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Lula, Brazil and the future of the Left

Chapter 2: Lula and the PT in power

C: Lula and the IMF

If there was an excuse before the election to be unsure of the class loyalty of the Lula and PT government there can surely be none now. The day after the landslide victory the ‘Financial Times’ spelt out what Lula was required to do: “Mr. da Silva must act quickly to gain a reputation for economic responsibility. That means making the right appointments to senior economic positions, delaying pledges for social change and concentrating instead on a credible commitment to even tighter fiscal policy than the Cardoso government until the debt GDP ratio has fallen.” (Oct 29, 2002)

Brazil’s public debt is substantial, clocking in at around 65% of GDP, something like $250 billion US dollars. Over the past twenty years debt servicing has swallowed up no less than $587 billion and yet the debt mountain is barely reduced. The previous government had turned to the International Monetary Fund for support in its hour of financial crisis. In September 2000 six million Brazilians participated in a national referendum on the external debt.  The referendum had been organised by the National Council of Bishops and supported by numerous non-governmental organisations and by the PT. Ninety three per cent favoured immediately repudiating the debt and severing relations with the IMF, yet Lula has carried on co-operating with the IMF. Lula’s macroeconomic management is meeting all of the IMF’s targets and he has accepted the terms of the Washington Consensus: balanced budgets, trade liberalisation, privatisation of state owned industries and banks, liberalisation of foreign investments and domestic market deregulation.

The fiscal budget surplus for 2003—in accordance with IMF dictates—has reached its target of 4.25 percent of GDP, rising even higher than it was forced to under the previous government. Although the country signed a deal with the IMF to bolster its federal reserves, it still had to disburse a whopping $37 billion for debt servicing. (FT Jan 16, 2004) This represents 9.49 percent of GDP, or roughly 40 percent of the 2003 federal budget.

Financial markets demand an even greater display of political loyalty from a politician of the trade union left than they do from the average bourgeois politician and Lula has behaved in a manner not to disappoint. To put on show his government’s trustworthiness the Lula administration is adhering to IMF regulations more assiduously than the predecessor government. Left wing sociologist James Petras argues that Lula’s government is so obsessed with proving its loyalty that it presents itself to the world as neo-liberal Talibans: ‘Da Silva’s neo-liberal Talibans increased the fiscal surplus from 3.75% of gross national product agreed to with the IMF in June 2002 under Cardoso to 4.25% in February 2003 under the leadership of the former metal worker and people’s President. In other words Da Silva increased the budget allocation to meet debt obligations from $17 billion USD to $19 billion USD or by nearly 14%. The $2.4 billion USD add on was a direct transfer from the social budget to the foreign and domestic bondholders. Da Silva transferred funds from the very poorest, the working and middle class and allocated it to the rich.’  (James Petras : Whither Brazil                                               

Lula’s debt management strategy has succeeded in earning the government respectability on the international financial stage. In addition, Lula's team has used precious funds acquired from the country's record trade surplus to rebuild Brazil’s national reserves. International investment banks have brought Brazil's credit rating down from the pre-election hysteria and given it a stamp of approval. The international demand for Brazilian government bonds broke records during Lula’s first year. Bond investors rely on Brazil’s high interest rates to garner a higher rate of return than they would get if they were investing in U.S. bonds. Bovespa, Brazil’s stock exchange broke daily records in 2003, gaining 79.12 percent from July to November. Speculators hadn’t felt as confident about Brazil’s financial returns in years. The financial boom is largely based on making short-term gains out of the exceptionally high interest rates. The central bank raised the interest rate to 26.5%, a month after Lula’s victory and speculators were able to boost their income share from the stock market by 113% in 2003. (FT Nov 28, 2003)   

The decision by Lula’s government to concentrate on servicing the national debt is really more of a political decision than an economic one. Servicing the public debt does absolutely nothing for the productive economy, in fact the high interest regime is suppressing production, the real economy grew by only 0.3% in 2003. The IMF loans are not given to stimulate growth in Brazil. They are a sort of free social insurance to ensure that the State continues to transfer workers taxes and savings to those banks, bondholders and speculators that hold debt entitlements.  The IMF’s real job is to keep the political pressure on the Brazilian government not to default on its interest payments. The IMF stepped in to ensure that the domestic and international lenders and bondholders continued to get paid. All the pre-election market panic was based on a fear that a victorious Lula government would do what it had previously said it would do, just stop paying. 

Lula’s first act was to staff the most important economic ministries with business figures he knew the IMF and Wall Street would commend. So the new President of the Central Bank was named as Henrigue Meriella, a former President of the American owned Fleet Boston Financial and a former political candidate of the centre-right PSDB party. The central bank is the most important institution when it comes to formulating monetary and fiscal policy. It sets interest rates, oversees the exchange rate and is the chief negotiator with the IMF Three months into the new administration (18th March 2002) the government published another letter of intent to the IMF. The letter revealed that the Lula administration intended to legislate to give Brazil’s Central Bank ‘full operational autonomy’ something that had been sought by the IMF. Meriella has no doubts any longer about Lula’s commitment to market orthodoxy: ‘We are following the most successful policy in the world. It has three aims. The first is price stability, as we know there is not a nation that has consistently grown with high inflation. The second is to balance our public accounts. The third is to make sure that the public accounts stay balanced.’                                           

On December 12 2003, the Senate finally passed Lula’s pensions reform bill, which slashed benefits for retiring public service employees by taxing them at 11% and raising the retirement age. Lula claimed the bill aimed to close an unfair gap between private and public sector pensions. International financiers applauded the change as a step toward further reducing the Brazilian State’s US$250 billion debt. On the same day the bill became law, IMF approved a new $14.8 billion loan for Brazil.

The Lula government’s propaganda concerning the costs of pensions was well orchestrated and cynical, intended to arouse resentment against ‘privileged workers’. The government manipulated the facts to make it seem that most public service pensioners were in receipt of lucrative benefits and were living the good life at the expense of ordinary workers. A retired federal pensioner receiving $500 a month will now receive $445 a month. For those pensioners receiving over $815 USD there will be a 30% cut in income. The so-called “pension reform” included preliminary steps to begin the privatising of the multi-billion dollar state pension system. It was no coincidence then that the day after the after the bill made it through the Senate the IMF announced a 15 month extension on a $34 billion loan agreement and $6 billion in new funding. The IMF managing director Horst Koehler declared on December 16th that the policy responses of the new administration had been ‘ambitious and courageous balancing monetary and fiscal discipline.’  

D: Lula and Free Trade

Lula’s economic growth strategy is aimed primarily at assisting Brazil’s giant agricultural and mineral exporting companies.  During the election campaign Lula talked about a social pact between labour, business and the government to work for the betterment of Brazil. In government he set up a Social Economic Development Council to come up with policy recommendations. The SEDC is packed with the representatives of Brazil’s major export companies. Of the 82 members on the Council 41 are recognisable business people and 13 are trade unionists. Lula replied to the criticism that he had stacked his advisory council with so many business people with the remark that ‘the council is not a friends club. I am not interested in knowing the party affiliations of the members of the SEDC or for whom they voted.’( quoted in Petras ‘Wither Brazil’)                 

Lula’s frontline economic team of Paolucci, Furlan, and Rodriguez has been assigned the task of promoting Brazil’s agro-mineral commodity exports. Finance minister Antonio Paolocci is one of the leading players in the government. He is the former Mayor of Ribeiro Preto where he allied himself with the local business elite and the sugar barons. He privatised the municipal telephone and water companies and half privatised the municipal transport system. His chief economic adviser is Marcos Lisboa, one of Brazil’s best-known neo-liberal economists. Luis Furlan a millionaire businessman and the chairman of the agricultural company Sadia was handed charge of the Trade and Development Ministry. The appointment of Furlan, was ‘greeted with great joy by the employers' associations,’ according to a press release issued by Horacio Piva, president of FIESP, the Sao Paulo employers' association.
Robert Rodriguez, a president of the Brazilian Agribusiness Association and a campaigner for the use of GM plants, was handed charge of the Agricultural Ministry. He made his fortune exploiting mercilessly the sugar cane workers in his home State. 

The PT government has tried to assists the big exporters in two ways; by negotiating with other governments around the world for greater market access, and by offering exporters tax breaks. The deputy leader of the PT in Congress, Paulo Bernardo, announced that the government would consider guaranteeing tax breaks to companies by state governments for 10 years (FT, Sept. 2, 2003). Agro-mineral commodities i.e. fruits, soybeans, coffee beans, cereals, dairy products, wood pulp and paper, account for $33 billion of Brazil’s $72 billion worth of exports and Lula travelled to 30 countries in 2003 as a salesman on behalf of the exporters. A big effort has been to increase exports to China and India.

A crucial issue preoccupying the whole of the Latin American Left is what stance to take in relation to the US proposal for a Free Trade Area of the Americas (ALCA in Spanish). Like the WTO, the FTAA involves far more than a lowering of tariffs and other barriers to imports. It also seeks to remove legal barriers that presently prevent or discourage foreign investors from buying control of underdeveloped countries' public assets and services. The 1993 North America Free Trade Agreement between the US, Canada and Mexico had a similar agenda and has had a devastating impact on workers' interests in all three countries.  A mass campaign against an FTAA treaty covering the whole of Latin America has been building up. In the last two years, more than 22 million people in Brazil, Venezuela, Colombia, Ecuador, Argentina and Chile have voted, in one form or another, against the FTAA. In an informal referendum in Brazil last year, 95% of participants — 11 million — opposed the FTAA. 

Two very different views of Lula’s trade negotiating position with the Americans and the rest of Latin America are currently circulating, once again a choice between ‘Porte Algre or Davos.’ The Porte Alegre view is presented by supporters of Lula in journals like the French monthly ‘Le Monde Diplomatique’: ‘Brazil has asserted itself in the world by building alliances with India, South Africa and China within the G22 at the World Trade Organisation summit in Cancun and is going against the United States over the Free Trade Area of the Americas. However international monetary institutions and entrenched local and regional oligarchies are hindering the social reforms that Brazilians have been promised.  ‘International Viewpoint’ has a similar refrain: ‘Brazil is also opposing the US on the Free Trade Area of the Americas.’

The other viewpoint is asserted in no uncertain terms by James Petras: ‘Contrary to most “leftist” opinion, Brazil’s “leadership” of the G-21 at the Cancun meeting had nothing to do with the defence of the poor and downtrodden of the Third World. The main point of contention was Brazil’s militant defence of its agro-export elites’ open access to US markets. Da Silva has reiterated time and again his favourable position on “free trade”, as the road to growth and prosperity (despite the devastating impact on Brazil and the rest of Latin America over the past 2 decades). Celso Amorin, Brazil’s neo-liberal Foreign Minister, insisted that the US eliminates its tariff barriers, quotas and subsidies that hinder Brazilian exports of sugar, cotton, soybean, beef and citrus products. The US protectionist position defended by US Trade Representative, Robert Zoellick, was unacceptable to Brazil because it put in question the entire Da Silva free market, export led strategy. The ALCA (Free Trade Area of the Americas) meeting in Miami on November 17-21, 2003 led to a compromise in which the Brazilian Foreign Minister agreed to set aside Brazil’s objections to US protectionism and agricultural subsidies in exchange for an agreement which allows member countries to opt out of parts of the agreement they found objectionable….  What Celso Amorin called “ALCA lite” is in fact a substantial step toward consummating the US version of ALCA – and its de facto colonisation of Latin America.’( James Petras ‘Wither Brazil’)        

Two thing are absolutely clear: Brazil’s powerful agricultural firms and organisations such as EMBRAPA (Empresa Brasileira de Pesquisas Agropêcuarias), the Brazilian Association of Citrus Growers, the Brazilian Coffee Institute, Perdigão, Sadia, and Nestlé Brazil have so far expressed only praise for the Lula government.  And secondly Lula desperately needs their export dollars to meet the primary surplus target his administration has agreed with the IMF.

E: Lula and Agrarian Reform

In Brazil land occupying interests stretching back to the era of colonial slavery and with firm family connections to the upper ranks of the military and federal bureaucracy constitutes the reactionary bulwark of the State. The ownership and management of land is concentrated in the extreme and land redistribution has never been enacted. Studies made by the National Colonisation and Land Reform Institute in the late nineteen nineties showed that out of five million registered land properties covering some 639 million hectares 1.2 million could be classified as latifundia:  ranches and farms of a size of 15,000 hectares and more. Some of the cattle ranches are of vast size; one land survey found 264 properties that were over 100,000 hectares. About one percent of the latifundiarios own 46% of the land, some 360 million hectares; the biggest are generally livestock ranches.  ‘Veja’, the largest Brazilian news weekly, reported (April 16 1997) that 35,000 landowners ‘possessed a land area equal to the combined areas of France, Germany, Spain, Switzerland and Austria.’

Abutting the ranches are the agribusiness farms consisting of between 500 and 2,000 hectares producing soybeans, oranges, coffee, and sugar mostly for export. At the lower end of the rural economy are around 5 million ruined small farmers and landless workers, roughly 20 million people: ‘Regarding the distribution of rural income, in 1970 the poorest 20% of the economically active population received 5% of total agricultural income, while the poorest 50% got a little more than 22%. By the 1990s the first 20% received less than 4% of agricultural income and the poorest 50% only 15%. These numbers reveal the tremendous inequality to be found in rural Brazil.’ ( The dynamics of chronic poverty in Brazil : S.K. Saha & M.C. Lima)

In 1950, about 60% of Brazilians still lived in the countryside; by 1980 this had dropped to 32%, today only around 22% of the population still live in the rural hinterland. However significant numbers of city dwellers travel long distances to work in the countryside. Tenant farmers have disappeared giving way to people known as boias frias or cold grub, workers hired to work on farms for short periods. These workers are dependent on the rural economy but don’t actually live there. They live on the edges of the medium sized cities close to the large farms and agribusinesses. It is informal workers who largely populate the favelas, or shantytowns ,of the regional towns.

The rapid migration to the cities was not a development in advanced social mobility, but rather a consequence of the social expulsion of the small producers and artisans from the countryside, and the providing of Brazilian employers with an overabundance of cheap and unskilled labour. The policy of the military dictatorship during the period of the ‘economic miracle’ was to reorganise the economy of the countryside by supplying credit and subsidies to secure a greater integration of Brazil’s agriculture with both domestic and US multinational agribusinesses. It was only after 1950 that Brazilian agriculture began making use of tractors and chemical fertilisers to expand production, much of the early concentration being centred in the States of Sao Paulo and Rio Grande do Sul. The effect of agrarian modernisation has been contradictory, productivity has greatly increased, but so have land concentration and the surplus population. As an outlet for the displaced peasants and farm workers the Brazilian government has promoted a land grab for the virgin territories of the Amazon. Though agriculture’s economic contribution has declined it still accounts for 40% of Brazil’s exports and 25% of its employment. 

A powerful impetus in the creation of the military dictatorship in 1964 was class pressures emanating from the landowners to have the State stamp out the rising tide of organised rebellion in the countryside. In Brazil the legendary back land colonels still control large political machines and employ goon squads to intimidate any would be social reformers. When in 1985 President Jose Sarney presented an agrarian reform package the ranchers and farmers founded an organisation called the Rural Democratic Union (UDR) to have the bill confounded.  The rural bloc is the best organised political group in the Legislature, able to count on the cross party support of around 200 deputies.

It was not just the urban trade unionists who built a popular opposition to the military regime in the 1970s and 80s; rural based groups devised the new tactics of collective struggle to supersede the largely unsuccessful armed guerrilla tactics. The new tactic relied on large groups of landless families banding together to set up camp on parts of private property not being worked by the landowner, in Brazil there are extensive pieces of land of this type.    

By the late 1970s thousands of rural workers and peasants had become involved in land invasions and occupations. In 1983 the various local groups of ‘squatters’ came together to form a united struggle called the Sem Terra Movement (movement of landless workers). At their first national gathering a decision was taken to organise the MST as an ‘autonomous movement independent of all political parties’: ‘Our analysis of the farmers movements of Latin America and Brazil taught us that whenever a mass movement was subordinated to a political party it was weakened by the effects of inner party splits and factional battles. It was not that we didn’t value parties or thought it wrong to join them. But the movement had to be free from external political direction. It also had to be independent from the Catholic Church…We also decided then on the general tactics we would use. We were convinced that the fight for agrarian reform could only move forward if it were a mass struggle so we had to try to involve as many people as possible. When we set out on a land occupation, we try to take everyone along-fathers, mothers, sons, daughters, old people, children, the lot. We listed the ten or twelve objectives our movement would serve-the struggle for agrarian reform, for a different Brazil, for a society without exploiters.’(Jao Pedro Stedile interview New Left Review May/June 2002) 

Over the last eighteen years the Sem Terra Movement has mobilised some 350,000 families in land encampments and its direct action methods have sometimes ended in violent confrontations with the hired goons of the landlords and the State police. During Cardoso’s second term as President the MST escalated its campaign of land occupations. At first Cardoso left the job of suppressing the MST to the Federal States, but after the State Governor of Para ordered a military police massacre of 19 landless workers in April 1996 in Eldorado Carajas which received world media exposure he shifted to negotiation and co-option. He offered to make State funds available for limited land redistribution in return for demobilisation of the MST. The MST entered into negotiations but refused to stop the land occupations on the grounds that the government’s reform plans were far too limited.

The MST has made use of Brazil’s Constitutional clauses permitting the Federal States to appropriate private land that has rested idle. The areas for appropriation are carefully chosen and months of pre-planning are undertaken before a mass occupation. An occupation can involve anywhere from 200 to 3,000 families, some of which are recruited in the immediate area and others from the shantytowns. Joining an occupation requires an intense level of political commitment. The MST has had some success in building up a broad political coalition of peasants, workers, Catholic clergy and human rights campaigners in favour of land reform and this has helped neutralise the violence coming from the landlords private army organised in the Uniao Democratico Ruralista (UDR). However scores of activists have been murdered in the States of Parana, Para, and in Sao Paulo. During Cardoso’s time in government 1,158 activists were murdered and only eight culprits were prosecuted. 

Before Election Day Lula met with the leadership of the MST and secured their support for a suspension of their land occupations in return for a promise to authorise a serious land reform if elected. However in the first nine months of the PT government no serious land reform measures materialised so the MST increased its land occupations by 140% over the previous six months. During the first nine months of the Lula government, nothing changed for the better for the landless peasants and workers. On the contrary, the right wing and large landowners increased their threats and attacks on MST camps. Their private goons, the jagunços, displayed their weapons more openly and the number of assassinations in the countryside increased substantially.

On July 3, the Military Police, under orders from the Justice Department, violently evicted the Chico Mendes encampment of the MST in Pernambuco where 600 families had lived for the previous six years. The destruction of the encampment was massive: 180 houses, numerous schools, a church and all the crops were destroyed. The same day, in the state of Paraná, another squatters' camp was invaded by the Military Police, leaving many workers severely injured. Right-wing Senators are seeking a government edict to criminalise the MST. In response to the large landowners' massive rearming, Minister of Agriculture Roberto Rodrigues declared publicly, "I consider that everyone who owns something has the right to defend it. Otherwise, that person is not worthy of owning it in the first place" (Folha de Sao Paulo, May 7, 2003). Even though Minister Rodrigues later said his comment was a "slip of the tongue," his declaration revealed that he is a representative of the latifundiarios, of the exploiters, of the assassins of landless peasants throughout the Brazilian countryside.

Unfortunately the ‘socialist’ Agrarian Development Minister Miguel Rosseto refused to take issue with Rodrigues' open endorsement of the right-wing violence against the landless peasants, though he did state that these armed militias in the countryside "are carrying out irresponsible and illegal actions on a local level. These irresponsible adventurers will not have any space to promote further their violence in the countryside" (Folha de Sao Paulo, May 7). Still, at no time has Minister Rosetto proposed any concrete measures to dismantle these armed militias. Nor did Minister Rosetto propose at any time that the government adopt measures to defend the Chico Mendes encampment. Nor did he propose any actions to stop the destruction of the encampment in the Rio Bonito estate in Pernambuco. At a time when the landowners were hiring goons and unleashing waves of violence across the country, Minister Rosetto merely said "We will not tolerate violent demonstrations of the landless peasants, just as we will not tolerate the armed militias of the landowners" (O Estado de Sao Paulo, June 4, 2003). (Information on PT government ministers taken from Open World Conference of Workers Web Pages)



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