Brazil: Waiting for Lula… to Get Out

 Brazil: Waiting for Lula... 
  to Get Out

Lula’s administration
is still mired in inefficiency and inability to
deliver any programs to help the lot of the people or to stimulate
the economy. Meanwhile, Brazilian banks’ profits continue to set
record levels. This is one sector of the economy that seems to
prosper regardless of what is going on politically or economically.
by: Richard

Brazilian President Luiz Inácio Lula da Silva’s popularity and that
of his government have sunk to the lowest level since he took office nearly
eighteen months ago. Right now, the chances of his being reelected in 2006
look fairly slim.

The general attitude of
businessmen and the public is that there is no choice but to ride out the
remainder of Lula’s term and hope that previously relatively well functioning
institutions do not further disintegrate due to the appointment of PT officials.

He is doing the best job
he can given his extremely limited educational experience as well as a lack
of administrative ability. His overtly leftward leaning advisors are of little

It appears that the new
minimum wage will be 260 reais (US$ 84) a month, a modest increase over the
240 reais (US$ 77) that was the rule during the past year. The Chamber of
Deputies voted in favor of Lula’s decree law for the second time overriding
the Senate’s bill proposing 275 reais (US$ 89).

This makes it unnecessary
for Lula to veto the Senate’s ruling, which would have been politically unpleasant.
Lula and his staff of advisors have handled this whole issue clumsily. Increases
in the minimum wage augment what the government pays out in pensions further
unbalancing this source of budget deficits.

The China Jaunt

The trip to China of Lula
and his entourage has resulted in little of a concrete beneficial nature for
Brazil. Lula’s grand idea of forming an alliance among the big three of the
developing world, Brazil, China and India, has fallen on deaf but polite ears.

His trip coincided with
a May 5th embargo on Brazilian soybeans that has caused substantial losses
for many trading companies and exporters of these products.

The contracts were signed
when prices were higher and China feared a shortage. When the price of the
soybean complex dropped, China found technical reasons to refuse to accept
the shipments.

As one major Brazilian
producer and exporter pointed out, if prices had remained the same or increased,
China would not have worried about a few seeds contaminated by something or
other appearing in the holds of ships.

After Brazil announced
more strict inspections of exported soybeans, China has lifted the embargo
for shipments after June 11. Brazil exported over a billion and a half dollars
worth of soybeans to China last year. To permanently lose this customer, would
not be convenient.

Brazil can learn a thing
or two from the world’s oldest trader, which is more concerned about selling
to Wal-Mart than becoming involved politically with a struggling Latin American
third world nation.

There were promises of
Chinese investment in Brazilian infrastructure projects but nothing has materialized
in this respect nor is it apt to until Brazil establishes rules and procedures
for attracting this much needed foreign investment.

The US Tour

Lula’s time in New York
late June was similarly unproductive from a practical point of view. Potential
investors politely applauded Lula’s remarks at the Waldorf Astoria and await
a clearer definition of regulatory procedures.

Foreign Direct Investment
has fallen off significantly and several companies are pulling out of Brazil
or would if they could find buyers. Duke Power, who has invested in electricity,
is seeking means to exit, it is said.

Agip, controlled by the
Italian ENI Group, has sold its bottled gas and filling station operations
to a subsidiary of Petrobras. The Krupp-Thysen group has spun off a division
to Brazilian buyers recently.

Minister of Mines and
Energy, Dilma Rousseff, has caused the resignation of José Tavares
as secretary of economic accompaniment of the Ministry of Finance. He is a
non-political technically competent man who has worked in Washington at the

His departure is only
one of several non-PT members who have quit or been pushed aside because of
ideological differences. The regulatory agencies that were established to
control electricity, phones, ports, and other essential services, some of
which were privatized during the last government, have been heavily hit. This
has caused confusion and impeded fresh investment in these areas as uncertainty
over rules and regulations reigns.

On the Rebound

The economy seems to have
bottomed out. The unemployment rate has dropped slightly and auto sales have
picked up. It is premature to say that all is well and that a recovery is
under way.

But this news has heartened
the government that is still mired in inefficiency and inability to deliver
any programs to help the lot of the people or to stimulate the economy. Palocci’s
position has been strengthened as it appears that a sound basis for future
sustainable growth is being established.

During the month of June,
financial markets have been more tranquil after May’s nearly 10 percent devaluation
of the real. A sovereign risk bond issue was over subscribed. The interest
rates that Brazil pays overseas investors is much higher than those earned
on less risky assets.

Local maturing government
debt has been successfully rolled over with no significant worsening in the
profile of its obligations. Banks are loaded with cash and the government
is by far their largest taker of funds.

Banks’ profits continue
to set record levels, the one sector of the economy that seems to prosper
regardless of what is going on politically or with the economy.

Congress will probably
be convened for a special session during July, which is supposed to be one
of their three vacation months each year. These additional salaries will cost
taxpayers up to 50 million reais (US$ 16 million), enough to build several
schools or hospitals. The excuse will be that with municipal elections coming
up in October, legislators will need to spend more time in their home districts.

A measure introduced by
one responsible member of Congress that would merely postpone the recess until
August thereby eliminating the need for a "special session," has
been tabled.

Also suggestions that
the holiday period for these privileged few be reduced to 45 days or even
to 30 days, making them equal to other Brazilian salaried workers, have been

The President’s party,
the PT (Partido dos Trabalhadores—Workers’ Party), had championed such
moves, in the past, but now that they are in power, they are mute on the subject.
All this does little to embellish the image of the legislative branch of government.

Farewell to Brizola

Many were saddened last
week with the death of 82-year-old Leonel de Moura Brizola. He is the last
of the leftist nationalist caudillos, a man who stuck to his convictions,
right or wrong, through the years.

He had been governor of
Rio Grande do Sul before he was ushered out of the country in the wake of
the military takeover in March of 1964.

Returning when he was
given amnesty later on, Brizola was twice elected governor of the State of
Rio de Janeiro where he then resided. Brizola never achieved his goal of becoming
Brazil’s president.

He ran for vice president
on a loosing ticket with Lula, whom he once called a "bearded toad."
After wakes in Rio de Janeiro and Porto Alegre, he was put to rest in São
Borja, on the Argentine border, by the same grave digger that buried his brother-in-law,
ex President João "Jango" Goulart who was ousted by the military
during the peaceful March 31 revolution of 1964.

As I write this, I am
reminded that today we are a month from the 26 of July, the anniversary of
the 1953 attack on the Moncada barracks in Santiago de Cuba.

This historic event started
the revolution that overthrew dictator Fulgencio Baptista and eventually brought
Fidel Castro, the hemisphere’s most durable head of state, to power on January
1, 1959.

His achievements or the
lack thereof during all these years should be a lesson to those who revere
and emulate Castro, including some of Lula’s closest advisors.

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

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