Where is Lula? Not in Brazil.

Where is Lula? Not in Brazil.

By the end of 2003, Lula will have visited 38 countries during 22
international sojourns. Of the
365 days since he took office January 1,
2003, he will have been absent from Brazil 211 days. Meanwhile,
the passage of meaningful tax and welfare reform measures
that once seemed imminent, now
look more and more doubtful.


Richard Hayes


Between a trip to five African countries and a weekend Ibero-American conference in Santa Cruz de la Sierra,
Bolivia, Brazilian President Luiz Inácio Lula da Silva recently breezed through Brazil for five days. While in Namibia’s
capital, Windhoek, Lula remarked to president Nujoma in an off-the-cuff statement that the city didn’t appear as if it were in
Africa, since it is clean and beautiful.

Lula also questioned the new US$ 6 billion stand-by accord with the IMF that had been announced in Brazil without
his previous knowledge by Joaquim Levy, a high treasury official and the man in charge of negotiations. "How can Brazil
make an agreement with the IMF when the president is in Africa," or words to that effect was his reaction. Therefore the
agreement may be delayed until Lula and Congress examine the conditions that Brazil must accept.

By the end of 2003, Lula will have visited 38 countries during 22 international sojourns. Of the 365 days since he
took office January 1, 2003, he will have been absent from Brazil 211 days according to a recent article in
O Estado de S. Paulo, a responsible conservative newspaper.

For years, the Brazilian President criticized former president Fernando Henrique Cardoso for his frequent
international jaunts. In Santa Cruz de la Sierra, Bolivia, the two men will be in the same place at the same time for the first time since
Cardoso passed the presidential sash to Lula.

It will be interesting to see if they greet one another after a series of critical remarks on the part of Cardoso about
how Lula and the PT (Partido dos Trabalhadores—Workers’ Party) are running the show and Lula’s calling former
presidents cowards for not having introduced the reforms that Lula has promised but has yet to deliver.

The President glosses over the fact that the biggest impediment to the reforms attempted during Cardoso’s eight
years as President was the intransigence of Lula’s Workers’ Party, then in the opposition.

Blow Against the Very Old

Ricardo Berzoini, the Minister of Social Welfare, caused unnecessary hardships for thousands of elderly retired
persons by irresponsible arbitrary action during the past fortnight. Without warning, he suspended payment of retirement
benefits to all persons over 90 years of age until they proved that they were alive.

It seems that there are many fraudulent recipients of pension payments who are not alive. These payments go to
descendents or more than likely to crooked employees of the INSS, the agency responsible for social security. By making
those legitimate recipients of their meager welfare checks guilty until proven innocent, Berzoini violated the constitution
among other errors.

After three or four days of confusion and problems suffered by those counting on their checks to pay bills, Berzoini
under pressure from José Dirceu, Lula’s chief of staff, reluctantly apologized. He later revoked the measure, but many old
people were forced to wait in lines in the hot sun to re-register and then were told to go to another office of the INSS.

INSS employees only got the word about the suspension two or three days later, it seems. The treatment of these
poor elderly people, many of whom have trouble just getting around, is despicable and mirrors the lack of consideration of
the public displayed by many of Brazil’s "public servants."

It is ironic that most federal workers back the PT that supposedly stands for social justice. Not long ago, the INSS
employees were on strike, further disrupting the lives of those who depend upon their pension payments to live.

In the mean time, the economy continues to show encouraging signs that the recession may be over. The payment of
the annual 13th salary, half of which is supposed to be paid by November 15, will inject liquidity into the pockets of those
who have jobs. Retailers are hoping that this will result in an increase in sales that usually happens at this time of year.

It has taken all of this year for Lula’s government to recover a degree of credibility that was lost as a result of his
behavior during the presidential campaign of 2002. The trade surplus may reach US $23 billion this year due to a slowdown in
imports and a moderate improvement in exports caused in no small part by better international prices for the commodities that
Brazil exports and increased sales of iron ore and soy beans to China. China is now Brazil’s second largest export market after
the US.

The government is trying to drum up support from the private sector to invest in infrastructure projects with little or
no tangible results so far. The rules are not yet clear and financing is not readily available until the economic viability of
such investments can be proven. In the meantime, highways, railroads and the ports continue to disintegrate and power
generation projects are on hold.

Excessive taxation and high interest rates for consumers and businesses continue to hamper any meaningful
economic growth. A recent scheme to provide credit for salaried workers through payroll deductions has been trumpeted as a
major triumph for the government. With interest rates and other fees, including a piece for the labor unions, it will still wind
up costing the borrower nearly 50 percent a year, considered a bargain in this market.

Several banks have signed up making them appear to be acting in the public interest. Banks claim that high volume
and practically no risk will compensate the "slim" spreads. Since many companies pay their workers by crediting bank
accounts, it will be a simple matter for the lenders to add one more deduction from the employees’ compensation. To my
knowledge so far this is all talk as no visible increase in the sales of electrical appliances has resulted.

With less than a month before congress adjourns for the Christmas, New Year and summer holidays, the passage
of meaningful tax and welfare reform measures this year is doubtful. The imminence of these approvals was perhaps
prematurely attributed to Lula’s political sageness and has contributed to the show of confidence is his ability to lead the
country as evidenced by lenders and investors. Can this last?

Other needed changes such as political reform, judicial reform, labor and union reform and the new bankruptcy law
remain distant. Legislative progress in 2004 will be additionally impeded by the municipal elections to take place in October.
The IMF agreement, if it goes through, will bolster the nation’s reputation through 2004 if the targets are met. But I wonder
how long the drain on government revenues to service debt will be tolerated by politicians who would rather see these funds
used for public works and social programs.

The long awaited cabinet changes continue to be postponed. José Dirceu, who is the man that seems to run the
country, would like to have this done before Lula takes off on an extended trip to Asia. The PMDB is clamoring for at least two
ministries in exchange for their alleged legislative support. Lula will have to jettison several ministers and shuffle others in order
to show action.

Prospects for the eventual conclusion of the FTAA (Free Trade Area of the Americas) change from week to week. It
seems now as if the Brazilians are taking a more pragmatic view of the situation and might try and find a way to gain access to
the US market without surrendering sovereignty. But this can change depending upon the attitude of the Americans and
objectivity of the Brazilian negotiators who are ideologically against an agreement, for the most part.

Rumor has it that Robert Zoellick, the American trade representative, has been tapped to run Fanny Mae, a job that
pays well and would have fewer headaches. As a free trader, he may wish to avoid protectionist cries in the US in an election
year. If he drops out of the picture, it is difficult to predict the outcome of the talks in Miami this month. If the talks fall apart
over US agricultural subsidies and high tariffs on steel, orange juice and Brazilian products, Brazil may be left alone. It may
be expecting too much for a PT government that has always been against what they deem to be a loss of sovereignty to
accept both a new IMF deal and this FTAA arrangement more or less simultaneously.

Perhaps when Lula’s 2003 travels cease, he will place a firm hand on the rudder and help get the country moving.
His personal popularity remains high although criticism of the government is on the upswing. Several urgent pending
matters must be clarified if Lula’s worthy campaign promises are to be achieved.

São Paulo, November 16, 2003


Richard Edward Hayes first came to Brazil in 1964 as an employee of Chase Manhattan Bank.
Since then, Hayes has worked directly and as an advisor for a number of Brazilian and international
banks and companies. Currently he is a free lance consultant and can be contacted
at 192louvre@uol.com.br

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