It is a story worthy of a first-rate novelist. A Brazilian from a dirt-poor family, who does not even have a chance to taste bread until he is seven years old, leaves school early to work to support his family. He becomes a metallurgical worker, then a union leader, then a national political figure. He goes on to found a political party--the first mass-based left-wing movement in Brazil's history--and runs for president. Defeated three consecutive times, he finally wins by a landslide. This is the saga of Luiz Inácio "Lula" da Silva. No wonder it has occupied so much space in the papers since his victory in the second round on October 27.
The story acquires added interest, however, in the context of three other factors. First, during the campaign Lula obviously found a way of appealing to an extraordinarily broad range of Brazilians--everyone from wealthy businessmen to landless peasants. To govern, however, is to choose. Even with the best will in the world, it would be impossible for him or indeed any president to hold the support of so wide a span of the political spectrum. Second, Lula's range of choices is severely limited by the weight of the country's foreign debt. Third, Brazil requires a constant inflow of fresh capital; one false move and Lula will find himself pushed off the narrow fiscal shelf he will encounter when he takes office early next month.
Understanding the Election
Although much has been made in the international press of Lula's leftist past, in many ways this election was not an ideological contest. All of the major candidates in the election were running on platforms that, certainly by U.S. standards, were firmly left of center. This was true not only of Ciro Gomes or Antonio Gartinho, but even President Fernando Henrique Cardoso's handpicked standard-bearer, José Serra. (It is true that in the runup to the second round Serra's rhetoric became far more "conservative," in a desperate attempt to scare middle-class voters away from Lula, but apparently this had little effect.)
Rather, one could argue that Lula's triumph was of a more personal kind. Millions of Brazilians who feel shut out of the economic well-being enjoyed by roughly a third of the population saw in Lula a projection of their fondest dreams. One might even, stretching matters a bit, liken it to the election of Andrew Jackson in the United States in 1828. Attempts by Serra to devalue Lula by emphasizing his lack of a formal education actually backfired. (How many Brazilians, after all, are like Serra, who has a Ph.D. from an American university?) Moreover, the fact that Lula chose during his own campaign to stress social harmony and well-being, rather than class confrontation (his slogan was "Peace and Love"), probably disarmed many doubters. Even Lula's antiglobalization rhetoric (somewhat muted this time around) was no liability; most Brazilians including very wealthy ones, dislike and distrust the United States, and many reject outright the U.S.-sponsored Free Trade Area of the Americas.
The electoral data itself underscore the nature--and limitations--of Lula's personal triumph. While he won the support of 53 million of Brazil's 115 million voters in the first round, Lula's Worker's Party (PT) took only three of twenty-seven governorships. Even more telling, the particular states that the PT won (Acre, Piauí, and Mato Grosso do Sul) are relatively insignificant. PT candidates lost--some lost by wide margins--in the powerhouses of São Paulo, Minas Gerais, Brasilia, Pernambuco, and Rio Grande do Sul. The defeat in this last--after two successive PT administrations--was particularly telling, since that state, one of Brazil's most modern and prosperous, had long been a showcase whose purpose was to demonstrate the party's readiness to rule the country.
Legislative results likewise showed no particular PT trend. Far from it. Lula's party won only 14 of 81 senate seats, only 91 of 513 seats in the Chamber of Deputies, and a mere 147 of 1,059 benches at risk in the state legislatures. If Lula's victory was decisive and unprecedented, his coattails were perhaps proportionately shorter than any other president in recent Brazilian history.
This much said, the atmospherics surrounding the election were positive and hopeful for Brazilian institutions. While outgoing president Fernando Henrique Cardoso obviously favored Serra, he made it a point to keep Lula's economic team advised on the progress of negotiations this summer with the International Monetary Fund. He also publicly discounted the more exaggerated rhetoric of his own candidate in the second round, insisting that regardless of who won the election, Brazil's creditworthiness would not be compromised. And since Lula's victory he and his people have willingly worked with PT functionaries to create as smooth a transition as possible. This is hardly the kind of environment one would anticipate in a country about to lurch off in a radically new direction.
Lula Is Not Chávez
During the campaign there was much talk in Latin America--and indeed in this publication--to the effect that a Lula victory in Brazil might consolidate a new trend in the region toward populist-leftist regimes of the type we have recently seen emerge in Venezuela. There are indeed some superficial similarities. Both Hugo Ch‡vez of Venezuela and Lula come from, and represent, sectors of society that have not historically played major roles in political life. Both are friends of Fidel Castro. Both are opposed to what they call "neoliberalism". Both favor the creation of a coalition of "have not nations" to oppose the G7.
But the comparison cannot be taken very far. Brazil is not Venezuela, and Lula is not Chávez. First of all, the 1998 elections in Venezuela were not merely an exercise to choose a president, but a virtual referendum on an entire political system. Chávez's victory was the death-knell for that country's two political parties, and, although many who supported him four years ago have since turned against him, Venezuelan civil society has thus far proven incapable of reconstituting itself in an organized fashion, and many now openly talk of civil war. Second, Venezuela is a country with a relatively small population, rich in oil that has historically provided a wide margin of error for any leader. Brazil is virtually a continent and is energy-poor and heavily indebted. Third, Lula himself is a serious politician who has fought elections, lost repeatedly, and picked himself up to run again. Chávez first came to the attention of Venezuelans in a failed attempt to oust an elected government in 1992. He would have spent the next two or three decades in prison had not been for President Rafael Caldera, who--in a characteristic fit of self-indulgence--chose to commute his sentence. Whatever one may think of his views, Lula is a proven democrat; Chávez is a megalomaniac with extreme delusions of grandeur. So far there is no indication whatever that Lula will not finish the term for which he was elected. Nobody who follows Venezuela these days is certain that Chávez will make it to the end of his.
Somebody Has Got It Wrong
During the campaign, Lula promised to end hunger in Brazil, create jobs, generate a larger trade surplus, and improve social services. At the same time, however, he insisted on his intention to respect the country's international obligations and to help Brazilian industry to become more competitive. Unfortunately, this attempt to split the difference between left and right did not fully reassure the financial markets. Throughout the later phases of the campaign, the value of the Brazilian real fell repeatedly. And the current financial spread on Brazilian bonds is 17 percentage points (down, admittedly, from 24 percentage points a few weeks before the election, but far above the seven percentage points of last spring).
Some of this--perhaps indeed most of it--is due less to Lula than to Brazil's financial situation. Its public debt--$247 billion--now consumes 64 percent of gross domestic product (compared to 30 percent in 1994 or 49 percent in 2000). For that debt to be sustained, interest rates must fall substantially and currency appreciate in roughly the same measure. This puts Lula--who has pledged new social spending--in a tight spot. As MIT economist Kirstin Forbes told the Washington Post (November 6), "Lula is going to have to be almost perfect to keep the markets going the way they have been in the last few days, and realistically, this is a new government, so they are going to make a lot of mistakes."
Shortly after his election, the president-elect met with 130 of the most important leaders of Brazil--businessmen, politicians, bankers, landlords, as well as union and peasant leaders--to try to work out a new social pact. (Significantly, representatives of Brazil's radical landless movement--the MST--were not invited, although Lula's people have met with them separately.) The leitmotif was that everyone should accept the obligation to make short-term sacrifices to obtain benefits in the medium and long term. A poll taken at roughly the same time showed that 71 percent of Brazilians think their new government will be "very good," and more than 59 percent have expressed their willingness to make sacrifices, even if this means higher taxes.
One can hope that this mood endures, but it is hard to imagine that it will. Too many different kinds of people voted for Lula. He cannot please all of them. The very fact that his party has failed to win a significant foothold in the congress means that, like Cardoso, his legislative success is mortgaged to a wide range of parties and forces. And like Cardoso, a nimble and imaginative politician, he may find this distinctly uphill work. While nobody in Brazil--indeed, for that matter, nobody in the international community--wants Lula to fail, the question is really who will be willing to endure the greatest sacrifice to assure his relative success.
The International Dimension
Brazil is the most important country in South America, a nation of 175 million people. It is also the world's tenth largest economy. If push comes to shove, can the international financial community afford to let Brazil go down the tubes? This question may well recur in Washington, New York, London, and Frankfurt in the coming weeks and months.
The reason is simple. In spite of a recent $30 billion infusion from the International Monetary Fund (only $6 billion of which have been disbursed so far), no one is willing to bet that Brazil will be able to meet its external obligations. As Michael Mussa, former chief economist of the IMF put it recently, "the market is already well aware of the existing IMF program, and the market clearly judges it to be inadequate--not just marginally inadequate but substantially inadequate" (Washington Post, November 6). It may indeed be that Brazil will be pushed to a default (either unilateral or negotiated) or to a radical restructuring of its obligations. In either case, such measures would wipe out the savings and pensions of the middle class, with catastrophic political fallout. The impact on the country's credit-worthiness is not difficult to imagine.
If it comes to that, will the G7, led by the United States, bail Brazil out? If the Argentine precedent is any guide, the answer is a decisive no, although admittedly that country is a far less weighty player in the world economy and also a far less significant customer for the United States. For the moment Lula's people are hinting that they will be running a budget program even more austere than the one recommended by the IMF, which called for a budget surplus of 3.75 percent of gross domestic product (after interest payments). Such a disciplined approach would undoubtedly inject an enormous dose of confidence into the financial markets. But it would mean scrapping plans for increased spending on health, education and housing, and with it, much of the president's support at the grass roots, where people, having been fed expansive promises, are expecting results.
In some ways Lula's victory is the most important development in the democratic history of Brazil. What he does with that victory, however, will be of far greater, and arguably longer-term, significance. As things stand now, however, it is the obstacles and traps on the road ahead that command our attention and cause Brazil-watchers everywhere to hold their breath.
Mark Falcoff is a resident scholar at AEI.
