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Where the Buck Stops

     Where the Buck Stops

Lula is putting politicians in charge of Brazil’s money.
Central Bank chief, Henrique Meirelles
and Finance Minister,
Antonio Palocci are abandoning elective mandates to take
their new posts. By
giving control of the nation’s finances to two
politicians, Lula is overturning the basis on which

President Fernando Henrique Cardoso founded the economy.

by:
John Fitzpatrick

President-elect Luiz Inácio Lula da Silva has finally started naming his team, confirming expectations by making
Antonio Palocci the finance minister, José Dirceu as chief of staff and nominating the former head of Bank Boston, Henrique
Meirelles, as Central Bank chief. It is a sign of the changes that have occurred within the PT that the financial market greeted
Meirelles’s name rather cautiously rather than with the delight such news would surely have brought a year ago. In contrast, Lula’s
decision to make Senator Marina Silva the environment minister was received ecstatically by the Green lobby abroad.

Lula announced the two ministerial posts during a visit to Washington. The jocular way in which Palocci was
confirmed—”As the Brazilian economy is in the intensive care unit then I have made a doctor the economy minister” (a reference to
Palocci’s profession)—makes one wonder whether this announcement was made off the cuff. One hopes so, because Lula’s
casual attitude does not augur well. Although the Brazilian economy may be ailing it is certainly not in the intensive care unit,
and, without trying to be stuffy, surely this announcement merited more formality.

The market and political reaction was positive but, at the same time, there is still much uncertainty. Until a few
months ago, Palocci was virtually unknown outside the city of Ribeirão Preto where he was mayor. His administrative record is
good and he has shown himself to be one of the PT’s modernizers. For example, he sold off a publicly-owned
telecommunications company, which the city owned, at a time when most PT politicians were against privatization. Palocci has obviously
impressed Lula or he would not be heading the transition team and we must hope he retains Lula’s support. At the same time, we
must also hope he keeps Lula in line.

As for Meirelles, although we at Brazzil —
www.brazzil.com/p15oct02.htm— tipped him as a possible Central Bank
boss a few months ago, he appears to have been chosen because other candidates turned the offer down. Meirelles headed
Bank Boston’s Brazilian operations for more than 10 years and did so well that he was made president of Bank Boston’s
entire operations. Without trying to belittle his ability, this sounds grander than it was since Bank Boston was effectively
taken over by Fleet shortly after Meirelles’ appointment and became a subsidiary.

Some market operators bemoaned Meirelles’ lack of experience of monetary policy, while others said he did not
understand how markets worked as well as the current president, Armínio Fraga. This may be true, but Fraga was always going to be
a hard act to follow and Lula made a big tactical mistake by declaring at an early stage that he would not stay on under a
PT government. Meirelles’ international standing should help him deal with foreign investors and multinational institutions
and, if he is good at delegating, then he should be able to appoint directors with the experience he lacks.

The problem with Meirelles—and Palocci—is rather that they are politicians. Meirelles only recently turned to
politics and was elected a deputy for the state of Goiás as a member of President Fernando Henrique Cardoso’s PSDB. The new
Central Bank boss has virtually no experience of politics and could easily be swayed by Palocci, technically the person he
reports to, and Lula. By giving control of the nation’s finances to two politicians, Lula is overturning the basis on which
Cardoso founded the economy in his two terms of office.

Over the last eight years Brazil’s Finance Minister has been Pedro Malan, himself a former Central Bank chief, a
professional who is a member of no political party. For most of the second term the Central Bank chief has been Fraga, also a
hands-on technician with no public political face. Malan has been firm during these two terms and followed a steady course,
taking action on the many occasions when it was necessary, and ignoring the backseat drivers in Congress. He and Fraga
combined to make a formidable team. If Palocci and Meirelles can do likewise then we can look ahead with optimism.

Finally, let us also hope that the new Environment Minister, Marina Silva, will do a good job of protecting Brazil’s
natural resources and getting rid of its bad reputation abroad as a country which is destroying the Amazon rain forest and the
lives of the indigenous people. Silva is a political correct activist’s dream—a woman of mixed race from a poor background in
Acre. She was also an associate of Chico Mendes, the slain rubber tapper union leader who practically became a martyr for
Greens all over the world. If good will matters then she is setting off with better prospects than Palocci and Meirelles.

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
jf@celt.com.br

© John Fitzpatrick 2002

You can also read John Fitzpatrick’s articles in Infobrazil, at
www.infobrazil.com

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