Ever since he clinched the top job in 2002 – after three previous defeats at successive presidential polls over 13 years – Luiz Inacio Lula da Silva has emerged time and again as the middle man, pitting himself against the rhetoric of the region’s more colourful demagogues.
As leader of Latin America’s most populous nation and largest economy, Brazil’s president has managed to balance a high profile at home and abroad while rejecting both the spectacular and the radical. While other left-wing governments across the region pledge to bring down the global financial order, Lula has wilfully adopted a softer, more pragmatic approach, praising instead the virtues of transition.
As if eager to hammer home the fact of Brazil’s uniqueness, the former trade union boss singles out what he claims are his dual achievements: economic stability and social progress.
In a rare interview he tells Emerging Markets: “It is possible to combine economic soundness with effective social policies.” This combination, he says, has helped foster the most sustained period of economic growth and stability in Brazil for a generation.
At home, Lula softened his traditional left-wing stance during a turbulent electoral campaign. The financial community feared – with reasonable grounds – that the leader of the Workers’ Party would send Brazil back down the road to default, spreading panic across the capital markets.
But then Lula delivered his landmark statement. “From mid-2002, I made it clear in a ‘Letter to the Brazilian People’ that my government would be committed to economic stability and the respect for contracts,” he says. “It is true that some financial investors did not believe it (but only some of them) and adopted a defensive posture during the transition period between the previous and the current government.”
Lula adds: “We kept such commitments – and the IMF was an important partner in this initial period – we strengthened stability and laid out the conditions for sustainable growth.”
Such a commitment, in fact, paved the way for his electoral victory. “The ‘letter’ was a form of acknowledgement that he would not be able to govern without the elite. It was as if he told them: ‘Stay cool, I will eventually be orthodox,’” says Gilberto Dupas, a political scientist at the University of Sao Paulo. “Certainly, Lula had more doubt than certainty about this at the time... but he accepted the recommendation from bankers that orthodoxy is the price of our support,” he says.
This alliance resulted in the highly successful appointment of Henrique Meirelles, former chairman of BankBoston, as president of the Banco Central, the central bank. Today, Lula insists that “a left-wing Latin American party is able to adopt an economic policy that prizes monetary stability, fiscal balance and respect for contracts”.
Lucky Lula
Lula says a focus on stable prices “is not only a commitment of this government, but indeed a requirement of the Brazilian society, which knows very well about the destructive impact of price instability on the quality of life of the people and the state’s planning capacity”.
He adds: “macroeconomic stability is not everything. It is important to have a pro-growth policy, which is what we are currently doing with the PAC [the programme to accelerate growth], which is designed to remove infrastructure bottlenecks and institutional obstacles that have been in the way and have delayed the resumption of accelerated economic growth in Brazil.”
Strong Chinese demand, the rise in commodity prices and abundant liquidity in the capital markets all played in favour of Lula’s policies during the years of world bonanza.
But he also made some important choices. “He is a very intuitive character. He has acknowledged that low inflation would benefit the majority of the population and that this objective had to be maintained. He avoided attempts to launch grand heterodox schemes. Eventually, his own international standing benefited from such a pragmatic approach,” says a former government minister. Indeed, Brazil’s economy looks steadier than ever while its sovereign ratings stand on the brink of investment grade for the first time.
Lula frequently insists on the need to defend the interests of the developing world, for example, in the World Trade Organization where Brazil is a leading member of the G-24, a group of emerging market countries that have mobilized during the Doha round of world trade talks.
“It is not because Brazil is formally independent that we are no longer colonized. Brazil suffered from a great subordination to predominantly US and European interests,” Lula said recently.
Regional vision
Despite grand rhetoric on the need to put an end to such subordination, Lula has managed to steer a middle course between US policies and the anti-American coalition that is taking shape in South America under the leadership of the Venezuelan president Hugo Chavez. “I recently asked the US ambassador here: ‘Who is currently the most reliable leader in the region?’ He replied: ‘Lula,’” says Dupas.
Indeed, Lula maintains an open dialogue with US president George W Bush, thanks to Brazil’s leadership in biofuels – a key component of emerging US strategy for reducing dependence on Middle East oil – and this, despite diplomatic differences over Iraq. “Meanwhile, Lula is also able to talk with Chavez, Evo Morales [in Bolivia], Nestor Kirchner [in Argentina] and Rafael Correa [in Ecuador],” adds Dupas in reference to several leaders who have confronted US interests in the region head-on.
As a result, he has kept Brazil in a strategic position. In policy terms, he has defended a strong role for the state and active social policies in order to reduce inequalities. But at the same time, he has also refused to embark on radical economic intervention policies defended by Bush’s foes. Even though Lula has favoured Venezuela’s Mercosur membership, he has rejected Chavez’s criticism of delays to the bid in the Brazilian senate. Brazil also showed markedly less enthusiasm for the launch of the Bank of the South, which has been actively promoted by Argentina and Venezuela.
Lula, however, may have a fight on his hands to maintain this middle path as the radical rhetoric of other Latin American leaders heats up. His grand design to foster regional energy integration has run into difficulties, due to the wave of hydrocarbon renationalization in Andean countries, which includes the possible expropriation of Brazilian oil company Petrobras in Venezuela. But his vision of closer regional cooperation will remain the priority of his diplomacy until the end of its mandate in 2010.
This profile is one in a series of twenty, published in a special commemorative edition to mark the 20th birthday of Emerging Markets newspaper. The profiles canvass twenty of the figures who have had the most impact on the rise of the emerging markets over the past two decades.