The List of the Undone in Lula’s Brazil

 The List of the Undone 
  in Lula's Brazil

As a reader of O
Estado de S. Paulo pointed out, during the thirteen
months that Lula has been in office, not one federal highway has
been paved, no hospitals or penitentiaries were built, professors
or policeman’s salaries have not been improved, not one
favela has been removed. And the list goes on and on.
by: Richard

After falling nearly 10 percent one day last week, the BOVESPA or São
Paulo Stock Exchange Index finished January down 1.73 percent from its year-end
level. This was the first time since June that a monthly loss has been experienced.
Although C-Bonds have not yet sunk to the level at which I suggest selling
short some months ago, they were last quoted at about 98 percent of face value
after having sold recently at a premium.

The "Brazil Risk
Index" is now back over 500 base points. The causes for this swing have
been attributed to the US Fed’s possible indication of higher interest rates
later this year and Banco Central’s (COPOM) decision to leave the SELIC or
basic interest rate at 16.5 percent. But there may be more behind this evident
change of sentiment.

As a reader of O Estado
de S. Paulo pointed out in a recent Letter to the Editor, during the thirteen
months that Lula has been in office, in spite of lots of talk, not one federal
highway has been paved, no port repairs were made, no hospitals or penitentiaries
were built, professors or policeman’s salaries have not been improved.

Not one favela
has been removed or improved upon, no highways have been privatized, no taxes
have been reduced, no financial or technical assistance has been given to
those settled as part of agrarian reform, the governmental procedures have
not been simplified, and passports have not been modernized. The list of non-accomplishments
does not end there.

On the other hand, Lula
who appeared on the front page of leading newspapers this week with his wife
in front of the Taj Mahal, has managed to travel around the world at tax payers
expense and is about to buy a new presidential jet. Airbus will supply for
US$ 56 million an aircraft that would be the envy of any head of state.

And this is being done
without competitive bidding, it seems. Imagine the outcry emanating from the
PT if FHC had decided to replace the aging Boeing 707. For a man who insists
that Petrobras buy off- shore oil rigs made in Brazil, it seems inconsistent
that the PT administration would purchase such a plane abroad when EMBRAER,
the local aircraft manufacturer, could supply a fine plane.

So what if it didn’t have
the range of the Airbus. A refueling stop once in a while should not be a
disgrace for a man who portrays himself as the leader of a third world anti-poverty

New Cabinet

In between trips to Monterrey
and India with a stopover in Geneva on the way back to Brazil, Lula managed
to order the cabinet changes that have been a topic of speculation for several
months. The substitutions were strictly political in nature displaying no
evidence that competence or experience were criteria used in making the alterations.

The only consolation is
that it should be easy for the new ministers to not be any worse than their
predecessors. Room was made for new PMDB (Partido do Movimento Democrático
Brasileiro—Party of the Brazilian Democratic Movement) appointees. Eduardo
Campos, the new Minister of Science and Technology, for instance, has as his
only qualification the fact that he is a grandson of Miguel Arraes, an old
leftist ex governor of Pernambuco and a leader of the PSB (Partido Socialista
Brasileiro—Brazilian Socialist Party) that nominally supports Lula’s

José Dirceu’s job
as Chief of Staff or actually a sort of Prime Minister has been more clearly
defined. The political dealing with Congress, governors and mayors has been
delegated to Aldo Rabelo of the Communist Party. This leaves Dirceu free to
concentrate on making the PT government more effective. Dirceu clearly enjoys
his power.

Prime Minister

There is no doubt now
that the man running Brazil, while Lula flits around the world making cockeyed
declarations, is José Dirceu. As pointed out in an earlier commentary,
this man is devious and literally two-faced. When he was sprung from prison
in 1969 during the military rule as part of a deal that freed kidnapped American
Ambassador Elbrick, Dirceu was expelled from Brazil and went to Cuba.

He later came back to
Brazil after plastic surgery under false identity and took up residence in
rural Paraná state where he married and fathered a son. When civilian
rule returned after 1985 and amnesty was given to former political prisoners
or those who had been considered subversive and were forced into exile, Dirceu
surfaced as Dirceu and deserted his Paraná family before using his
Cuban experience eventually helping to found the PT or Workers’ Party.

The PT is by far Brazil’s
best-organized and richest political party. The local press recently stated
that the Workers’ Party has more cash than all of the other 20 odd parties
put together. Dirceu, in a clever move, created 2,797 new government jobs
most of which will go to card carrying members of the PT.

This will cost taxpayers
at least R$ 50 million (US$ 16.6 million) a year if the average salaries are
R$ 1,400 (US$ 467) per month. As all PT members that are awarded government
jobs must pay a sliding percentage of their salaries to the coffers of the
PT, indirectly all Brazilian taxpayers, not merely those who helped elect
Lula, are helping support the party financially.

Senator Jorge Bornhausen
of the PFL (Partido da Frente Liberal—Liberal Front Party), one of the
very few members of the opposition that seem to not take absurdities lying
down, is said to be contesting this contracting of government workers without
qualifying examinations.

Lawless Land

Lula should not be blamed
for all of Brazil’s mishaps. But negative news coming out of Brazil may have
an effect on investors and speculators as time goes on. This past week, inspectors
from the Ministry of Labor that were investigating slave labor practices in
Minas Gerais were murdered along with the driver of their truck.

A massacre is building
up in Mato Grosso do Sul near the Paraguayan border where Guarani-Kaiowa Indians
(native Brazilians) have invaded several ranches stealing cattle and burning
buildings. They claim that the land was taken from them by European colonizers
three or four centuries ago. The legitimate owners of these lands have taken
up arms and shooting may soon start unless the government, seemingly inert,
does something to diffuse the situation.

As always happens at this
time of year, floods in the city of São Paulo snarled traffic and left
many people homeless. Yet there may be water rationing in São Paulo
due to the low level of the reservoirs that supply the city’s drinking water.

Businessmen, that up until
now have been reasonably tolerant of Lula and his comrades, were not at all
happy when the President in a speech delivered in New Delhi told them to complain
less and work harder. With real interest rates nearly the world’s highest
and taxation overwhelming, Brazilian businessmen struggle to keep afloat in
most cases.

Veja, Brazil’s
leading weekly new magazine, ran a story pointing out many other difficulties
for the productive sector that the government has failed to address. Sunday’s
New York Times published a revealing article by Larry Rohter explaining
the murder of Celso Daniel the PT mayor of Santo André. Both José
Dirceu and José Genoíno, the current president of the PT, are
implicated in this murky affair. It is worthwhile to read the article.

Lula is now showing his
true face. It is a matter of time before populist moves could begin to take
the place of the appearance of pragmatism and rationality that have characterized
macro economic policy and won a degree of credibility for the PT led government.

Lula has discarded the
idea of Central Bank independence, so soon Central Bank president, Henrique
Meirelles, may be pressured into making moves of which he does not approve
such as lowering interest rates in spite of creeping inflation.

Not much will happen until
after Carnaval as the special session of Congress is not expected to produce
anything constructive such as labor and judicial reforms, passing a new bankruptcy
law or even concluding the pension and tax reforms started last year. Could
it be that confidence in the Lula/Dirceu run government has peaked?

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

2, 2004.

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