The reason for the Workers' Party (PT) candidate's commanding lead is simple: The state of the economy. It may be Latin America's largest economy (and the world's tenth-largest) but Brazil goes to the polls amid financial turbulence caused by the ripple effects of the Argentinean meltdown. Last month, the credit rating agency Moody's dropped Brazil's foreign currency bonds to five levels below investment grade, making it even more difficult for the government to borrow money and putting additional pressure on Brazil's foreign currency reserves. This despite the fact that many of the fundamentals remain sound: Although this year's growth figure predicted by Morgan Stanley is a sluggish 0.6 percent, Brazil has managed to maintain a healthy level of exports — an annual $70 billion's worth, an amount 75 percent higher than its current level of foreign currency reserves.
Still, international investors are skittish about the possibility that a Lula victory may result in a default on the country's foreign debt obligations. The PT candidate had, in fact, called for such a default in his early years on the campaign trail in the late 1980s, but since then has, like many erstwhile socialists from the developing world, accepted the basic ground rules of the international financial system. Still, investor anxiety has sent Brazil's currency, the Real, into its sharpest decline since it was allowed to float freely against the dollar in 1999.
But is Lula quite the bogeyman that he seems to be in the minds of Wall Street? And would he, as president, challenge the IMF, reverse free market reforms, and cut ties with the international investing community?
The answer is both yes and no.
"Yes," because the PT's candidate has made it clear that his priority will his social agenda, particularly alleviating the burden of an unemployment rate that hovers close to 20 percent. Spiraling unemployment has been the downside of the free-market policies implemented by President Fernando Henrique Cardoso, and has swung voters more solidly behind the PT. It's an issue that Lula, a self-taught blue collar worker and trade unionist before becoming the beacon of the Brazilian Left, understands better than any of the other candidates — and certainly better than most international investors. "If international economists were always right, all we would need is to hire 10 Nobel Prize (winners) and let them run the country," he said in a recent interview. Lula has also pointedly declared his intention to reject IMF demands on inflation targets if he believes those hamper the growth of Brazil's economy.
But the answer is also "no", because Lula knows that economic autarchy is not an option for the export-driven economic powerhouse. The recent $30 billion stand-by credit approved by the IMF on September 6 — the largest ever granted to any country — is scheduled to be released in stages, the bulk of it delivered in 2003 only if Brazil complies with the "relevant criteria" established by the Fund. And that's a strong inducement for Lula to not stray too far from the IMF's program.
Lula would not have "made it to where he is if he were a retard, as so many still try to portray him," writes Nahum Sirotsky, a veteran Brazilian journalist and former aide to Brazilian ambassadors in the United States and Israel. Which is a way of saying that the PT man understands the reality of international capital flows. Any domestic program that results in a default or an onerous restructuring of the debt will put him in an extremely difficult position to pursue the progressive policies on which he has campaigned.
Investors' concerns about the candidate's economic maturity and ability to rein in Brazil's tendency to over-borrow and overspend appear to ignore the fact that the country's erratic economic performance over the last few years has occurred on the watch of certified free-marketeers. Ideological suspicion rather than the hard reality of policies appears to be guiding decision-making in the world's financial centers in the weeks prior to the vote. Lula's supporters point to his party's successes in turning the southern state of Rio Grande do Sul, which it has ruled for a decade, into one of Brazil's more prosperous regions.
National government, however, will demand a nimble balancing act from the PT. Its support is based on promises of meaningful reforms aimed at developing a more responsive state, creating a stronger and broader domestic consumer base and strengthening Brazil's position in hemispheric affairs. But none of that will be possible by isolating Brazil from international investors, whose outlook may be more conditioned by the IMF orthodoxy of the recent past that has little sympathy for government spending on social programs to alleviate economic distress among the urban poor. Indeed, the socialist Lula's greatest challenge may lie in persuading local and international investors that his policies are the ones that will secure the long-term future of capitalism in Brazil.