Held up as a model for "emerging" capitalist countries in Latin America in the mid-1990s, Brazil’s economy entered a tailspin in 1998 marked by a contraction of the gross domestic product and the skyrocketing of consumer interest rates up to 150 percent. The government received a $41.5 billion "rescue" package from the IMF in exchange for cutbacks on the social security system and other social programs.

The downward spiral continued in 2002. The real, Brazil’s currency, declined by 35 percent, and unemployment soared, reaching 20 percent in Sao Paolo, the country’s largest city--making for nearly 2 million people without jobs in that industrial center alone. Inflation remains in double digits.

Lula, as da Silva is known, has used the initial months of his presidency to both assure the banks that the government will repay all loans, and to promise social programs to address the hunger and sharply declining living conditions facing the majority of workers and farmers. His election registered rising expectations among working people in Brazil, who have been devastated by the effects of the worldwide capitalist economic depression and the outgoing regime’s austerity measures.

"Far from breaking with the market-friendly program of his predecessor, Fernando Henrique Cardoso," noted the April 8 Financial Times, "the government has kept to the same cautious course." Da Silva’s "unexpected conservatism," has won praise from imperialist lenders anxious about a continued flow of payments into their coffers from Brazil’s foreign debt. "Only about six months ago, it was generally feared that Brazil, South America’s largest economy, was drifting inexorably on to the rocks of debt default and financial collapse," the Times stated. "Almost the opposite has occurred: Brazil has come into fashion on Wall Street. Traders and investors who shunned it last year are now scrambling to buy Brazilian bonds and equities."  
 
PT shifts further to the right
Why has this happened? The governing Workers Party (PT) has further shifted to the right in its policies and practice. "Having voted in December 2001 for a ‘rupture’ with the ‘neo-liberal’ economic model introduced by former President Fernando Henrique Cardoso," said the Financial Times, "the party has rowed back towards the center of the political spectrum with astonishing speed." Lula, the paper said, "has been true to his word" in keeping post-election promises to stick with agreements Cardoso had made with the IMF.

Da Silva’s budget proposal to Congress in March included $14 billion in spending cuts, which he described as "bitter medicine" for the economy that caused him to lose "a few nights’ sleep." The budget and da Silva’s promise to energetically pursue the previous administration’s plans for slashing the pensions of government workers have steadied imperialist bankers’ nerves about receiving monthly interest payments. Jorge Marquez-Ruarte, head of the IMF’s western hemisphere department, told a New York business gathering in April that the new Brazilian government "will not default--ever."

Da Silva has reinforced the favorable impression on big business by appointing prominent capitalist figures to his governing team. They take their seats alongside the seven trade union leaders in the cabinet of 29. Luiz Fernando Furlan, president of Sadia SA, Brazil’s largest chicken and food-processing company, was named minister of trade and industry. Roberto Rodrigues, the new minister of agriculture, is a soy and sugarcane businessman and head of the Brazilian Association of Agribusiness, which includes dozens of domestic and foreign commodity giants.

Da Silva also appointed Henrique Meirelles as new president of the Central Bank. Meirelles had been elected to Congress with the Social Democratic Party and is a former executive at FleetBoston. The choice was applauded by Cardoso as well as the departing bank chief.

"The government is not trying to overturn capitalism," said Brazilian legislator Fernando Gabeira, a member of the Workers Party and a former guerrilla fighter against the military dictatorship of the 1960s. Lula’s administration, he said, aims to "attract more poor people... to the capitalist center." The president is using pro-worker demagogy and his origins as a leftist trade unionist towards this end.

A layer of Brazilian capitalists has taken advantage of the devaluation of the real, which lowers the cost of Brazilian goods on the international market, to expand exports. Production of soybeans, for example, from Brazil and neighboring Argentina--whose currency has lost three-quarters of its value since the Argentine economic meltdown at the end of 2001--will surpass U.S. production this year. Agribusiness giant Archer Daniel Midland aims to profit from this consequence of the economic crisis by expanding its investments in Brazil. Rising exports are on target to bring a record $16 billion trade surplus.

Since Lula’s election the currency has stabilized at its low point of about three reals to the dollar.

While the IMF and World Bank have voiced optimism about the new government’s ability to "lower the expectations" of working people and keep payments on the debt as previously, other foreign investors are pulling out of Brazil. In January three U.S. banks--J.P. Morgan Chase, Bank of America, and Citicorp--cut their "exposure" in Brazil by 50 percent. They were joined by Crédit Lyonnais of France, the Italian Banco Fiat, and Germany’s second largest bank. John Dizard of the Financial Times advised profit-seekers at the end of March to "Take the money and run--out of Brazil."

The capitalist media is pointing to "pension reform"--cuts in the retirement system for government employees with 35 years of service--as the biggest test for da Silva’s government. Lula has promised "pension reform" but has not presented any final proposals yet.

Carlos Borges, a government-employed road crew worker, told the Washington Post that he and other workers voted for the Workers Party candidate because "the previous government paid too much attention to the bankers and the business community." Borges added that "if he cuts our pension, many of will be very, very disappointed."

The new government’s budget proposal includes da Silva’s much-publicized "Zero Hunger" program. The budget will allocate $1.6 billion to provide food stamp-like vouchers for the 50 million people--nearly one-third the population--who live in poverty in Brazil. Da Silva has increased the minimum wage for government workers, though this standard is largely ignored by private companies, reports BBC News.  
 
Farm workers resume land takeovers
In March the Movement of Landless Rural Workers (MST), which supported Lula in the October election, ended a moratorium on land takeovers it had announced January 1 to coincide with the inauguration of the new president. Farm workers resumed occupations of private- and state-owned properties in five states. On March 5, some 500 women and 100 children set up tents at the headquarters of the Agrarian Reform Institute in the state of Goias, 125 miles from Brasilia, the capital.

"We have waited long enough for the new government to take concrete action in favor of agrarian reform," said MST leader Joao Paulo Rodriquez. "The wait-and-see period is coming to an end." The PT government has called on the farm workers to end the land occupations, promising to institute a "peaceful process" of land redistribution.

Land ownership in Brazil is among the most unequal in the world, with 20 percent of the population in possession of 90 percent of the land. The poorest 40 percent own just 1 percent of the land.  
 
 
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