Today's date:
Winter 2003


Brazil Wants Autonomy to Act

Luiz Inacio "Lula" da Silva, leader of the leftist Workers' Party, is the new president of Brazil. He was interviewed for NPQ by the editors of O Estado de Sao Paulo.

NPQ | What reasons do you see for market instability in Brazil?

LUIZ INACIO DA SILVA | People had the idea that because the IMF (International Monetary Fund) had lent us money that the market would calm down and we would have no more problems. That did not happen; however, there are several factors we have to take into account. First of all, the United States economy itself is not doing so well, things are not as wonderful as we wanted to believe; the great US industrial corporations that we always envied are going through bad straits and that brought uncertainty to the markets.

Second, out of 10 words spoken by the US president, nine are about war; that is to say, he is trying to find an enemy to justify the need for a war. And that also creates instability in the markets.

Third, in June the Brazilian government issued foreign-exchange bonds, and now the government does not want to repurchase them. This means people start running after dollars because the demand is greater than the supply. All of these factors have led to the situation we are now facing.

To spread rumors, such as that Brazil could become an Argentina because of the elections, or that the dollar was skyrocketing or the stock markets falling because of the election, will have a boomerang effect: The bomb will explode in the rumormongers' own laps. We all know that our economy is weakened, that is one more reason for us not to play games with it. Brazil is not a banana republic. Our country will not go bankrupt. Brazil can recover if it has a government that knows that no country in the world can function if the interest the government pays for its own securities is lower than the return rates of a corporation. We have to invest in production - to make money by producing, generating jobs, generating wealth. If interest rates are hiked by the government, it generates speculation. We lose the emphasis on production and only demonstrate vulnerability.

Our main objective is to start growing again and generate jobs. We cannot continue with the level of unemployment we now face. It has impoverished us. The Brazilian economy has traditionally been an economy of growth. We grew a lot from the '50s to the '80s. There were times when we were growing 10 percent, 11 percent a year. During (Juscelino) Kubitschek's presidency (1956 - 61) we grew 7 percent a year, while industrial production grew 80 percent; metal and machining industries grew 380 percent and the production of parts for transports grew 600 percent while Brazilian per capita income grew three times as much as that of any country in Latin America.

Thus, I am optimistic. We are going through a transition period, and we are affected by the weakness of the world economy and the uncertainty over Iraq. If we start believing in our production again, if we use our resources to generate growth and employment, we will attract investors. The current government offered investors public assets at low prices and high interest rates. We want to offer infrastructure, we want to offer skilled labor, and we want to offer markets, which in the end are what any foreign investor is interested in.

NPQ | Economists from the Workers' Party argue that Brazil's current 3 - 4 percent inflation target is unrealistic. The expectation is your administration would increase the target to make it compatible with growth. The IMF, however, does not favor higher inflation targets. What is your opinion, given the current agreement with the fund.

LULA | The ideal for any country, for any government, is to have the lowest possible level of inflation. Nevertheless, inflation control cannot be an explanation for why the economy has not grown for eight years. Because if we have to choose between an inflation target of 3, 3.5 or 4 percent and have the economy grow, we will have to choose a balance to make sure we benefit the majority. The economy cannot be treated as an exact science. What you can do is say what would be a desirable outcome and implement mechanisms so as to have the lowest possible inflation. After all, those who lose the most with inflation are salaried workers or the unemployed who do not have interest-bearing accounts to compensate for inflation.

I will not give numbers for an inflation target so as not to find myself in the same situation as the last government that did not meet its targets. However, let me say that when we talk with the IMF we want to make clear that we want the autonomy to decide what to do domestically.

I repeat, I will not accept having Brazil treated as if it were insignificant. This is a very large country with a large industrial, intellectual and scientific base. We do not need people telling us what to do, in the same fashion that we do not interfere in other economies. I have not seen anybody giving the US advice over the falsified balance sheets of their large corporations, but here anybody can come in and put in their grain of salt. We do not have enough self-respect if we allow that.

Therefore, we need more self-respect. We are adults; we have entrepreneurs, unions, workers and students that are concerned about Brazil. There are 173 million Brazilians trying to find a solution for our problems. We cannot copy ready-made models or recipes. If that were the case we could hire 10 Nobel prize winners to manage our economy, and the problem would be solved. The only way we can advance is by restarting our growth. Our economy needs to grow again. Our agriculture proved last year its extraordinary potential, by having a trade surplus of $18.5 billion.

We will make even more when we start adding value to the products we export. Instead of exporting soybeans, export soy flour; instead of coffee beans, soluble coffee; instead of raw leather, shoes, bags, belts. This will make us more competitive in this globalized world.

NPQ | How will the demands of democracy and the tight fiscal policy demanded by the IMF be balanced?

LULA | A good fiscal policy helps you to work toward social justice. How are we going to do it? Through a broad dialogue. Civil society and the administration should discuss the proposal to be sent to congress. Civil society should tell its representatives what they want them to do. If I am elected president, I would like to go into history as the president who created a new social contract in this country. We have already begun. Right now we have a team talking to ANDIB (Brazilian Infrastructure Agency) to discuss problems related to infrastructure. We have a commission at the stock market discussing the new role for capital markets under our government. We also have a team working with the Federation of Bankers to discuss the financial system. Nobody knows all the answers or owns the truth, neither our party nor any other. Solutions will have to be constructed in keeping with national interests.

NPQ | Can you explain your ideas on tax collection and pension savings, and how that will help the Brazilian economy?

LULA | There are two things I want to do. We need more money. We are a capitalist country where capitalism is practically impotent because 28 percent of GDP is needed for credit and we have only 17 percent in internal savings. (In order to promote capital formation) we must thus foster the creation of pension funds for all worker categories.

We also want to create credit unions, so we can have more money in circulation. We will also undertake reform on private pension systems.

As the Brazilian economy recovers we are going to have more workers joining the formal sector of the economy, which will certainly lead to a reduction in the private pension deficits.

The state also needs to be able to collect money because not only does it have expenses, it must also be able to do social work. We have 43 million hungry people, who do not eat the necessary amount of calories and proteins. In Brazil people do not like to pay taxes because they don't see taxes coming back as bene?ts. Public schools and health services are not adequate, so people have to pay for private schools and health services and then evade paying taxes.

I am convinced we can reduce our tax burden while at the same time increase the amounts collected - the "tax take." I do not have a crystal ball, so I want to involve society in this dialogue.

NPQ | What can be done to improve productivity and generate new wealth in Brazil?

LULA | Brazil needs an overhaul. Let me give you an example: Farmers who breed cattle and invest in technology produce a higher quality cattle. Of course, they spend more. But when they sell their meat to meat-processing plants, the price they get for their meat is the same as the meat from that of tick-infested, low-quality herds. The same thing goes for leather. Thus, adjustments have to be made. The meat-processing plants and breeders need to get together to establish a policy that will allow people to have a return on the investments they make.

In fact, I believe that this is the reason why socialism failed. If you have somebody producing 10 units earning the same as those making 100, in the end you will have everybody making 10 because there is no incentive to produce more. Therefore, I believe we have to reward investments in technology, we have to reward quality. We want to set up a scheme to unburden the cost of production, to facilitate the creation of micro-enterprises. We must eliminate obstacles; this is a capitalist economy that needs to have its manacles removed so that it can function effectively, so that people can set up businesses, make investments. We must get rid of bureaucratic red tape.

NPQ | Finally, what would be your position on pursuing the Free Trade Area of the Americas zone (FTAA)?

LULA | What are our points of contention? First, I believe that the best integration model for Brazil would have been to have created multilateral institutions from the time when the first protocol was signed, so we could have arrived at 2005 with things more or less consolidated.

The European Union took much longer to consolidate, but they created cooperative economic institutions decades ago and progressed toward the European parliament and the European central bank they have today.

We would have liked Mercosur to be in a better situation so that we could negotiate the FTAA as a bloc. What are the problems we are going to face?

The US is the only country that has long-term strategies. It thinks big, has a vision of the future and measures each step it will take. So much so that before we start the FTAA negotiations in February, the US has already increased its list of sensitive products to 510 - that is to say, products in which Brazil can be more competitive. It has approved $196 billion for eight years in agriculture subsidies.

Thus we have to be careful. Brazil is the second-largest economy in the hemisphere. We have industries, and we want them to survive; we have agriculture, and we want it to survive. So we must enter into these negotiations with our head high. Nobody will respect you if you don't respect yourself.

We are in favor of free trade as long as there is effective equality in the debate. Twenty of our main exports face an average tariff of 40 percent in the US, and the 20 major products we import have a 13 percent tariff.

When I had dinner with the American ambassador she asked me: "What can I tell the American government for them not to be afraid of Lula?" Tell them there is no reason to fear me, I said. All I want to do is the same thing they do for the American people. I will defend the interests of the Brazilian people first and foremost. Only then can we talk about other people's interests. That is what the Germans, the Italians, the British and the Americans do. Only in Latin America, where we have ruling classes with colonial minds, do we believe that if we are kind to others they will be the same to us.