• Categories
  • Archives

Lula’s Credit Rating Downgraded

Lula's Credit Rating Downgraded

In the next few weeks, we should see whether Lula’s government
has the political strength and/or
guts to make its pension reform
proposals stick, or whether it will give up further ground.
The stakes
are high, and Lula has much to lose in terms
of credibility. His government is not in control.


John Fitzpatrick


After his recent address to the G-7 group of industrialized nations during a trip to Europe, President Luiz Inácio
Lula da Silva came home and boasted that although, like most ordinary Brazilians, he did not speak English, this had not
stopped him from getting his message across. What a pity our President has shown no interest in at least learning English,
because if he were to read T.S. Eliot’s poem "The Hollow Men", he might recognize himself and his top adviser, the current
Chief of Staff and former PT party strongman José Dirceu:     

We are the hollow men

We are the stuffed men

Leaning together

Headpiece filled with straw. Alas!

Our dried voices, when

We whisper together

Are quiet and meaningless

As wind in dry grass

Brazil’s "hollow men" emerged this week ready to cave in over their much-vaunted pension reform program. It only
took a strike by a minority of public servants, plus continuous pressure from the selfish judiciary, for the government to
announce that it would reconsider its proposals to do away with paying civil servants pensions equal to their salaries at the time of retirement.

The government is indicating that, while it will backtrack on current employees and allow them to continue retiring
on full pay, it will hold firm on proposals to prevent civil servants hired in the future to share the same benefits. Lula’s
right-hand man, Dirceu, announced that a meeting would be held next week with all the state governors, to try and work out
an agreement on the pension reforms proposals and also discuss tax reform proposals.

What this means is that if the governors—whose states pay for most of the pensions—support the revised proposals,
they will demand some concessions, probably in the form of tax relief. Dirceu mouthed some feeble words about reaching
consensus while, at the same time, claiming that pension reform would end privileges and treat all civil servants equally.

Lula was in linguistically-friendly Portugal—where presumably he did not have to endure English being spoken all
around him—when this announcement was made. According to Dirceu, Lula was prepared to accept the proposed changes
"providing the principles which motivated the government’s proposals were not threatened." In other words, how long is a
piece of string?

In the next few weeks, we should see whether this government has the political strength and/or guts to make its
proposals stick, or whether it will give up further ground and accept a lower retirement age or shorter contribution period. The
stakes are high, and Lula has much to lose not only in terms of money but also in credibility.

According to government figures, its proposals would save the public purse US$ 16.5 billion between 2004 and
2010. Oddly enough, the proposed change to the government’s draft proposal would save even more—US$ 17.2
billion—because it would raise the age of retirement from 60 to 65 for men, and from 55 to 60 for women. The thinking here is that
public servants would tend to stay on longer and, therefore, pay more in contributions.

This is wishful thinking to say the least. At the moment, about 75 percent of the government’s US$ 400 billion debt
is earmarked for public servants’ pensions. This crippling debt means sky-high interest rates and low growth—expected to
amount to a mere 1.5 percent this year. According to
Forbes magazine, Brazil’s public pension system used up around 5 percent
of GDP last year, compared with about 2 percent for comparable systems in Europe.

The response from the markets was swift. On Friday, July 11, Brazil’s country risk rating shot up by 2.6 percent to
its highest point since May, and the São Paulo stock market fell by 1.34 percent. According to the
O Estado de S. Paulo newspaper, Brazil’s risk rating has increased by around 21 percent since June, whereas the increase for other developing
countries in the same period has been 12 percent.

The pension setback is the latest in a series of
events which have shown that the government is fumbling, and still not fully in
control. These have included the inertia hanging over the Zero Hunger program,
public disagreement involving high-ranking members of the federal administration
over interest rates levels, attempts by the communications ministry to weaken
the regulatory body over tariffs combined with a row over telephone rate
increases, and a surge of activity by the MST landless peasant movement, which
has resumed its often violent invasions of privately-owned agricultural

In his two terms of office, former President Fernando Henrique Cardoso never managed to clear up the Augean mess
of the public pension system, which is not only unfair but corrupt. Lula has tried to tackle it head on, and while no-one
expected him to get his way entirely, by giving in so quickly—especially to the judiciary—he has only given himself some
temporary breathing space. His actions will lose him political support from the majority of the population, who do not benefit from
generous pension schemes. There will also be losses in credibility before international markets.

Let us return to T.S. Eliot, and hope, for the sake of Brazil, that his words do not become applicable to this government.

Shape without form, shade without colour,

Paralysed force, gesture without motion


John Fitzpatrick is a Scottish journalist who first visited Brazil in 1987 and has lived in São Paulo since 1995. He
writes on politics and finance and runs his own company, Celtic Comunicações—
www.celt.com.br, which specializes in
editorial and translation services for Brazilian and foreign clients. You can reach him at

© John Fitzpatrick 2003

This article appeared originally in
Infobrazil, at www.infobrazil.com


  • Show Comments (0)

Your email address will not be published. Required fields are marked *

comment *

  • name *

  • email *

  • website *

This site uses Akismet to reduce spam. Learn how your comment data is processed.


You May Also Like

Coping With Too Much Or Too Little Rain in Brazil

More than 48,000 Brazilian family farmers and their families affected by the 2003/2004 drought ...

Brazil’s Quandary: To Open or Not Dictatorship Archives

Brazil’s president of the Chamber of Deputies, João Paulo Cunha affirmed today that the ...

Christmas Brings Chaos Back to Brazilian Airports

On the eve of Christmas, Brazil’s main airports have once again become a battleground ...

Damascus/Sí£o Paulo (Brazil) Direct, Courtesy of Syria

Syria is planning to offer a flight between the city of São Paulo, in ...

Candombé ceremony in Brazil

In Brazil You Dance to Play and You Dance to Pray

There are few countries around the world in which dance takes a center stage ...

Brazil Kitchen Teaches How to Eat Well and Avoid Waste

A study by Faculty of Agricultural Engineering of the State University of Campinas (Unicamp) ...

Half a Million Brazilians Survive Picking Up Trash

Gatherers of recyclable materials in Minas Gerais, Brazil will run a plastic-processing plant in the ...

Killing in the London Tube: Brazilians Want Justice Not Apology

The media and political establishment have closed ranks following the death of a Brazilian ...

Brazil Blasts US and UN Security Council for Making All Decisions for World

Brazil’s Foreign minister, Celso Amorim, in rebutting criticism of Brazil and Turkey for the ...

Brazilian Scandal’s Moneyman Testifies for 15 Hours and Lists All He Gave Money To

In his third appearance at congressional hearings, adman/businessman Marcos Valério, spent 15 hours Tuesday, ...