Why Lula will shun the populist path

Luiz Inácio Lula da Silva has had a bad night. A stiff neck has forced the Brazilian president to sleep sitting up and he is still in pain. There is a word or two of advice for his interviewers on choosing a good acupuncturist before he switches the conversation to his favourite topic: football.

The memory of Brazil’s ignominious exit from the World Cup is still as painful as his neck and he spends 20 minutes lamenting the national team’s performance and lauding the quality of football from the European leagues he spends much of each Sunday watching on cable. Before getting down to business the president digresses again – this time on the poor quality of most Brazilian television.

Perhaps this pally talkativeness in part explains why the president’s handlers have allowed him to give so few interviews in the three and a half years since he took office. His tendency to extemporise becomes evident over the next hour and a half, as do his friendliness and natural charm.

Mr Lula da Silva is at his happiest when discussing big questions – as big as the future of humanity, the moral obligations of nation states and the purpose of government. He likes to express such grand themes in personal terms, often referring to the lessons he learnt in his impoverished childhood.

But the president is frequently vague on the detail of policy and execution. He occasionally cites future plans as examples of past successes. On the issues that concern many investors in Brazil, Mr Lula da Silva has little of substance to say, although what he does offer is couched in diverting terms – even when stressing the need for fiscal discipline.

“I won’t take any populist measures of the kind that you celebrate at night and regret the next day,” he says. “I prefer caution and seriousness, because chicken soup and caution don’t do any harm to anyone, much less a president of the republic.”

During his tenure in the Palácio do Planalto, the wood-panelled presidential offices overlooking the capital Brasilia, the country has undergone a marked revival. Brazil was on the edge of bankruptcy in 2002 but is now firmly on the way to becoming an investment-grade economy. Yet, three months from elections in which the leftwing Mr Lula da Silva will seek a second mandate, concerns are widespread that the country appears unable to grow much more quickly than the average over the past decade of a little above 2 per cent a year.

In spite of this, as well as a recent explosion of urban violence and a slew of corruption scandals over the past two years, the 60-year-old president remains widely popular – principally because the poor are better off. That is partly thanks to social programmes introduced by the previous government but much expanded under Mr Lula da Silva. Low inflation – the great achievement of the past government and sustained by Mr Lula da Silva – has also played a role, as has a benign global economic environment.

With a month to go before campaigning starts in earnest, he has a commanding lead in the opinion polls. Yet the president is by no means a shoo-in. The centre-right opposition can be expected to attack his government over corruption and inefficiency while Geraldo Alckmin, the centrist candidate, presents detailed proposals to overhaul the state and deliver the faster growth that Brazil so badly needs.

In the eyes of such critics, Brazil’s foreign policy has also been inept. Bolivia’s expropriation this year of Brazilian assets in its natural gas industry, a failure to secure benefits in exchange for granting trade concessions to China and the growing influence across Latin America of Hugo Chávez, the radical anti-American president of Venezuela, are all seen as examples of Brazil’s declining influence. Also, for all Brazil’s achievement in giving poorer agricultural economies a voice through the G20 group of developing nations, the Doha round of World Trade Organisation talks appears to be going nowhere.

Mr Lula da Silva sees regional difficulties as temporary and inevitable teething troubles of Latin America’s young democracies. He presents a convincing case for patience, calm and steady dialogue. On trade issues he ­resolutely refuses to accept defeat. He will be a guest at this weekend’s ­summit of the Group of Eight industrialised countries in St Petersburg. Although Doha is not on the agenda, he plans to use the meeting to get the round moving.

“It is not possible that the presidents of the most important countries in the world will meet and the most important subject in the world not be discussed,” he says. “It is delicate, because [Russian president, Vladimir] Putin is not in the WTO. But, I have told the other leaders, we have no problem in going to London, Berlin, Rome or Paris, wherever. Even if it’s only for a two-hour meeting, we have to take a
decision.” He says Doha offers the world’s best chance of fighting poverty, inequality and even terrorism.

Latin America has been the central axis of Brazilian foreign policy under Mr Lula da Silva and he distances himself with alacrity from his critics. “The Brazilian conservative right wanted us to start a war with Bolivia,” he says. “I preferred to negotiate and start looking for a solution. I never was nervous about the crisis. We need each other. Bolivia needs to sell gas to Brazil and Brazil needs to buy gas from Bolivia.”

The same perception of mutual self-interest underpins Mr Lula da Silva’s sanguine attitude to Mr Chávez. Venezuela’s entry this month to Mercosur, the South American trade pact formed 15 years ago by Argentina, Brazil, Paraguay and Uruguay, represents an important stage in regional integration. Venezuela, he says, has “a lot of oil, a lot of gas” and “we want to build together strategic development projects for the continent”. These include plans to build a controversial 8,000km gas pipeline and a $2.7bn (£1.5bn, €2.1bn) oil refinery in north-eastern Brazil. Critics say both projects are driven more by geopolitical than economic or commercial considerations.

On the subject of Mr Chávez’s anti-Americanism, the president says Venezuela and the US need each other. “One day I spoke to Bush and Chávez,” he says. “I said this fight between you is very interesting. Venezuela could stop selling oil and create a delicate situation for the US. Bush could stop buying and do the same. But you both keep buying and selling.”

Nevertheless, he and Néstor Kirchner of Argentina have talked to Mr Chávez to try to take the tension out of hemispheric relations. “I talk a lot with President Chávez about the need to behave in a way that doesn’t create problems for other countries,” he says.

At home, Mr Lula da Silva has few such concerns. Asked what he has learnt in office, he says: “The important thing about governing is to have control over the machinery of government. In a country the size of Brazil, this takes time. In the first year you sow, to reap the results during the remaining years. We are in a period now that I would say was almost magical in Brazilian politics.”

The president won round sceptical financial investors during his first year by sticking to tight monetary policy and pushing through, at least partially, some outstanding reforms left over from the previous government’s agenda.

Fiscal policy has been kept relatively tight. Indeed, the government’s budget surplus before debt repayments has risen from 3.75 per cent of gross domestic product under the previous administration to 4.25 per cent today. Inflation has fallen from about 12 per cent in 2002 to below the government’s target of 4.5 per cent this year.

The harvest has come in the form of a steady rise in Brazil’s creditworthiness. But the benefit has not stemmed from domestic policy alone. Brazil has gained from a massive shift in global conditions, including surging demand for its commodity exports such as soya, iron ore, meat and sugar, along with an appetite among international fund managers for higher-yielding assets such as Brazilian bonds and shares.

Still, Mr Lula da Silva has been criticised by both right and left. A set of policy guidelines published last month by leaders of his Workers’ party (PT) – including his closest advisers – explicitly calls for a “leap of quality” in a second Lula term. It argues for a shift away from “neo-liberalism” towards a different pattern of development and describes the administration’s work as “partial, unequal and incomplete”.

Mr Lula da Silva will have none of this. He points out that the PT has yet to finalise its programme for the next election and, as the candidate, he will have to approve it when it does. Furthermore, “What people don’t see is this: when people talk about a new standard of development, in fact it is already happening. What do people really want? They want lower interest rates and they want more investment. This is already happening, this is already happening right now and it is only happening now because we have been planting this since 2003.”

The central bank’s reference interest rate has indeed fallen, from a high of 26.5 per cent three years ago to 15.25 per cent today (although market lending rates are multiples of this). But government investment has fallen, too, from about 0.9 per cent of gross domestic product under the previous administration to about 0.7 per cent.

But many critics say Brazil needs more positive action to deal with the challenges it faces. At the heart of their concerns is the size of the state: it absorbs nearly 39 per cent of GDP in taxes but fails to invest in infrastructure and other drivers of growth and delivers services that are inefficient and of poor quality. They say a lack of imagination about how to reorganise the public sector is putting too much of the burden of maintaining stability on monetary policy.

These criticisms cut no ice with the president. He insists Brazil has done what it needs to do in those areas. He accepts the need to restrain spending but has little to say about improving the quality of services. “Lots of people say the government spends too much on running costs,” he says. “But the machinery of government has to work. You can’t have the machinery breaking down, with poorly paid public servants working in a climate of ill-will.”

Similarly, Mr Lula da Silva sees little need for action on the legal and judicial system. Many foreign investors are dismayed by the inconsistency with which Brazilian courts interpret the law – not to mention a climate of scant respect for the law engendered by a series of scandals over alleged misuse of public funds.

The president insists that the system is functioning well. “Courts are flexible all around the world,” he says. “I think there are few countries where these things are respected as much as they are in Brazil.” In the same vein, he is confident that the so-called mensalão scandal over an alleged cash-for-votes scheme in Congress is behind him, although he admits to having experienced some anxiety.

Pressed again on how to reduce interest rates and deliver investment for growth, the president veers off to one of his pet topics: Brazil’s role in the development of alternative fuels. “Nobody can compete with Brazil on ethanol,” he says. “H-Bio is an energy revolution [to be] patented by Petrobras: you put refined vegetable oil in with petroleum and produce a quality diesel oil.

“Biodiesel can be used to help develop other countries in the world, not just Brazil. In the 18 months that we’ve had biodiesel, we’ve already got 100,000 workers in the fields. And there will be a lot more, because it was designed with a social function and not simply as a fuel.”

Faith in such grassroots-led development is typical of the president. He puts much store in the power of common sense, patient talk and gentle
persuasion. His past as a union firebrand notwithstanding, Mr Lula da Silva is a political leader whose evolutionary approach seems to go with the grain of Brazilian history: a distaste for sharp ruptures and a gradualist approach to development. He has yet to prove, however, that he can lead Latin America into the era of globalisation.

The interview in full can be found at www.ft.com/lulatranscript