Promising the World
Brazil's President-elect, the irrepressible Lula, says he can feed the hungry and fix the country's finances
November 11, 2002
By: Maryann Bird

As an impoverished, illiterate shoe-shine boy on the streets of Sao Paulo, Luiz Inacio Lula da Silva's job was to polish battered shoes and make them appear shiny and new. After winning the presidency last week by the biggest margin in Brazil's history, Lula (as he is universally known) must pull off a far tougher renewal--he has to steer the world's fifth- largest nation toward greater social justice, and the world's ninth-biggest economy toward recovery. "From the first moment of my government," Lula declared after his victory, "we are going to mitigate hunger, create jobs, attack crime, combat corruption and create better educational conditions for those living on a low income."

Such a job would be difficult for any politician. But Lula is not just any politician. A former left-wing union leader with little experience in public administration--and no particular aptitude for economics--he polled nearly 52.5 million votes, over 61% of ballots cast, trouncing President Fernando Henrique Cardoso's preferred successor, Jose Serra. That popularity, reflected in subsequent street celebrations, will buy him time in the year ahead.

Despite his overwhelming mandate, Lula knows the job won't be easy. Inflation is threatening to reach double digits, interest rates are running at 21% and the country's debt has burgeoned to a record 64% of GDP. Given the decline of Brazil's currency, the real, in recent months, the gloomy global economic climate, the wariness of the financial markets and the lukewarm reaction of the Bush Administration, Lula must do more than just give stirring speeches.

So far, financial analysts say, he has made the right noises and reached out to the business and financial communities. "He spoke to foreign investors, Brazilian businessmen and also to the voters who want social change," says Geraldo Monteiro, a political scientist at the State University of Rio de Janeiro. "He managed to address them all. He was clever and measured." Lula repeated an earlier pledge that his government will honor its international agreements, including the conditions of a $30 billion imf loan deal signed in August. He also called on international lenders to re-establish lines of financing for international trade, and for rich countries to withdraw "the protectionist barriers and subsidiaries that penalize our exports, particularly in agriculture."

Some of Lula's biggest tests will come when he names his Finance Minister and central bank president. He knows that he must choose people who have the markets' respect. Otherwise, investors could panic and the real--which fell to an all-time low of almost four to the U.S. dollar last month--could tumble further.

Foreign companies in Brazil "may view the election with a constructive eye," notes Felipe Illanes, co-head of fixed income and economic research for Latin America at Merrill Lynch in New York. "But before increasing their exposure, it's an issue of wait and see." Maybe, but European firms with a history of long-term investment in Brazil already seem comfortable with Lula. In mid-October, for example, when Lula's election was basically a foregone conclusion, Spain's Telefonica pledged to invest [euro]200 million in an alliance with Portugal Telecom to create South America's largest mobile-phone operator in Brazil. This optimism isn't unique: European firms account for 28% of Brazil's foreign investment, and Lula's election didn't provoke a mass withdrawal of that money.

Political experts say Lula will be forced to wheel and deal to get his reform plans through Congress, and he will have to adroitly keep both the radical and pragmatic wings of his Workers' Party happy. "People are expecting a lot," says Fernando Gabeira, a re-elected Workers' Party deputy. "The first year will be spent adjusting the expectations to the realities."

Many of those realities will be harsh. But "the great virtue of democracy," Lula says, "is that it allows a people to move their horizon when they deem it necessary." If, at the end of his mandate, every Brazilian can eat three times a day, says Lula, "I will have realized my life's mission." His countrymen--and the markets--are all praying he has not bitten off more than he can chew.