Forget field polls. Anyone wanting to gauge the recent fluctuations in Brazilian presidential-hopeful Luiz Inacio Lula da Silva’s chances of victory could just keep an eye on Wall Street traffic. When the fiery former union leader seemed poised for a shutout, indignant financiers worked themselves into a tizzy throwing up roadblocks against his fiscal knavery and baby-eating leftism. But when Lula’s stock fell just before Sunday’s round-one vote, Wall Street happily returned the jungle nation to its VIP parking spot.
The average Brazilian probably would have been better off on the bus.
That’s because all the hubbub over how receptive Brazil’s next president will be to foreign investors’ demands is not relevant to the country’s economic well-being. Improving the quality of life for all Brazilians does not necessarily result from foreign investment alone.
Granted, Lula might not be the ideal man for the job. His main political experience is in organizing labor strikes and in mounting three previous campaigns for the presidency, all of them unsuccessful. But given fickle U.S. support for the region and the snail’s pace of social development, Brazilians can hardly be blamed for giving Lula a crack at the problem.
Lula has raised hairs in the pages of The Wall Street Journal by decrying economic imperialism in Latin America and weaving some overtly communist themes into his pro-worker message. He has even committed the cardinal sin of implying that Brazil ought to defend domestic trade interests with the same fervency as, say, the United States. It is an alarming thought indeed.
And while the Workers’ Party and its founder have undergone a centrist makeover for this election by currying favor with business leaders and reconciling themselves to IMF involvement in Brazil, the depth of the conversion is unclear. The only thing that is clear is that no one in Brazil is going to benefit from the “Lula panic” among investors that has sent Brazilian stock indexes and the value of their currency, the real, tumbling by more than 30 percent this year.
If we Yankees want to welcome Brazil to the ballpark of the Americas, we might want to buy her a hot dog instead of threatening to call security.
Investors are worried that a Lula victory might jeopardize the repayment of Brazil’s huge government debt, a third of which is owed to foreign lenders. Some of Lula’s pre-makeover rhetoric about allowing a default and restructuring the debt alarmed American banks with heavy exposure in Brazil, like J.P. Morgan, Citigroup and FleetBoston. Combined, they have at least $25 billion riding on Brasilia’s solubility.
The banks took heart in August when the IMF approved a $30 billion aid package for Brazil. But, as usual, most of the loan is contingent upon the government sticking with certain austerity measures, which Lula has endorsed, albeit tepidly.
Tepid is not a temperature at which Wall Street, Washington, or the IMF can get too cozy.
Since the end of the Cold War, Brazil has begun to attract investment. The lumbering government privatized some state-run industry and reigned in monetary policy. American leaders in turn have waxed eloquent about a free-trade zone encompassing all of the Americas.
But old habits die hard — on both sides of the equator. The U.S. and its investors have a long and illustrious tradition of bending Latin governments to their imperialist whims. South Americans have not forgotten all the past recipients of Uncle Sam’s kudos. North American military personnel have been on hand to help replace many a democratically-elected leader with brutal dictatorships — like that of Augusto Pinochet in Chile and Jorge Rafael Videla in Argentina.
All in all, a little distrust seems warranted. The U.S. and its crony, the IMF, have heralded free markets and strict cuts in government spending. But the flow of aid has been spotty at best, and Washington’s hypocritical decision to keep its own trade barriers in place — and impose new ones — has stung countries like Brazil that are struggling to comply with IMF dictums on free trade.
Of course, Brazil is also guilty of sticking to old ways. Its vibrant black market is testimony to the need for more economic freedom, and its wildly inequitable distribution of wealth demands a strong currency and hike in real wages. Brazil does need to take on the sticky challenges of development with less government red-tape and bloated bureaucracy. But it also needs to seriously address income inequality and poverty, especially among children. Brazil has about six times more children living in poverty than Connecticut has people.
FleetBoston’s investment return matters, but Lula is on the right track if he continues to rank social welfare as higher on the priority list.
While it’s true that much of its debt is linked to floating interest-rates or the dollar, Brazil could be in deep water without a raft if the real keeps sliding. But the lesson there is pretty obvious — never mind who becomes president: foreign investors should stop divesting!
Only time will tell with what skill Lula is able to steer Brazil’s ship of state. Since his margin of victory in Sunday’s vote was less than 50 percent, he will have to contend with another round of votes in three weeks. But with his ultimate victory almost certain, he needs to continue walking the fine line between poverty relief and prudent economic management. Investors’ howls of pain can only upset his balancing act.
Paige Austin is a freshman in Davenport College.