Brazil News

When Lula was the favorite candidate to win the elections in 2002, the Economy of Brazil was a turmoil. The dollar was at a peak, interest rates were at a peak, the premium paid by Brazilian bonds were at a peak, the inflation was raising, the foreign trade balance was negative.

In 2006, the Economy was much more stable. Dollar at a 5-year low level, interest rates at the lowest levels ever, risk-premium at the lowest levels ever, inflation tamed, foreign trade balance higher than ever, foreign investors are flocking into the country.

So, was Lula right all the time, before becoming President of the Republic? Did Lula’s ideas fixed the Brazilian economy?

The answer is: No, quite the opposite. Lula was wrong all the time. The Economy is better because Lula changed his ideas after becoming President (and he deserves all recognition for having done so, despite opposition inside his own Party, PT). The Economy of Brazil under Lula is based not only on the same principles of Fernando Henrique Cardoso, it was also implemented by the same people.

The Brazilian economy has three stakes: inflation target, floating currency and budget surplus. All three stakes were created during the government of FHC.

• Minister of Finances (Ministério da Fazenda)

The Minister of Finances during all eight years of FHC was Pedro Malan. The first Minister of Finances in Lula’s Government was Antonio Palocci, an ex-trotskist Doctor who was a pioneer of privatization in Brazil: in 1996, he privatized the phone company which operated in the region of Ribeirão Preto, where he was Mayor; Palocci not only maintained the politics of his predecessor, as also expressly admitted on several occasions that “the fruits we harvest today in the Economy were seeded by previous Governments“. It was not an easy task for Palocci to maintain the politics; many members of his own Party, led by ex-Chief of Staff José Dirceu, wanted to give a more leftist direction to the Economy (read, for exemplo, this manifest by the Communist Party against Palocci).

Palocci, who while Minister was the person who gave credibility to Lula’s Government, left the Government in 2006 because he got involved in a personal scandal, not because Lula disliked his Economy ideas. After Palocci was fired, Lula appointed Guido Mantega as Minister of Finances; Mantega caused some preoccupations in the markets, because he was “Lula’s teacher of Economics” before Lula was President, and the market feared that he could somehow influence the President. Lula relieved the markets by declaring that “the Economy politics is made by the Government, not by the Minister“, making clear that Mantega’s old ideas were irrelevant. And so it is until today (August 2007).

• The Central Bank (Banco Central do Brasil)

FHC had a few different Presidents of Central Bank during his Government. The first one was Pérsio Arida, who resigned because he once paid a personal visit to a banker (Fernão Bracher), and PT said that this was unacceptable (note: there was never any evidence that Arida, a man of spotless reputation, had leaked any inside information; yet, PT said that there should be no suspicious hanging over the President of Central Bank - which is correct; however, it looks like PT and Lula changed their ideas after being elected, because several members of their Government were charged with much more serious misconducts and even crimes, and Lula took months to dismiss them - e.g., Henrique Meirelles, President of Central Bank; Antonio Palocci, Minister of Finances; José Dirceu, chief of Staff, and another 39 people, mostly from PT, who were referred to as a ‘gang of criminals’ by the General Prosecutor).

Lula had troubles to find a President to the Central Bank. He never explained why he didn’t invite economists affiliated with his Party, such as Maria da Conceição Tavares, Celso Furtado or João Sayad to the job. Before Henrique Meireles accepted the invitation, Lula tried to convince Fábio Barbosa, then President of ABN Amro Brasil (and who later would be Secretary of Treasure) and Pedro Bodin, a liberal ex-director of Central Bank, but both refused. Lula casted suspicions on Armínio Fraga because he had worked with George Soros (hence, was too capitalist to be President of Central Bank); but Lula saw no problems in inviting the ex-President of the Bank Boston to the job. Still more ironic, Meirelles had been elected Federal Deputy in 2002, affiliated with PSDB, Party of FHC.

Meirelles gladly accepted the office; the entire board of Directors of Central Bank remained the same (including, much to the chagrin of the leftist sectors of PT, Teresa Grossi, who had been charged of being too bankers friendly during the bank crisis period - PROER). The economic thinking of the Central Bank didn’t change anything. And Lula liked Meirelles so much that, in 2005, when Meirelles was charged of electoral and financial crimes and was about to be prosecuted by a State attorney, Lula enacted a Provisional Measure giving to the President of Central Bank the status of Minister, and as such could be prosecuted only by the General Prosecutor.

• The Federal Revenue Service (Secretaria da Receita Federal)

The Secretary of Receita during all eight years of FHC was Everardo Maciel (other interview here). With competence and hard work, Maciel managed to increase the revenue collection in Brazil, and was of fundamental importance in helping the country obtain the budget surplus from 1998 to 2002. Lula and his party complained (see more below) that the surplus was unnecessarily high, and that the tax burden was increasing only because the Government wanted ‘to pay the debts to the bankers’.

The substitute of Everardo Maciel was Jorge Rachid. Rachid was the Adjoining Secretary of Maciel. That’s to say: nothing changed in the politics of the Revenue Service. And, just like in the cases of the Minister of Finances and the Central Bank, Lula had several ex-comrades to call to the position; for example, Osiris Lopes Filho, ex-Secretary during the government of Itamar Franco, who usually publishes articles criticizing capitalism and neo-liberalism, would be willing to take the job.

In Brazil, the Revenue Service is in charge not only of internal taxes, but also the foreign trade taxes (and all related bureaucracy). Lula gave the agency even more power, by putting it in charge of auditing the Social Security charges.

Lula was against the CPMF.

To be continued.