Socialist Viewpoint

October 2003 • Vol 3, No. 9 •

Brazil: Lula’s First Six Months Brings Austerity

When Luiz Inacio da Silva—aka, Lula—the President of Brazil, flew into the “progressive governance” conference in London in July, he must have felt at home. This Third Way organization founded by Clinton and Blair was stuffed with world leaders who regard themselves as “progressives” while refusing in practice to have any truck with socialism.

Lula’s first six months in power has won nothing but praise from the rich and powerful. Time Magazine has dubbed him “Brazil’s Blair.” John Snow, the U.S. Treasury Secretary, has heaped praise on Lula’s economic policies—his budget targets, tough market reforms and cuts in public expenditure. The IMF and World Bank have joined in with plaudits for his “responsible” economic policies.

Yet Lula was the presidential candidate of the Brazilian Workers Party (PT), a party that, in Lula’s words in a recent Guardian article, “defines itself as a mass left wing socialist party.” Lula and the PT came to power promising redistribution of income, a million more jobs, economic growth stimulated by cuts in interest rates, a “zero hunger” program, and a program of land distribution. Much of this program has been quickly shelved. Lula now pleads “budget constraints” and only promises “one or two difficult transitional years.”

All this was entirely predictable. Lula, a socialist “firebrand” and metalworkers’ leader from the 1980s, had made his peace with the IMF long before the election. To re-assure the markets he had agreed to his predecessor’s conditions for a massive $30 billion loan from the IMF shortly before his election. This tied the Brazilian government to running a 3.5 percent surplus on its budget at the same time as continuing to pay interest on its massive $400 billion foreign debt.

But Lula has done even better. The PT has adopted such tight budgets and public sector cuts that they are even exceeding the IMF demands. Instead of creating 10 million jobs as promised, half a million jobs have been lost.

Instead of lowering interest rates they have been kept high. Real incomes fell 3.8 per cent in 2002, they will fall further this year as inflation, caused by devaluation, erodes wages. Unemployment has risen to an official level of 12 per cent and underemployment is rampant.

The PT explains this as a result of “economic circumstances.” A close advisor to Lula, Luiz Dulci, declared that after they were elected “an act of financial terrorism” took place—$3.5 billion in capital fled the country.

Brazil became “a plaything in the hands of the creditors” and interest rates rocketed. Their answer was to get the bankers involved in running the economy, to “put monetary stability before our program.”

No question here of this “left wing socialist party” introducing strict capital controls, cancelling debt payments, massively hiking taxes on the rich—in a country with one of the world’s greatest disparities between rich and poor. Instead it was the workers and rural poor who had to pay for the crisis by tightening their belts.

Henrique Meirelles, the former head of the U.S. banking group First Boston was put in charge of the Central Bank, which was then given complete autonomy from the Government. Meirelles knows a thing or two about helping the poor; as head of First Boston he earned $1.5 million a year making profits at their expense. Meirelles joined a long list of capitalists who were given cabinet posts—such as the Minister for Development Trade and Industry, Luiz Fernando Forla, who was president of Brazil’s biggest food company, or Agriculture Secretary Roberto Rodrigues, former President of the Association of Agribusiness. The Vice-Presidency was already occupied by the Liberal Party’s Jose Alencar, head of one of the country’s largest Textile employers.

Early opposition to the Lula government’s IMF driven policies has come from two sources—the public sector workers and the landless rural workers movement—the MST.

To reduce public expenditure the PT government decided to attack the pension rights of teachers and civil servants. Generous by Brazilian standards, Lula’s government is trying to divide the workers by claiming they have to cut “bloated pensions,” when any real socialist would fight for leveling up not down. Teachers and state employees can retire at 53, if they have enough service, on a pension equal to their salary. The government is pushing through a law increasing retirement age to 63, adding more years to qualify, and cutting the pension to 70 per cent of last salary.

Mayday saw over a million workers march in Sao Paulo where slogans against the pensions law were to the fore. Lula declined to attend, preferring to go to mass. July saw the first of a series of public sector strikes against the law—500,000 state employees walked out bringing ports, airports, schools and museums to a halt. Lula has declared his intention to push on with the law and is seeking the support of right wing parties in the Congress to push it through. Opposition from PT deputies—largely from those affiliated to the Socialist Democracy current—have been threatened with expulsion for publicly opposing the law.

The resistance of the workers is happening despite the full support of the leaders of the trade union federation CUT. At the same time as the workers are beginning to fight back, the MST (the landless movement) has ended its truce with the government on land seizures. In March the movement declared the government had done too little to redistribute land to millions of landless in rural areas. Brazil is a country of massive landowners and chronic rural poverty. Figures produced in 2000 showed that 3 per cent of the population owned 60 per cent of all the land. The MST has been organizing land occupations for years as a means of forcing Brazilian governments to redistribute land—land often lying unused.

Land invasions, blockades and protests were launched throughout the country and by early July, Lula was forced to call a summit with the MST leaders. The MST demanded that at least a million landless people had to be given farms by 2006. The government said it had resettled 60,000 families in its first 6 months and the MST had to be patient. The government claimed it could not go faster as it lacked resources to pay for electricity, water and credit for the new farms.

The big farmers lobby is pushing hard for the Lula government to crack down on the MST. Ominously there are already reports some farmer’s organizations building up private militias to attack land occupations. Within a week of the meeting with the government one of the most militant MST leaders, Jose Rainha Junior, was seized by police and taken to a high security jail accused of organizing a land occupation.

Coming into office on a wave of working class support the PT government is already showing its true colors. Having decided to work within the framework of the international capitalist system the PT finds itself doing its bidding. Attacking the poor and dispossessed, defending the speculators and the rich, while calling for patience and understanding. The limits of reformism in Brazil are being sharply exposed. The task in the next period is to rally the workers and rural poor around a revolutionary alternative to the vapid reformism of Lula.