Brazil

...One of them—the secretary of economic policy, Marcos Lisboa—had written the government program for another candidate, with the collaboration of Jose Scheinkman, a former chair of the economics department at Chicago University...

...so when the Central Bank hikes interest rates, Treasury pays the bill...

...Here, too, the IMF has acknowledged that the record of financial liberalization has been rather poor, and even the Economist in its "Survey of Global Finance" admits that some countries should impose capital controls...

...My fear is bigger than my hope...

...Some depreciation was, in fact, seen as good, because it would reduce the current account deficits...

...Which way it will blow, I cannot tell...

...He noted that "nobody knows what he will do when he does come . . . . My opinion is that when he comes he will bring a breeze with him...

...progressives cannot be blamed...

...Effectively this means that the ability of public firms to invest—particularly in infrastructure— is radically restricted...

...One should add, however, that they also prove how much the financial markets frighten the administration...

...This diagnosis was and still is essentially correct...

...Lula and his advisers argued instead that the problem lay with the liberalization policies of Cardoso's administration—in particular, with the reckless accumulation of foreign debt and the increasing external vulnerability of the Brazilian economy...

...I am, it should be clear, referring to the United States...

...Lula himself during the campaign—and, as president, at the World Social Forum in Porto Alegre—promised to provide an alternative to the neoliberal policies that dominate the corporateled globalization process...

...Arthur Schlesinger, Jr., argued in his classic history of the period that Jackson contributed to the vitality of American democracy...

...HOWEVER, AS SOON as the PT took over, Lula appointed Antonio Palocci, a politician with no economic background, and Henrique Meirelles, an ex-president of Fleet Boston, to the Ministry of Finance and the Central Bank respectively...

...Hope should be built on a foundation of reasonable expectations...

...It may very well take another generation of progressives to make Brazil a more just and civilized society...

...But that is being done by a Republican administration...

...Hope springs eternal...

...30 n DISSENT / Winter 2004...

...Patience is necessary when economic policies are on the right track...

...In his view the president-elect lacked culture and education, and his election represented the first real test of the democratic institutions in his country...

...Note also that most developed countries are able to pursue counter-cyclical fiscal and monetary policies...

...The results have been acclaimed by the government as proof that Lula and the PT do not frighten international financial markets anymore...

...As Andre Gunder Frank has recently remarked, the problem with the current macroeconomic policy is that it will make land reform and the hunger program very difficult to carry out...

...Around two hundred economists—some with long-term ties to the PT—have recently signed a document demanding a clean break with the current macroeconomic policies...

...The initial measures of the new economic team were more in line with Serra's views than with what Lula defended during the campaign...

...However, he believes that several factors are working in Brazil's favor...

...Chico de Oliveira, a founding member and key intellectual, has officially left the PT...

...And there are good reasons for that, as Stanley Gacek reminded us in his recent article 28 n DISSENT / Winter 2004 in this magazine ("New Hope for Brazil...

...The population, on the other hand, was all hope, no fear...

...The senator was Daniel Webster, and the newly elected president was Andrew Jackson...

...The difference between the nominal and the primary deficit is made up of interest payments, which, if the administration does not miss the IMF target, will amount to almost 10 percent of GDP...

...Because Brazil already requires that all foreign exchange transactions above a certain amount be reported to the central bank, capital controls would not require an increase in bureaucracy...

...This may help the Brazilian authorities move in that direction...

...This is not very good for exports, but it is a central instrument for keeping inflation under control...

...There is a fine line between hope and wishful thinking...

...He has also taught at the Universidade Federal do Rio de Janeiro and has been an external consultant to the International Labor Office on Brazilian labor markets...

...Luis Inacio Lula da Silva said that his election represented the victory in Brazil of hope over fear...

...The fiscal gains recently reaped from a very costly reform of social security pale in comparison to the financial costs imposed by the high interest rates...

...This seems to be wishful thinking...

...DISSENT / Winter 2004 n 29 POLITICS ABROAD A petition on behalf of Senator Heloisa Helena— signed by Noam Chomsky, Michael Albert, and Robin Blackburn among others— and the support of several members of the party have been ignored...

...These measures have led, on the positive side, to a decrease in the gap between interest on Brazilian bonds and U.S...

...For those on the left who have converted to fiscal conservatism—the idea that budget surpluses are good even in recessions— one should note that Brazil has had fiscal surpluses for more than a decade...

...Hence, this is a highly regressive redistribution of income, in a country with one of the world's worst records on income distribution...

...They would also allow for increasing domestic demand, and reduced interest rates together with a reasonably depreciated but stable exchange rate would lead to the sustainable growth that has eluded Brazil for the last twenty years...

...The impact has been nil, and a long tradition of tolerance with dissenters has been disregarded...

...It took a whole century before progressives were able to promote in the economic arena the values that Jackson represented in politics...

...Also, Argentina has just imposed capital controls—a measure taken by others (Chile, Colombia, and Malaysia to name a few) with relative success...

...Patience will not help change those policies...

...Brazil has done exactly the opposite despite growing unemployment...

...Jose Eisenberg tells us that we should be patient...

...During the 1990s, the foreign debt to gross domestic product level rose to the levels of the 1980s debt crisis, and exports— the only reliable source of foreign rePOLITICS ABROAD serves—stagnated...

...The economists usually associated with the PT ended up in the Planning Ministry and the National Development Bank (BNDES), with considerably less impact on the direction of macroeconomic policy...

...namely, the World Bank has praised some progressive policies, and Wall Street may have learned some lessons from the Argentinean debacle...

...All investment expenditures of public firms in Brazil are accounted as part of the government's expenses— something that is not done in developed countries...

...One may complain about deficits being run to finance a permanent war on a vaguely defined enemy, as in the American case...

...Regressive distribution is also contractionary, because wealthy individuals spend proportionally less of their incomes...

...Lula and his advisers have repeated several times that there is no Plan B, no alternative to the current policies...

...MATLAS VERNENGO is assistant professor of economics at the University of Utah, Salt Lake City (Vemengo@economics.utah.edu...

...High interest rates, permanent fiscal adjustment, and appreciated currencies were wrong during the Cardoso administration, and we would be helping the people of Brazil to say that they are still wrong...

...Their associates were chosen from a group of conservative economists from the Getulio Vargas Foundation and the Catholic University of Rio de Janeiro, both groups with ties in the Cardoso administration...

...The policy also makes it impossible to reduce the record current levels of unemployment: 12.9 percent in October...

...Brazilian foreign policy has been less attuned to the conservative agenda that still impregnates domestic economic policies...

...However, it is also true that his macroeconomic policies—guided by his hatred of banks, public debt, paper money, and federal intervention— contributed to the most serious economic crisis since independence...

...Further, Brazilian intervention was crucial in the negotiations for a more just Free Trade /Area of the Americas...

...In fact, the pressure began even before the election...

...The world's most celebrated currency speculator, George Soros, in an interview with the Folha de Sao Paulo, one of Brazil's leading newspapers, argued bluntly that Brazil would not be allowed to elect Lula...

...Fifty percent of the Brazilian public debt is indexed to the base rate...

...Other dissenters have been expelled from the party— including three representatives and a senator...

...Stanley Gacek tells us, quite correctly, that IMF and Wall Street pressure for "fiscal responsibility" could spell disaster...

...Interest is paid to debt holders, for the most part, banks, corporations, and wealthy individuals...

...But there is no indication that the administration is moving in this direction...

...But the problem is that the PT has more fear of financial markets than hope in its own ability to turn the economy around...

...To avoid making Daniel Webster's phrase, that there are more reasons to be fearful than hopeful, my own, let me try to be constructive and explain why we can still be (somewhat) optimistic...

...The real depreciated from less than three to slightly more than four per dollar in the months before Brazilians voted (Latin Americans quote exchange rates upside down, that is, the domestic price of foreign currency, hence going up indicates a depreciating foreign exchange...

...The document was written under the coordination of Plinio de Arruda Sampaio Jr., son of a former congressman and a prominent PT figure...

...Later he argued that as long as Lula led the polls, and even more should he win, the Brazilian real would be under speculative attack...

...The United States and most Western European countries are currently running deficits and have low interest rates...

...Jose Serra, outgoing president Fernando Henrique Cardoso's candidate, blamed the depreciation on Lula's populist promises...

...Brazilian leadership was essential in the formation of the G-X group—the group of developing countries with a fluctuating number of participants led by Brazil, China, and India— that put a stick in the wheels of the World Trade Organization meeting in Cancim...

...Further, Lula said in an interview to Veja—a prestigious weekly magazine—referring to the internal criticism from PT affiliates and sympathizers, that it is good to have them against him because they show the path not to be followed...

...Even if the World Bank and the IMF learned something about their failures, which is quite possible, and praised some Brazilian policies, which they did, this is not enough to ground our hopes...

...His commitment to reducing inequalities, eliminating poverty, and promoting a more civilized society are unquestionable, as Jose Eisenberg also argued in this magazine ("Governing Brazil: New Challenges for the Left," Summer 2003...

...And investments in infrastructure usually have a crowding-in effect, leading to higher levels of private investment...

...it is still too early to pass judgment on Lula's administration...

...IN A CERTAIN developing country, a distinguished senator from the northeast wrote with visible anguish a letter to his friends regarding the recent election and the expected arrival to the capital of a popular leader...

...In an administration that is already paralyzed by fear of financial markets' reaction, radical changes on macroeconomic policies are seen as mortal sins...

...He may turn out to be not all that different from Jackson if his macroeconomic policies are not reversed soon...

...The IMF has indicated that it might be willing to allow a different accounting policy...

...Treasury bonds— the so-called "country risk"—and also to a considerable appreciation of the real...

...During the campaign, international financial markets put a lot of pressure on the Brazilian electorate...

...Brazil is running a nominal fiscal deficit (including interest payments) close to 5 percent of GDP...

...From 1990 to 2002, Brazil had on average a primary fiscal surplus (excluding payments of interest on outstanding debt) of 2.3 percent of GDP...

...The base interest rate was hiked to 26.5 percent— it has been falling at a snail's pace since then—and the target primary surplus increased to 4.25 percent of GDP (when the International Monetary Fund itself only demanded 3.75 percent...

...Progressive men and women around the globe—like most Americans after Jackson's election—are more hopeful than fearful...

...He might have spoken too soon...

...The Workers' Party is running deficits to pay interest rates...

...It may seem premature to draw this parallel...

...In domestic matters there is still some possibility for change...

...Hence the country was ever more dependent on the inflows of foreign capital to close the balance of payments...

...Spring 2003...

...These measures require little institutional change...