Tired of Being Emerging Power Brazil Will Go Over the Speed Limit, Vows Lula

Re-elected Brazilian President Luiz Inácio Lula da Silva announced his second term will be dominated by political dialogue, government reforms and economic growth to ensure the battle against poverty continues and Brazil definitively abandons the "emerging countries" group.

However analysts believe Lula da Silva’s agenda will be more conditioned to cutting endemic corruption and government inefficiency, plus reforms that effectively boost economic growth if the promised goals are to be achieved in his second four-year mandate.

Political dialogue to build a coalition is essential because in spite of the president’s landslide support, his Workers Party lost Congressional seats and will need to reach an agreement with the leading force in Congress, the PMDB, if reforms are to be passed.

Reforms include taxing and fiscal, political and labor and another attempt with social security, a nut which has proved too hard to crack for his first term and previous administrations.

And even if he manages a workable coalition, which could include a shared cabinet, the main opposition party, PSDB of defeated Geraldo Alckmin promises to keep bashing the Lula administration with the corruption scandals of his Workers Party that have stunned Brazilian public opinion and forced the president to Sunday’s runoff.

"Many investigations were set aside for the elections, and the opposition will want to pick them up and go deeper," says João Augusto de Castro Neves, a political scientist at the Brazilian Institute of Political Studies.

"They don’t want to work with him, so they will hit him as hard as they can; any small mistake will be seized upon. Everything indicates that the climate will be even more combative than before."

Besides, the election showed a divided Brazil along geographic and economic lines: Lula won in the poorer north and Alckmin in the more prosperous south. His solid north support can be tracked to the wide reaching assistance program that makes monthly payments to at least eleven million families.

Reforms are considered vital to boost the Brazilian economy that under the Lula administration has grown at an average 2.6% annually, half Latinamerica average and well behind rival developing nations such as China, India, Korea and even neighboring Argentina’s 9%.

Brazil has the highest tax burden and highest interest rates in the region and a budget that officials admit will have to be slashed.

President Lula’s spending pledges have raised concern among some investors after the government boosted expenditures 16% in the first nine months of the year, more than the 12.8% increase in tax collection during the same period.

But according to Lula’s promises, "we’re going to have a strict fiscal policy" and insisted "we can’t spend more than we earn".

Lula said he expects the Brazilian economy to grow 5% next year and pledged to lower social security costs, limit bureaucracy and improve conditions for investment in the country. Some of that growth will be powered by infrastructure projects already underway.

However Tarso Genro, political coordinator and main advisor of President Lula was more loquacious: "Low growth rates and a neurotic concern with inflation without taking into account income distribution are over".

According to the American Chamber of Commerce in Brazil chairman Hélio Magalhães, from a business point of view "the tax burden needs to be reduced, government spending has to come down, and social security needs to be reformed because it generates such a huge deficit. And the government needs to invest in infrastructure to create the conditions for long-term investment".

President Lula finally said that in spite of "a strict fiscal policy", in the coming four years Brazil will abandon the category of "emerging country" and join the developed nations club.

"We have the foundations for an extraordinary quality leap in this coming four years; we solved the macroeconomics problem but now we’re tired of being an emerging power: the Brazilian people hope things will move improve and move much faster".

"If in my first mandate we advanced at 80 kilometers per hour, in these next four years we’ll be advancing at 120 kilometers per hour", he promised.

Finance Minister Guido Mantega who is expected to remain in the new cabinet said he favored a gradual approach to cutting the budget gap. The budget deficit is currently in the range of 3.5% of GDP and is kept under control with extremely high interest rates.

"I’m proposing a gradual annual accumulated reduction of 0.1 to 0.2% on current expenditure" he said.

The Brazilian government current expenditure has risen to 17.6% of GDP in the last four years. Brazilian inflation is in the range of 5% but the Central Bank basic reference rate is above 14%.



  • Show Comments (3)


    Brazil is so tired…..
    of being an emerging country…that you fell asleep…for the last 4 years !
    Too lazy…by now ?
    Time to wake up…time to stand up…time to change…..and work finally !

    Show us, show the world…for once !

    Because Boom and Bust is your nickname as Lula correctly said !

  • ch.c.

    ….”.Likewise, spending on the public-sector payroll will be 5.1 per cent of GDP this year. Far from trimming payroll spending, the government recently announced plans to increase it by 11.4 per cent next year, well above the rate of inflation”

    Or said differrently : 0,4 % of GDP is spent on the 23 % of the poorest citizens (45 millions) and 5,1 % of GDP goes to the payroll of the public sector (Federal/Agencies civil servants of around 2 millions)

    Not over yet :
    “Overall taxes were about 35 per cent of GDP when Mr Lula da Silva took office and reached 39 per cent this year. That is roughly double the level of competing developing countries and, as Mr MendonÀƒ§a de Barros says, similar to that of developed countries such as the UK and Germany – which finance comprehensive social welfare provision that Brazilians can only dream of.
    Brazil spends a lot but it spends badly,” says Marcelo Neri, director of the social policy unit at the GetÀƒºlio Vargas Foundation, a university in Rio de Janeiro. “Policies like Bolsa FamÀƒ­lia clearly target the poor but they live alongside others that go to the non-poor.”
    Spending ineffectively also means that the government has less money available for roads, ports, power generation and other physical infrastructure that help promote growth. For the same reason, the government has been unable to improve the quality of public services. Education is almost universal but teaching standards are poor. Regulation, too, leaves much to be desired, with investors frequently complaining of a lack of transparency or arbitrary decisions by officials. Little has been done to ease the complexity of doing business.”

    And a guy with such a performance…..is re-elected !
    Greaaat….inst it ?
    Your centuries long problems are not behind you, they just started and going worse and worse !
    Everyone should expect one of your trick during the next 5 years or so : You will
    issue a new currency…….just as you did 8 times since only 1942 !

  • ch.c.

    What a comic movie……..
    …Lula has promised a high economic growth rate during his 4 years mandate. Last November he even predicted a “special vintage” for 2006 !

    End results ? Economic growth rate 0,5 % in 2003, 5 % in 2004, 2,3 % in 2005 and probably around 3 % for 2006.
    Yeahhhhh a truly great performance when compared to the other developing countries, either your neighbours or elswhere !
    In 2005 Brazil had the lowest growth rate of ALL developing countries !
    Congratulations…..Lula !
    In 2005 Brazil had the 2nd lowest growth rate of ALL LATAM and Caribean Countries……after HaÀƒ¯ti….which is one of the poorest country in this planet and not even a developing country but a LDC !
    Congratulations…Lula !
    And to his so proud Bolsa Familia and caring for the poors, here are interesting stats, not necessarily a compliment : ” the INSS rose from 6.5 per cent of gross domestic product in 2002 to an estimated 7.8 per cent this year – dwarfing the 0.4 per cent of GDP spent on income transfer programmes such as Bolsa FamÀƒ­lia.s for the Bolsa Familia”

    Yesssssss Lula is proud to provide 0,4 % of GDP to the 45 millions poorest citizens. (23 % of the population)
    And he is as proud to provide less than 2 % of the Federal Budget of Reais 455 billion for 2006 to the Bolsa Familia while providing 23 % of this budget to Federal civil servants salaries and perks alone, representing only 2 % of the population.

    Congratulations….LULA ! You have betrayed your electors during the first 4 years, no doubt you will betray them even more during your second 4 years mandate !
    Your ignorant citizens are swallowing ALL your lies…..just as you expected and still expect !

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