, despite his history as a union radical and leftist political leader. Brazil has been driven to the brink of a financial crisis by investors pulling their money out of the country, at least in part because of fears that da Silva would win the election and overturn existing economic policy.

  On Monday, da Silva outlined his goals for the next four years, saying he had a clear mandate to create a new economic and social model for Brazil. But he also warned his countrymen about expecting dramatic changes after he takes office Jan. 1. Budget cuts in his first year will make it hard, he said, to spend more on social programs.

  ''The hard road facing Brazil demands austerity in the use of public funds,'' da Silva said, pledging creative use of existing monies and saying he would tap state development banks to start as many job-creation programs as he could.

  DEBTS WILL BE PAID OFF

  Da Silva stressed that he would honor all debt-repayment commitments made by President Fernando Henrique Cardoso and promised he would not tolerate inflation. Brazil had runaway inflation in the 1980s and early 1990s, until the Cardoso era.

  Aides had said da Silva wanted to review the $30 billion loan agreement that was extended earlier this year by the International Monetary Fund to shore up Brazil's economy. On the campaign trail, da Silva frequently blasted the IMF and other multilateral institutions such as the World Bank and the Inter-American Development Bank.

  But on Monday he called on those institutions to help Brazil with its economic crisis.

  ''Brazil will do its part to get past this crisis, but it is essential that beyond support [for the government], the multilateral organizations . . . reestablish financing for [Brazilian] companies and international commerce,'' da Silva said.

  Brazil's currency, the real, traded steadily Monday as investors waited for news of da Silva's economic team. Aides have leaked several market-calming items, including a promise to create an autonomous central bank that would largely remove politics from monetary policy. Da Silva meets with Cardoso today, and afterward is scheduled to announce his transition team. Investors hope it will give a clear idea of his economic team and outlook.

  Da Silva received congratulatory calls from world leaders Monday, including Cuban dictator Fidel Castro and President Bush. Despite criticism of the United States during the campaign, da Silva spokesman Andre Singer said Monday that bilateral relations with the U.S. would remain strong.

  U.S. RELATIONS

  ''We want to have the best relationship possible with the United States. It's a very important country and, besides that, the United States is our most important commercial partner, so we want to keep that relationship,'' Singer said. ``But what we are going to do is negotiate hard in defense of our interests as the United States has done all the time.''

  Da Silva also said he was creating a special secretariat for social emergencies that would have combating hunger as its mission, and that hunger would be a benchmark for measuring his success in office.

Nation's First Vote for Leftist Could Set Back Plan for Hemispheric Free-Trade Zone By Scott Wilson   SAO PAULO, Brazil, Oct. 27 -- Luiz Inacio Lula da Silva, a former union leader who never attended college, won a landslide victory today in a Brazilian presidential election that reflected the disenchantment sweeping much of Latin America after a decade of free-market reforms that have failed to deliver promised prosperity.

Lula, as the gray-bearded socialist is known, defeated his centrist opponent, Jose Serra, a former government minister, by a huge margin. With 95 percent of the vote counted, Lula had 61.5 percent, compared with 38.5 percent for Serra, after a day when millions of Brazilians cast ballots before massing along busy boulevards across the country for evening celebrations. Few voting problems were reported. Serra conceded the election to Lula in a congratulatory phone call tonight.

Lula's victory marks the first time a leftist has been elected president of Latin America's most populous country, and is the clearest demonstration to date of the growing backlash against globalization in this part of the world. His election could mean trouble for the economic reforms backed by the United States -- in particular, a hemisphere-wide free-trade zone -- that represent the Bush administration's most important policy initiatives in Latin America.

While voting in this city's middle-class suburb of Sao Bernardo, Lula appeared to speak to the millions of Brazilians who have endorsed his pledge to move the world's eighth-largest economy away from the "Washington consensus" followed by his predecessor and toward what he has called a "new economic model" for this traditionally conservative country.

"I want to dedicate this election to the suffering poor of our beloved Brazil," Lula told hundreds of chanting, cheering supporters who had gathered at the polling place.

"The result of this election shows that from Jan. 1, we will be responsible for 170 million Brazilians, and we will have to govern with all of Brazilian society to build a more fair, more brotherly and more united country," Lula said in a victory speech tonight before hundreds of supporters in a downtown hotel and tens of thousands more gathered along Paulista Avenue, who watched on closed-circuit television screens. "We are showing the international community a lesson in democracy."

Today's election also marked a milestone in Brazil's democracy, which emerged 17 years ago with the collapse of a repressive military dictatorship. Lula made his name as an opponent of that regime, and his apparent broad-based victory could end the political monopoly that a small, economically powerful elite has enjoyed for much of this century.

Lula, who turned 57 today, spent much of the afternoon awaiting election returns with family and friends in his apartment in Sao Bernardo. Groups of supporters gathered throughout the day on the avenue outside, waving flags bearing the red star of his Workers' Party and celebrating what polls have suggested would be a resounding victory after three previous runs for the presidency.

Raised by a single mother, Lula began earning money for his family on the streets of this city at age 7, and started his first regular job in a laundry service five years later. At 17, he was a metal worker at one of the factories that encircle this city of 17.7 million people, eventually rising to head the 100,000-member metal workers union that gave him a perch in Brazil's politics.

At the time, Brazil's military dictatorship was waging a "dirty war" against student leaders and union organizers in a bid to maintain power. In 1964, the military toppled the country's last leftist leader, President Joao Goulart, after he rose to office from the vice presidency following the resignation of his predecessor. He was never elected president.

Brazil's Workers' Party emerged in 1979, largely at Lula's urging, as a vehicle to speed along the dictatorship's collapse. That eventually occurred six years later, and Lula was elected to Congress the next year with more votes than any other candidate in the country. He made his first run for president three years later, narrowly losing to Fernando Collor de Mello, who resigned in 1992 after being impeached on corruption charges.

But it wasn't until this year, as Brazil suffered through a fourth year of economic stagnation, that Lula's populist message finally resonated beyond the labor unions, landless peasants and urban poor who have long been his political base. Promising a sharp change of tack from President Fernando Henrique Cardoso's eight-year experiment with free-trade agreements and free-market reforms, Lula has outlined a populist agenda that calls for new spending on social programs and promises millions of new jobs.

At the same time, Lula, who begins his four-year term on Jan. 1, has been trying to appease jittery international markets that have reacted sharply to his probable election. Brazil's national currency, the real, has lost 40 percent of its value against the dollar this year and Brazilian bonds have plummeted. Lula, who has backed away from previous threats to default on Brazil's $260 billion public debt, has called the market reaction "economic terrorism."

Lula, who opposes both U.S. military aid to Colombia and the embargo on Cuba, has suggested in recent days that he will chart a more moderate course. He intends to name a conservative economist to run Brazil's Central Bank, his aides have suggested in recent days, and he has pledged to abide by the terms of a recent $30 billion International Monetary Fund emergency loan approved in part to keep Brazil from following neighboring Argentina into economic meltdown.

But he has not backed away from his steadfast opposition to the Free Trade Area of the Americas, at least as it is currently conceived. New U.S. steel tariffs and agriculture subsidies have dimmed prospects for the hemisphere-wide free-trade zone, a Bush administration priority, and Lula's opposition to it enjoys large support within Brazil's business community and disillusioned middle class.

"The rich have gotten richer, the poor have gotten poorer," said Sidney Marcos, 41, after casting his vote for Lula at the Mario Martins de Almeida Public School in Sao Bernardo. Marcos runs a business that helps people and companies negotiate Brazil's confusing bureaucracy, a popular service across Latin America.

"I voted for him to change, to see if we can actually do it," he said. "I have more hope than faith that we can."

With its small, comfortable homes and a car in each gated garage, Sao Bernardo owes its middle-class stability to the powerful union movement that Lula helped lead throughout the 1970s and 1980s. Many of its residents work in the auto industry, and the annual raises guaranteed in union contracts made them comfortable, but also helped send Brazil's inflation soaring until Cardoso's arrival.

Now, though, Cardoso's early success seems a distant memory to people like Perpetua Rosa Nogueira Terencio, a 74-year-old housewife.

"I always voted for him," said Nogueira, small and gray-haired with a cross hanging from her neck. "But life is too expensive now, and the salaries here are poor. This is what's most important -- to increase wages. And this is something we can do."

By Carlos A. DeJuana  

SAO PAULO, Brazil -- Much has changed for Brazil's Metron since it began making taxi meters 18 years ago in a gritty, industrial neighborhood of Sao Paulo.

Seizing on the technological boom of the mid-1990s, Metron has transformed itself into Brazil's top home computer seller with cheap but sturdy alternatives to foreign-made PCs. Sales grew five-fold between 1995 and 2001 to $150 million, and the company now ships desktop computers to Europe.

If leftist Luiz Inacio Lula da Silva, who is expected to win a landslide victory in Sunday's second-round vote for Brazil's presidency, lives up to his promise to help the country's stunted industrial sector, companies like Metron may thrive.

Lula and his centrist rival Jose Serra have both pledged to strengthen local industry, especially exporters, through incentives such as tax breaks which they hope will allow them to make due on promises to create jobs and revive the stagnant economy.

Brazil is the world's ninth-largest economy with major industries including autos, textiles, paper and pulp and aviation but it accounts for only 2.2 percent of world economic output and less than 1 percent of global trade.

Long shunned for its association with government meddling and favoritism, Brazil's industrial policy has become a key issue during this election race, especially for small- and medium-sized companies.

"A multinational doesn't have the same problems as Metron in a financial crisis like this one," said Clovis Valerio Ferreira, Metron's director of operations.

Driven by worries that a leftist government could mismanage the economy, investors have hammered Brazil's financial markets in the months leading up to the election, making it harder for companies to get credit and quashing demand for consumer goods.

"The government should help local companies with financing so that they can compete on the same conditions as multinational corporations," Ferreira said.

The pro-industry platform finds a receptive ear among voters disgruntled by rising unemployment, closing factories and the increase of foreign capital in Brazilian business.

It also conjures up fond memories of Brazil's so-called economic miracle" of the late 1960s and early 1970s, when the country's economy grew an average of 10.9 percent a year, fueled in part by heavy spending in state industry.

KILLING BUSINESS?

Over the last decade Brazil has progressively opened its borders to foreign trade, privatizing state-run enterprises and embracing multinational companies that want to make and sell their products here.

But critics say outgoing President Fernando Henrique Cardoso has left local industry to falter during his eight years in office as he tried to steady a chronically volatile economy.

Interest rates are some of the world's highest, which means consumption is lackluster and corporate credit is expensive.

"The other day I was speaking to an industrialist who said '(The government) killed Brazilian business,"' said Luiz Gonzaga Belluzzo, an economist at the University of Campinas and an economic advisor to Lula's Workers' Party.

Lula, a veteran leftist and former metalworker about 30 points ahead of Serra in opinion polls, has been relentless about the need to bolster domestic industry.

For example, he has promised to ensure state-owned oil giant Petroleo Brasileiro (Petrobras) builds two new oil platforms on Brazilian soil and has repeatedly lambasted Cardoso for allowing it to hire out a Singapore-based firm to build the first rig.

"If those platforms were built in Brazil, they would generate close to 25,000 jobs for three years," Lula told TV viewers in his political ads.

Serra promises tax breaks to industry and exporters and wants to create a government ministry to focus on promoting foreign trade.

The presidential front-runner also promises increased corporate financing, tax breaks for exporters and plans to create an "Extraordinary Department for Foreign Trade," with a direct line to the president.

TROUBLE AHEAD?

But economists have questioned whether Lula or Serra will be able to finance tax cuts and other incentives given the government's tight fiscal situation.

"The biggest error in both candidates' platform is assuming that we had money to do this and it just didn't happen because of a lack of political will," said Fabio Akira, an economist at J.P. Morgan in Sao Paulo.

Economists have traditionally scorned too much government intervention in the economy as it tends to generate artificial forces that inevitably disrupt the markets.

Local companies protected by high import tariffs, for example, have little reason to improve efficiency and productivity. And consumers lose by getting stuck with low-quality, expensive goods.

No matter who wins Sunday's presidential runoff, economists say the government is likely take a much more active role in running Brazil's economy -- so much so that some have dubbed future policies as protectionist.

"There is the perception that we will certainly have a little more protectionism," said Carlos Firetti, head of research at BBVA Securities in Sao Paulo. "Whether that's bad or not is going to depend on its extent."

The birth of a contentious relationship www.coha.org

Elections in Brazil this weekend will mark an historic watershed in that country’s relations with the U.S. in the event of a victory by left-wing frontrunner Luiz Inácio Lula da Silva (Lula).  With a population fast approaching 200 million within a matter of years and a geographical area larger than the contiguous United States, Brazil is now set to break out from its more than 100-year run as playing a subordinate role to that of the U.S., as it strikes out on a new, more independent position in its bilateral relations with its northern neighbor.

In recent months, behind-the-scene tensions have slowly developed between the two nations over Brazil’s mounting assertions regarding its claim for a permanent position in the U.N. Security Council, its outrage over Washington’s application of punitive tariffs on Brazilian steel exports and the Bush Administration’s heavy subsidies of U.S. agricultural exports. The last undercuts the competitive standing in international markets of Brazilian commodities and industrial goods, most notably those of orange juice, sugar, cotton and soy beans.

In a weekend interview with Reuters television, Council on Hemispheric Affairs (COHA) director Larry Birns observed that Washington is ill-prepared to relate to Brazil in its new role as the hemisphere’s other giant, and that U.S. negotiators will have to make tough concessions to Brazil in upcoming Free Trade Area of the Americas (FTAA) trade talks, once a Lula administration takes office, especially if it intends to keep the country within the hemispheric trade zone it is now fashioning, and not lose it and other regional nations to the European Union bloc.

While Lula certainly will not become another Fidel Castro, and while the likely new president has stated he will honor all of Brazil’s current commitments to the international lending agencies, debt default cannot be entirely locked out, but would occur only in the most extreme of circumstances. There is no question that in terms of tone, style and content, Lula is not at all likely to follow the lead of current President Fernando Henrique Cardoso, who moved significantly to the right after taking office in 1994.  Under Lula’s leadership, Brazil is scheduled to have much closer relations with Cuba and cooler dealings with Mexican President Vincente Fox, who Lula is known to see as playing a surrogate role for the U.S. in pressuring Cuban reforms.  Significantly, more budgeting weight and concern will be directed to the country’s social needs, with less emphasis on privatization, deflation and contractionist fiscal policies.

Brazil’s current growing role in the international system has its origins in the period of 1902-1912, when foreign minister Baron de Rio Branco developed the Ministry of External Relations, known as Itamaraty, as an important institution for administering the country’s foreign policy. Rio Branco’s tenure witnessed a singular evolution in Brazil’s diplomacy, which defined the perimeters of the Brazilian nation and established inter-American commercial arrangements, legal processes and regulatory frameworks, but never challenged Washington’s supremecy. Washington’s perspective on Brazil’s role in international and Latin American politics also has evolved, filling it with some unease, as the “sleeping giant” has gradually assumed a larger role in both regional and global politics and commerce.

In the mid 1980s, Brazil, like most Latin American countries, experienced an economic revolution resulting from increased access to the U.S. and global market. However, the imbalance in U.S.-Brazilian bilateral economic relations is evidenced by the often asymmetrical nature of both countries’ trade ties. The tariff and non-tariff barriers affecting Brazilian goods, which has impeded the U.S. import of Brazil’s relatively inexpensive product-line, and the overvaluation of the Real in the early 1990s, reduced Brazil’s competitiveness and contributed to negative trade balances.

Recently, Lula’s popularity has caused a stir in financial markets as he came to almost double his lead in poll results ahead of Cardoso’s handpicked candidate, Jose Serra. International investors regard Lula’s leftist leanings and inexperience in managing a national economy with uncertainty, if not outright apprehension. Lula, who opposed the FTAA in the past, says he will support it only if the U.S. and Brazil are treated as equals in negotiations. In this context, there is speculation that Lula, whose views differ from the current government’s somewhat-idealized vision of hemispheric integration, would possibly be inclined to facilitate the establishment of bilateral negotiations over trade with the U.S., if he takes office. If a U.S.-Brazilian bilateral free trade area is established as an immediate step (which is highly unlikely at this time) the presently undefined future of FTAA could be relegated to a matter of secondary importance as the two continental giants end up turning their trade ties to their mutual advantage.

This analysis was prepared by John Galante, COHA research associate.

The Council on Hemispheric Affairs, founded in 1975, is an independent, non-profit, non-partisan, tax-exempt research and information organization.  It has been described on the Senate floor as being "one of the nation's most respected bodies of scholars and policymakers." www.coha.org