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Council Expert Maxwell: Brazil's President Surprises Friends and Foes

Interviewee: Kenneth R. Maxwell, Nelson and David Rockefeller Senior Fellow, Council on Foreign Relations
Interviewer: Bernard Gwertzman, Consulting Editor
June 12, 2003

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Kenneth R. Maxwell, the Council on Foreign Relations’ Director of Latin America Studies, says that Luiz Inacio Lula da Silva, Brazil’s left-leaning president who is known as Lula, has surprised friends and foes alike by adopting a conservative economic policy. But opposition to Lula’s market-oriented approach, which he says is aimed at putting Brazil on the path to economic recovery, is growing in his Workers’ Party.

Lula, elected in October 2002, is due to meet President Bush in Washington on June 20 to discuss a pending hemispheric free trade agreement. Maxwell says these talks will be crucial. Brazilians must decide, he says, “whether their interests are better served by deepening the relationships within their own neighborhood or going for a high-level deal with the United States.”

Maxwell was interviewed by Bernard Gwertzman, consulting editor for cfr.org, on June 12, 2003.

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Can we first resolve the question of the president’s name? His formal name is Luiz Inacio Lula da Silva, but everyone seems to call him “Lula.” What should we call him?

It was a childhood nickname that he later adopted formally.

Just Lula?

Yes. Since he’s become a public figure, he’s always been known as Lula. Even in government documents that I saw the other day, he was referred to as “President Lula.”

Lula is a leftist and a former union leader, so there was concern on Wall Street and elsewhere when he was elected. What’s happened in the last few months?

There’s been a remarkable shift in opinion. There was a lot of gloom and doom on Wall Street, and there was a lot of euphoric expectation among the anti-globalization forces. But there’s been a sort of reversal in the last five months. Wall Street is now as happy as it can be, and the anti-globalization people are in a state of shock, because Lula has been very tough, carrying out what people regard as very orthodox economic policies— high budget surpluses, following International Monetary Fund (IMF) guidelines, and so on.

What caused the shift?

I personally was not surprised, because he entered office facing a very fragile economic situation. Brazil was enormously dependent on the goodwill of external investors, and the outgoing government had left the economy vulnerable, because of the “dollarization” of a large amount of the debt, not only domestic debt but also foreign debt. There was very little room for mistakes. Lula and his party— it wasn’t just Lula who came into power, it was [Brazil’s] first accession to power of a modern labor party, the Workers’ Party, as it’s called in Latin America— realized this was their one chance to succeed. Therefore, they’ve been very cautious in [avoiding] the sort of disaster that many foresaw. I felt that, for the first six or seven months, they were going to follow policies whose content they had very little choice about. That indeed is what has happened.

Has his party— which includes former revolutionaries and guerilla fighters— accepted this change, or opposed it?

There are very strong voices being heard in opposition because the party has moved considerably toward the center.

Tell me about Lula’s party.

The Workers’ Party, known by the Portuguese initials, PT, was founded in 1980. It is a grassroots party and an important new factor in Latin America. It works within the political system and not outside it. It’s had a lot of experience in local and state government, but never at the federal level. Like the [United States], Brazil has a federal system in which state governors have a lot of power, and Lula’s party does not have majorities in either house of Congress, so it was inevitable that it would need to negotiate. But the more ideological hardliners on the left, of course, find that very difficult. So yes, there is a lot of unhappiness on the extreme left of his party, which represents about 20 percent of the party base. More serious opposition is likely in the next several months from within the bureaucracy, because one of the critical reforms the government is determined to push through over the next three months deals with the social security pension system, a major part of the enormous deficit that the government faces every year. Beneficiaries are mainly bureaucrats, so it’s going to be a difficult fight, because they also, of course, control the way the government functions.

Do most workers in the country have pensions?

No. There are millions who are outside the economy completely. The poor workers that are within the economy do get taxed, and have to pay, in effect, for the pensions of these privileged few. It’s going to be quite a battle. But it’s essential that the government get operating deficits under control, and it seems so far determined to do that.

This is similar to what’s going on in Europe now, particularly in France, isn’t it?

Very similar. If you think the French case is perverse, the Brazilian is even more perverse, so it’s going to be a tough fight.

Have there been demonstrations?

There was a very big demonstration in Brasilia, Brazil’s capital, on June 11, and Brasilia of course is stuffed full of civil servants. The people who live there have a very high per-capita income compared to the rest of Brazil.

What is the quality of life like in Brazil? Is crime rampant in cities like Rio de Janeiro?

Crime is a major problem. Many average people I spoke to when I was in Brazil a couple of weeks ago are most worried about crime. The risks of a government like Lula’s not succeeding are very great, because people fear what they call “Colombianization,” that is, the [effects] of narco-money [on the economy and politics], and gangs taking over large chunks of the city, especially the slums. Rio is the classic case of a situation where you have big areas of the city completely out of the government’s control.

If a tourist wants to visit the beaches of Rio, does she or he do it at great risk?

It’s one of those situations where you hope you’re not in the wrong place at the wrong time. There have been shootings, small grenades thrown at some of the larger tourist hotels, and it’s clearly a sort of warning. It’s not like Beirut in the ’80s, not that scale of violence, but it’s sufficient to give concern. For example, almost every night the main highway from the international airport to the city is closed down because of shoot-outs between the police and the narco-gangs. Some of the big American banks have advised their clients not to use the international airport as a result. It is having a very major economic effect on tourism, which is critical for Rio.

Lula attended the early June Group of Eight (G-8) meeting in France, the only Latin leader there. Why was he invited?

Lula was the only South American president there; President Vicente Fox of Mexico also attended. This was [French President and G-8 host Jacques] Chirac’s game to some degree, but it also is part of Lula’s game. Lula wants Brazil to be much more present in the debate about global inequalities, and also to be recognized as a major country in the discussion about what we used to call the north-south divide. The fascinating question about Lula is he seems to be playing the game according to the rules, and therefore in some senses he’s more of a challenge than somebody you could dismiss as a third-world lefty. He’s a more serious player than that, and that’s the message he’s taken to the G-8, and that’s the message he’ll bring to Washington when he visits President Bush on June 20.

How did this meeting come about?

Just before his inauguration on January 1, Lula came to Washington and there was a meeting with Bush. There was a promise that Bush would have a meeting in Brazil in June, a high-level meeting with Cabinet officials from both countries. The Iraq war and everything else put all that off. Even though Bush could not go to Brazil, there was a major item on the agenda that needed to be dealt with urgently: the FTAA [Free Trade Area of the Americas]. Since Brazil and the United States are co-chairmen of these negotiations, it was important for Lula to come to Washington. And it is important also for Bush because this remains his administration’s main policy for the region.

Tell me about the free trade agreement Bush is proposing.

It goes back to the early 1990s. The idea was to have a free trade area of the Americas similar to expanding the North American Free Trade Agreement (NAFTA) to Mexico. It didn’t go very far in the Clinton years, because President Clinton lost the fast-track negotiating authority [that allows Congress to accept or reject— but not amend— trade agreements negotiated by the White House]. But Bush got fast-track authority back, and the idea moved ahead again. All the leaders at the last Summit of the Americas in Canada [in April 2001] committed themselves to achieving the free trade area by 2005. Now, Brazil has always been very ambiguous about such a free-trade area. It is most competitive in those areas where Bush is most protectionist-minded, steel and agro-business. And Brazil is not sure that it sees huge benefits in opening its market to the United States and not getting any reciprocal benefits. It’s going to be a fairly tough discussion. But if Bush wants a free trade area for the Americas to be comprehensive, then he has to have Brazil, because Brazil is the big elephant…. That is what Lula is coming to find out: whether he thinks Bush is a serious negotiator. And Bush is going to see with Lula if Brazil’s going to come aboard or not. The stakes will be quite high for the free trade negotiations at the Washington meeting.

I know Brazil is a self-sufficient country, it makes a lot of computers, for instance. Are the Brazilians competitive on the world market? Could they sell computers in the United States without a big tariff?

Yes, and they’re also very competitive, for example, on aircraft. There’s just been a $3 billion deal with JetBlue for Brazilian aircraft. They’re extremely competitive in agro-business, which Bush is very protectionist about. They’re competitive in certain manufacturing sectors. So they have the capacity to be effective exporters and they want to see reciprocity there.

Do American companies see Brazil as a big market? Are there high tariffs in Brazil right now?

They’re high compared with, say, Chile. The dilemma for Brazil is whether it sees a free trade deal as more important than consolidating a customs union within South America. That’s the debate that’s going on in their mind, whether their interests are better served by deepening the relationships within their own neighborhood or going for a high-level deal with the United States. It’s very much up in the air. A lot of this will be crystallized over the next several weeks, and I think this meeting is actually quite important for that reason.

U.S. Latin American policy, politically at least, is so heavily focused on Cuba that it seems to antagonize a lot of other countries in the region. What is Brazil’s reaction to Washington’s Cuba policy?

That’s an interesting question, because U.S. policy is clearly completely the captive of its obsession with Cuba, regardless of what Castro does. The reaction to Castro’s recent [political] crackdowns has been extremely negative throughout Latin America and, left alone, I think that negative attitude would manifest itself. For example, in Brazil a very strong, vibrant, and healthy debate has begun within the left— for the first time— about Cuba’s lack of democracy. But when they see Washington so obsessed with that instead of its policy toward the hemisphere as a whole, many Brazilians despair, because they don’t see the United States government having a realistic view of where power lies and what is important to deal with in the region.

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