Monday, October 30, 2006

Lula of Brazil Triumphs - Now Turns to the Left

With a 61% share of the vote Sunday, Lula of Brazil appears to have his mandate. Having placated the Wall Street bond traders who control much of the developing world's domestic policies, he seems set to move decidedly to the left. You won't hear this in the Western press, but those in Brazil have been hearing the direction the wind is blowing in Brasillia. Consider the following from Brazzil magazine - a centrist, if not right-wing English rag:

While many on the left remain critical of Lula for the limited reforms of his first term, his very victory has consolidated a shift in the country's possibilities for deeper social transformations.

As Francisco Meneses of (institute for social economic analysis) IBASE notes, "Brazil under Lula is aligning itself with the Southern bloc of nations, not subverting its interests to the United States."

(and from another article) Even before voting had ended, one of Lula's top ministers, Tarso Genro, announced the end of the "Palocci era", a reference to former finance minister, Antonio Palocci, whose stewardship of the economy won him many friends in business and many enemies in the PT and the government in general.

Two other heavyweights - Lula's chief of staff, Dilma Rousseff, and the PT president, Marco Aurélio Garcia - made similar comments later in the day and said it was now time to pursue economic development. Reports in the press claim that the Central Bank, which currently enjoys virtual independence, will be brought back under political control.

This would mean that the next chairman of the Central Bank would be subordinate to the finance minister. The current chairman, Henrique Meirelles, reports directly to Lula and not to the finance minister, Guido Mantega. Meirelles is unlikely to stay on should his status change.

Observers here believe Mantega has a strong chance of remaining as finance minister in Lula's next administration. Mantega was often critical of Palocci's policies and is likely to want to make changes to the economic policy.

There are certainly lots of changes which need to be made, such as tackling the huge deficit caused by the public employee pension scheme, interest rates which are among the highest in the world, an exchange rate which is hitting some sectors while benefiting others, and an inefficient and unfair tax system.

It is doubtful whether Mantega is the kind of person who would attempt to tackle issues like this. He simply does not have the conviction or strength of Palocci and is more likely to become a "yes man" for a powerful minister like Rousseff who represents the old-style PT.

This wing is in favor of a state intervention in the economy, government spending rather than saving, and is distrustful of the free market, multilateral institutions like the IMF, and anything to do with the United States.


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