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Emerging Markets

I did it my way

In an exclusive Q&A with Emerging Markets, Brazil’s president Lula da Silva explains how economic orthodoxy squares with social justice after all

EM: Twenty years ago, Brazil was battling with hyperinflation and building its democratic institutions after 20 years of military regime. How do you see Brazil in 20 years’ time?

Lula: I can see Brazil in the light of what has been happening in recent years – that is, a country that experiences solid growth together with economic stability and at the same time, a country that is moving towards the reduction of social and regional inequalities. This is the result of a macroeconomic policy based on price stability, fiscal soundness and the strength of the external account. We are laying out the conditions for future growth, so that today’s growth does not jeopardize tomorrow’s growth. It is important to note that price stability is not only a commitment of this government, but indeed a requirement of the Brazilian society, which knows very well its destructive impact on the quality of life of the people and the state’s planning capacity. But, 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. If Brazil follows its current course, we will be a country with more opportunities for those who used to be left behind in the past, with solid institutions, a well-entrenched stability and a state providing services to all Brazilians.

EM: There is a kind of paradox. Before your election (October 2002), you were very critical of the international financial system in general and of the IMF in particular. Today, investors are full of praise for the Brazilian economy. Who has changed the most?

Lula: I think things need to be clarified a bit here. From mid-2002, I made it clear in a “Letter to the Brazilian People” that my government would be committed to economic stability and respect for contracts. 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. We kept our commitment – and the IMF was an important partner in this initial period – we strengthened stability and laid out the conditions for sustainable growth.

Actually, we both changed. Looking over the longer term, I think that the Workers’ Party (PT) became more mature in power, we learnt to value stability and understand its importance for growth. But we never lost our basic commitment to the improvement in income distribution. Meanwhile, a lot of financial investors also changed and started to trust my government. They broke with past prejudices and accepted that a left-wing party in Latin America is able to adopt an economic policy that prizes monetary stability, fiscal balance and respect for contracts, and that keeps a commitment to reduce inequalities, fight poverty and fosters inclusion. In the end, it is possible to combine economic soundness with effective social policies.

EM: Why does your government still look reticent towards the autonomy of the central bank? Would not a formal autonomy help speed up the way towards the investment grade status?

Lula: The Central Bank of Brazil has always enjoyed the necessary autonomy under this government. There has been no interference in the management of monetary policy, which aims at meeting the inflation target that is defined by the government. We do not believe that a formal autonomy is a priority right now. Meanwhile, the investment grade will come as the result of macroeconomic management and the measures that have been implemented over the last years.

For an interview with Brazil's finance minister Guido Mantega, please see "Brazil turns the other cheek".

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