Stuttering Start

Stuttering Start

All is not as rosy as financial markets would have us believe.
Congress practically will be in recess
until after Carnaval
(March 1st to 4) and facing the reality of governing
may be postponed for a while.


Richard Hayes

Since Lula’s colorful inauguration January 1st, statements by the incoming Finance Minister, Antônio Palocci and
the new central bank president, Henrique Meirelles, have helped to strengthen the real and quotations for Brazilian assets.
They repeated intentions to continue fiscal and monetary austerity and control inflation. Brazilian banks and blue chip
companies are expected to raise nearly US 1 Billion in international credit markets this month, which has contributed to a semi
euphoric reaction on the part of market players.

So far the government has not indicated that a bond issue is in the mill. But it would not surprise me if Meirelles,
who must be sifting through offers of eager investment bankers seeking arrangement fees, takes advantage of this window
of opportunity, which can slam shut again at the first sign of disillusion on the part of observers, most of whom still
maintain an attitude of silent skepticism.

With congress in recess until mid February when they will meet to elect the presidents of the two houses before
taking another break until after Carnaval, facing the reality of governing may be postponed for a while. Before Christmas,
federal legislators voted themselves a 54 percent increase in salaries and other benefits. This has caused state and municipal
representatives of the people to think about increases for themselves.

Now measures are proposed to allot more funds to the congressmen and senators to maintain their offices in their
home states. Perhaps measures to give a raise to Lula and other members of the executive branch of government will be
introduced. Lula now earns about 75 percent of what a congressman takes home. This foolishness will make it difficult for the
government to resist the clamor for salary increases on the part of employees at all levels.

Not much notice was taken of the fact that the only two heads of state attending the swearing in ceremonies that
actually met in private for meals with Lula were Hugo Chavez and Fidel Castro. Chavez seeks help from Petrobras to break the
strike of Venezuela’s government owned oil company that is crippling the country. Fidel has promised cooperation in Brazil’s
"social revolution" in the areas of public health and education where Cuba has done well by Latin American standards. I doubt
if Lula, a union man, will allow Petrobras to act as a scab in Venezuela. There is a big difference between sending technical
people to help out at PDVSA, something that Chavez would like, and selling them a tanker load of gasoline, which was done in December.

Lula has installed his ministers and heads of important secretariats and big government entities such as Petrobras,
Caixa Econômica Federal, Banco do Brasil, BNDES etc. He created three new ministries and a few special commissions in order
to accommodate people of his own PT (Partido dos Trabalhadores—Workers Party) and allies seeking employment. He
also plans to resurrect SUDENE and SUDAM, two inefficient regional development agencies that were always riddled with
corruption and favoritism in the past. FHC managed to scuttle these organs. Lula’s perhaps well meaning efforts to help
develop the backward northeast and Amazon regions may only result in more money thrown away in salaries of cohorts.

All for Hunger Fight

The festivities in Brasília on New Year’s Day displayed a lack of decorum but the PT and Lula had their way. Lula,
who likes rubbing shoulders with the people, has developed bursitis in his right shoulder. That plus concern on the part of
his security forces may minimize these occurrences in the future. Lula’s speech, only one of a series of long-winded
orations, concentrated on his battle to eliminate hunger. No details as to how this worthy goal might be attained are yet available.

Lula made it public that the purchase of 12 new jet fighters to replace the aging Mirage fleet, will be postponed in
order to use these funds to combat hunger. The foreign press picked this up saying that Lula is wisely trading guns for butter.
Local commentaries have pointed out that the US$ 760,000,000 earmarked for the purchase of new planes is not in the budget
and in fact does not exist.

The planes were to be financed by the yet to be chosen suppliers who would have to purchase an equal amount of
Brazilian products to compensate. The Air Force was taken completely by surprise, but the new commander of the FAB (Força
Aérea Brasileira), brigadeiro Luiz Carlos Bueno, stoically accepted the measure saying that it is up to the government to
determine priorities. I think we have not heard the end of this first act of demagogy on Lula’s part. He probably was not informed
on the details of the planned purchase to replace the fleet based in Anápolis, state of Goiás, that must be retired in 2005.

During his campaign for election, Lula and the PT actively courted the military. This seems ironic since Lula and
many of his "comrades," as he has instructed people in the government to call one another, were locked up for subversion and
other charges during the 21 year period of military rule. His more moderate stance, staged by Duda Mendonça Lula’s
campaign manager, plus promises to pay more attention to the needs of the three arms, managed to gain tacit support from this
important part of Brazilian society.

Army for All

Since the election and Lula’s taking office, the minister of defense, José Viegas Filho, who was not a man that the
military wanted in the post, along with other ministers has volunteered the use of the army and its bases for non military
purposes. The minister of sports wants to use bases for sports activities. The man in charge of the Zero Hunger program has
enlisted the help of the armed forces to distribute food. The minister of education wants their help to eradicate illiteracy. The
justice minister wants them to assume the role of policing Brazil’s borders currently performed as stipulated in the constitution
by the federal police that falls under the jurisdiction of the ministry of justice.

Then there is the matter of road construction and maintenance of federal highways that the transport minister is
requesting help from the military. It remains to be seen how all this will set with the military. Those on active duty cannot speak out,
but through the retired and reserve officials, their discontent can be eventually felt. In my opinion, Lula would be wise to
not neglect the armed forces whose budgets were drastically curtailed during the FHC years.

Lula has yet to confirm or negate the recent declaration of the minister of science and technology. In an interview
with BBC, minister Roberto Amaral ambiguously stated that Brazil should be capable of making an atomic bomb. The
International Agency for Atomic Energy that has its hands full with North Korea and Iraq at the moment was surprised. Foreign
minister Celso Amorim is doing his best to clarify Amaral’s stupid remarks. But in a matter of such gravity, it is up to the
president to come out and deny such intentions and fire the incompetent minister who should have kept his mouth shut. Amaral is
in the hospital being treated for pneumonia and could resign for health reasons saving Lula the trouble.

All is not as rosy as financial markets would have us believe. But Brazil is looking to Lula to bring about a better life
for its citizens. It is too early to judge how this will all work out. We are in summer and many people are on vacation so
things are still not running at capacity. The next two or three weeks will give us a better idea if Lula is up to the task that
62,000,000 Brazilians bestowed upon him.

Richard Edward Hayes, and his wife Jane, first came to Brazil in 1964 as an employee of Chase Manhattan Bank.
During the past thirty-eight years, 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

This article appeared previously at the Globond site –

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