Brazil
Lazy, hazy days for lucky Lula

Better times sap the will to reform, among government and opposition alike

THESE are strange times in Brazil. Every morning, the country's main newspapers bring fresh instalments in a slew of corruption scandals lapping around the government of President Luiz Inácio Lula da Silva. The latest one involves the president of the senate, Renan Calheiros, a Lula ally. He faces widespread calls to resign over allegations that a lobbyist for a construction firm made regular payments to a journalist with whom he had an affair and a child. In another case, involving illegal slot-machines, federal police questioned one of Lula's brothers over alleged influence-peddling. 

The government seems trapped in torpidity. Six months into his second term, Lula has just completed his cabinet, adding a 37th minister — one for “strategic planning”. But what are all these ministers for? The government's agenda is unambitious, and its reaction to events often tardy and fumbling. Take the chaos that has gripped Brazil's airports since October as a result of go-slows by disgruntled air-traffic controllers. Marta Suplicy, the tourism minister, seemed to sum up the official stance when, to much outrage, she suggested that travellers should “relax and enjoy” the long delays. On June 22nd the government finally sacked 14 controllers — an action it could have taken months ago.

Brazilians often gripe that their politicians, ensconced in Brasília, live in pampered isolation from everyday realities. Yet perhaps it is the newspapers, for all the polished competence of their investigations, which are living in a bubble. They are read by the few: Folha de São Paulo, the biggest-selling daily, shifts only 300,000 copies in a country of 190m people. Meanwhile, the average Brazilian is rather content, less interested in the television news than the soap opera that follows it. Scandals notwithstanding, the president is hugely popular. In São Paulo's gritty periphery “everyone loves Lula,” says Afonso Gonçalves, who owns a small supermarket in the suburb of São Bernardo, where the president was once a trade-union leader. “He focused on the poor. He's the people's president.” 

It is not hard to spot the reasons for the public mood. In many ways, Brazil is doing better than it has for a generation. Inflation is low and economic growth is steadily rising. Aloizio Mercadante, who chairs the Senate's economic-affairs committee, reels off many other positive numbers: the current account is in surplus; the fall in the public debt is ahead of target; the Central Bank's benchmark interest rate has fallen from 27.6% in 2002 to 12% today; total wages in the economy have grown by 8% over the past year; investment is up 7% over the same period; and consumption has risen for 15 consecutive quarters.

Brazil is benefiting hugely from high world prices for its commodity exports and abundant global liquidity, as well as from the economic reforms of Lula's predecessor, Fernando Henrique Cardoso. “Lula is a lucky man,” says Maílson da Nóbrega, a former finance minister. But he adds that Lula has contributed to his own good fortune: he kept Mr Cardoso's fiscal and monetary policies and gave the Central Bank operational independence. By not hesitating to raise interest rates when inflation threatened, the bank's governor, Henrique Meirelles, has won investors' trust. That, together with the export boom, has brought a steady appreciation of the real (see chart). 

The strong currency has helped to boost purchasing power, especially that of poorer Brazilians for whom lower food prices are a particular boon (as is a government anti-poverty programme that reaches 11m families). But the currency's strength has some industrialists grumbling; the real is overvalued by 20%, argues Paulo Skaf, the head of the São Paulo federation of industry. Some Brazilian firms have responded by opening factories abroad, from China to Argentina. The government this month offered cheap credit to producers of shoes, textiles and furniture who are struggling in the face of Chinese competition. 

Mr Skaf and others argue that the real's strength underlines the case for structural reforms —of taxes, pension, labour laws and infrastructure — in order to cut the cost of doing business. Brazil is still growing more slowly than the world economy. Without reform, the sustainable rate of growth is no more than 4% a year, many economists say. As Mr Cardoso puts it: “we have to compete not with our past but with our competitors.” 

The government's response is, in essence, that it does not believe in reform for reform's sake. Franklin Martins, the president's press secretary, argues that Brazil can grow at up to 5.5% a year without further reforms. Any change to the labour laws that would take away rights from those Brazilians who work in the formal economy is “not a priority”, he says. Pension reform is, but only for new workers. He adds that tax reform may be possible in two years' time, when the government should need less money to pay its debts. 

This may make for mediocre economics but it is astute politics. Even the opposition has lost much of its reformist impulse. Mr Cardoso's Party of Brazilian Social Democracy (PSDB) has been disarmed by Lula's adoption of many of its economic and social policies. Its former coalition partner, the (conservative) Party of the Liberal Front, has changed its name to the Democrats as part of a stampede for the middle ground of Brazilian politics. The opposition's attempt to make corruption the issue in last year's presidential election rebounded: most Brazilians like and trust Lula, if not all of his followers. Besides, as life improves, people are paying less attention to corruption and the legal formalities of public life, laments Mr Cardoso. 

In the medium term, the chance of further reform may depend on the PSDB, which under Mr Cardoso laid the foundations of economic stability and a stronger democracy in the 1990s. The party has two plausible candidates for the next presidential election in 2010 in José Serra and Aécio Neves, respectively the governors of São Paulo and Minas Gerais. But it now lacks a programme. “We have a good chance to be a governing party again, but to do what?” asks Mr Cardoso. He says the PSDB needs to be less scared of advocating modernisation, reform and further privatisation. 

Lula's Workers' Party lacks a strong candidate to follow the president, who under the constitution cannot run in 2010 (but might be able to in 2014). For now, however, Lula stands supreme in Brazil. Rather than governing, he reigns above party while “Brazil is on automatic pilot,” says Gaudêncio Torquato, a political consultant in São Paulo. Unlike some of its would-be air travellers, at least it has taken off.

Fonte: The Economist, 28/6/2007.