Worth raising a glass to, right? But all last week's election in Brazil got from Wall Street was a Bronx cheer. The Brazilian currency, the real, continued a slide that, apart from a brief rally after an International Monetary Fund (IMF) rescue package last August, has gone on all year. In the markets, interest rates on Brazilian bonds (a proxy for the extent to which Wall Street regards investment in Brazil as a risk) are running more than 20 percentage points above comparable U.S. securities.
No prizes for guessing why the markets are jumpy. The winner of the first round, with 46.4% of the vote, was Luiz Inacio Lula da Silva universally known as Lula the candidate of the Workers' Party, which has in the past flirted with repudiating Brazil's massive external debt. Lula, 56, a former labor-union leader running for the presidency for a fourth time, is likely to defeat Jose Serra, the candidate of the governing coalition, in the runoff on Oct.27. Following the economic catastrophes in Argentina and Uruguay, American bankers fear that the commitment of Latin America to the Washington Consensus, the bundle of free-market policies that has been adopted on the continent since the late 1980s, may be in jeopardy. Given the exposure of U.S. banks and exporters to Latin America, that could translate into lost jobs and profits north of the Rio Grande.
As it happens, the man who coined the term Washington Consensus, John Williamson of the Institute for International Economics in Washington, is a longtime expert on the Brazilian economy. When I spoke with him last week, Williamson sounded a lot more relaxed about the prospect of a Lula government than Wall Street seems to be. After years of failure, says Williamson, the Workers' Party is now electable precisely because its policies have "converged on the middle ground." Whatever its program may have been in the past, the party now seems ready to accept the strictures of the IMF and U.S. Treasury, including tight government budgets and a commitment to pay off the debt. Given the economic constraints, a Lula government would be likely to concentrate on those areas that the Workers' Party has stressed when it has run state and local governments, especially expanding educational opportunities and improving health care.
Still, Lula's election, should it happen, would be no small matter. Brazil has the largest economy in Latin America; some of the trends that seem likely to propel Lula to power are visible elsewhere on the continent as well. Peter Hakim, president of the Inter-American Dialogue, a Washington think tank, says that Lula's success reflects widespread "unhappiness with the results of economic reform and the quality of leadership." Lula will be nobody's stooge, least of all Washington's. "The U.S. thinks first and foremost of the U.S.," he told Time recently. "It is up to us Brazilians to think more about ourselves. I always say a human being will never be respected if he is a servant but rather for the fight he has in him." Though Lula says he is a free trader, he is unlikely to agree to the Free Trade Agreement of the Americas before Sept. 11, 2001, a priority for the Bush Administration on anything like the terms sought by business lobbyists in Washington.
If Lula is elected and Washington is wise, the U.S. will accept occasional annoyances with Brazil (Lula will doubtless make nice with Fidel Castro) as a price worth paying for something rather remarkable. It has been 20 years since, in her unwitting gift to Latin America, Margaret Thatcher defeated the Argentine junta in the Falklands war and revealed the bankruptcy of politics run by men in dark glasses and military uniforms. Democracy in Latin America is robust; Hakim calls last week's election "tremendously clean, competent and decent." One mark of health in any democracy is the election of those who once opposed a regime. That is why the election to the Mexican presidency of Vicente Fox, a right-winger, was so important in 2000, and that's why it will be worth cheering if Brazil chooses a man of the left later this month. "Brazil has changed," Lula told Time. "I am the result of the political evolution of Brazilian society."
So he is. But have Washington and Wall Street evolved enough to celebrate Brazil's triumph of democracy?