Richard Lapper, the FT’s Latin America editor, and Jonathan Wheatley, Brazil correspondent, talked with Luiz Inácio Lula da Silva, president of Brazil, on July 7 2006. The following is an edited transcript of the interview, which took place in Mr Lula da Silva's office at the Palácio do Planalto in Brasília.

Also read the transcript of the FT’s interview with Geraldo Alckmin, candidate for president from Brazil’s centrist Democratic Movement of Brazil party (PSDB).

FINANCIAL TIMES: You will visit St Petersburg for the G-8 meeting next week. According to press reports there could be an effort to revive the Doha round of world trade talks at this meeting. Is there a possibility that Brazil could play a role here? Is this the moment for a bold initiative from Brazil to revive this long process of world trade negotiations?

PRESIDENT LUIZ INÁCIO LULA DA SILVA: There is no plan to discuss the world trade round at the G-8. Energy and the environment are the two issues that are on the agenda. I am an invited participant there and I would like us to create conditions so that we can discuss the round. It is not possible that the presidents of the most important countries in the world can meet and the most important subject in the world not be discussed.

Since December of last year, I have spoken with Tony Blair, I have spoken with Bush, I have spoken with Chirac, I have spoken with Angela Merkel. We’ve been thinking about how we can do something because the negotiators are not managing to decide anything. During my visit to the UK I talked to Blair about this. Last week I spoke to Bush about it again. I have spoken again this year with Chirac. I spoke again with Merkel for the second time and with Tony Blair again. I’ve been trying to show them that we have a mandate that will come to an end at a certain point. And that when we leave office, we will have to consider this: Was it worth governing? Why did we do it? What did we do, apart from helping or damaging our country, what did we do for humanity?

In my opinion, the Doha Round is the most important thing that we can do to reduce inequalities, create opportunities and develop the poorest countries, face up to the struggle against terrorism and strengthen democracy. If our leaders don’t understand this, the Doha Round will be a failure and as a result it will take another 30 years or more to find a solution to the problems that we are faced with today. Brazil is committed to playing its part.

We are proposing a kind of triangular [agreement]. How will this work, this triangle? The US would assume a commitment to reduce its subsidies. The European Union would open up its agricultural market and the G-20 group would commit itself to opening up its markets for industrial goods, always taking into account the relative sizes and wealth of the countries involved. For example, agriculture in Europe has a certain role in developing wealth and jobs. In Brazil it has another weight. But in Africa it has a much greater importance because the people depend just on agriculture.

So, how can we find a solution? This solution will not be found by the negotiators, not by the Brazilian negotiator, not by the English negotiator, not by the German negotiator, because these people don’t have the political power to take a decision to show the following: how can we advance. So, the idea is to have this discussion.

It is a delicate situation because Putin is not in the WTO. So we won’t be able to invite him to a meeting about the WTO. So I have told the other leaders that we will have no problem in going to London, Berlin, Rome or Paris, wherever it might be. We have to do it, even if it’s only for a two-hour meeting, to take a decision, because if we don’t it will be pure omission by all the main leaders of the world, including Brazil, including India, including China, including the European Union. If we don’t take a decision we will go into history as the political leaders who at a delicate time failed to take a decision because we were worried by the electoral situation in each of our countries. Because [the problem] is not economic, it is electoral. Each one is thinking about the next election. So that is what worries me.

So, I want to talk about this there [in St Petersburg]. I think that Tony Blair has contributed a lot to this discussion. He has been favourable to the idea. Angela Merkel is sympathetic. Bush is sympathetic. Now, we have a group of people who don’t want to get involved at all. The most important thing to be resolved this July is the question if the WTO.

FT: What is the biggest obstacle?

LULA DA SILVA: The biggest obstacle on the American side is that they don’t want to cut subsidies in a substantial form. On the part of the G-20 there are countries that have problems with manufactured products, and on the European side, the problem is access to agriculture, to the agricultural market. There is the argument that the new members of the EU are agricultural producers and are poor countries. There is the problem of France which is very delicate. It’s the most delicate issue with them. So, one side always accuses the other, saying “I won’t do it because they don’t do it”. And to the extent that we are together we have to find a way to talk about this subject. Before the meeting of the G-8 we are hoping to have a meeting of the G-20 and we are going to see what we can do. That is it. I am going with this hope.

FT: So the idea is to put a bit more energy into the whole process.

LULA DA SILVA: The idea is to give more force to the political decision. In my view, our representatives at the negotiating table, as they say in England, are snookered, they have no room to move in. So I think that now the main leaders have to say whether they want [progress] or not. And we have to take on the responsibility of what results from all this.

FT: So that would be the bold initiative, to really try …

LULA DA SILVA: I think it would be a bold initiative for the leaders to assume responsibility for what they decide.

FT: And you are optimistic about what is going to result from all this.

LULA DA SILVA: It is important to remember that I am not in the G-8, I am just an invited guest.

FT: Who will be your allies in all this, and who is most against what you are trying to do?

LULA DA SILVA: Tony Blair has played a really interesting role – I would say – in this episode. The German leader has been sympathetic and Bush has been sympathetic. Chirac has had a much tougher position defending French farmers, and his position counts for a lot in Europe. But look, we are friends so we need to discuss this with a lot of honesty. What we can’t do is not discuss the most important thing.

FT: There has been a lot of commentary in the press recently about the dangers of not advancing and the risks this would pose to globalization. What would the impact be on Brazil of not making progress in all this?

LULA DA SILVA: Brazil isn’t too affected because Brazil understands that all the emerging countries and the developed countries must give up a bit in order for the poorer countries to get a little extra – the smaller Latin American countries, or the African countries – because Brazil is competitive in agriculture, Brazil has technology, Brazil is productive. In this area Brazil is very competitive. Obviously it would help Brazil because we still have 23 per cent of our workforce in the countryside. But at this point, I’ll confess to you that I am thinking more about what we can do so that the poorest countries get something out of it. For example, there is a country in Africa that sells only cotton and produces little cotton. I mean, if we don’t permit them to get some access to the richest markets this country is going to continue to be poor and miserable, without any perspective for growth and development. Well, everyone thinks like this of course but a lot of the time I think that what weighs much more heavily is the sensitivity to internal issues, because of electoral considerations.

FT: Can we talk a little about Latin America? Last week you were in Caracas at the Mercosur meeting. Obviously during your government Latin America has been a priority, a central feature of Brazilian foreign policy. What progress have you made on these issues? Recently we have seen a lot of problems, such as the conflict between Argentina and Uruguay, the problem of Bolivia, obviously, the conflict over gas. There has been a lot of controversy about the role that Hugo Chávez, the president of Venezuela, has been playing. What is your view about all these questions and the integration process that you are looking for? Are we advancing with this or is it becoming more difficult than you perhaps had hoped?

LULA DA SILVA: Any time that someone from Japan, the US or the European Union looks at Latin America, it is necessary to understand two basic things. We are a continent and we are consolidating a democratic process.

It is important to remember that not so long ago almost all the countries of Latin America were living under authoritarian regimes, and it is important to remember that various groups on the left saw their only option of reaching power as being through armed struggle. Since 1990, we have been building up the idea that democracy is the best way for sectors that feel socially excluded from politics to win power. So, we are a continent going through a process….a continent in formation. We don’t have geological problems, but we do have ideological problems, I man, we are in a formative process, we are consolidating a democratic dynamic. My election, the election of Kirchner [president Néstor Kirchner of Argentina), of Nicanor [Nicanor Duarte Fruto of Paraguay], of Tabaré [Tabaré Vázquez of Uruguay], of Evo Morales [the president of Bolivia], of Chávez, have changed the political scene in Latin America. The conflicts that sometimes seem very fierce when you read about them in the press are natural conflicts that reflect asymmetries between countries.

We have to understand always that Paraguay, Uruguay, Bolivia are going to have an argument to say they are poor countries because of the richer countries. Just as very often here in Latin America, we used to say we were poor because of the United States, because of Europe, and we didn’t look to our own defects, we don’t look to the things that we ought to have done and hadn’t done.

I think Latin America is going through an important moment in its history, regardless of what anyone may say. Latin America is convinced that starting with South America our way forward is to consolidate the process of integration, not theoretical integration, the integration of speeches, but physical integration, with infrastructure, with roads, with railways, with communications, with energy. Based on this Brazil has decided to make some investments in other countries. Brazil today has some $3bn of investments in other South American countries, so that we can give South America more infrastructure.

We believe that it is necessary to do much more, because only infrastructure is going to make more circulation possible. Not just goods but people as well. And we have had some results in the period in which we have been in government. Today, Latin America is Brazil’s biggest market. We export almost $28bn to the rest of Latin America. That is 22 per cent of our overall exports. We’ve risen from about $9bn to $27.8bn since 2002. With Argentina it increased from $2.3bn to $10.7bn. With the European Union we have $27bn and with the US $23bn. This is an extremely important thing. We are showing that it is possible through partnership and with seriousness, that we can help each other, we can help ourselves to grow.

And that’s also where we find the consolidation of the democratic process. I never was nervous about the crisis with Bolivia, for many simple reasons. Fist, when Evo Morales won the election, the referendum in Bolivia that was carried out in the time of president Carlos Mesa had already established that 92 per cent of the Bolivian people wanted gas nationalization. So, it wasn’t the desire of Evo Morales, it was fulfilling the wishes of a referendum. If it was done in an abrupt form or not, the concrete fact is that it fulfilled the result of a referendum. Why am I so calm? I am calm because first Bolivia knows how important Brazil is for it, above all in the gas industry. And Brazil is aware of the importance of Bolivian gas for Brazil. In truth, we need each other, Bolivia needs to sell gas to Brazil and Brazil needs to buy gas from Bolivia. So nobody is going to impose on the other a single point of view.

FT: In spite of this there has been some friction, hasn’t there? With nationalisation.

LULA DA SILVA: Yes, but this is normal. First because each leader has spoken to his people in accord with his interests. Since Brazil is the bigger country, Brazil has to be more cautious, Brazil has to be careful with its words. The so-called Brazilian conservative right wants us to start a war with Bolivia, they’d like me to take some kind of abrupt action with Bolivia. The thing is I thought it was possible to negotiate and start looking for a solution, that it was necessary to let the dust settle a little bit. And this has happened. I talked to president Evo Morales in Vienna, we reached a common point of view over the gas issue and today, in the normal way, Petrobras, the Bolivian company, the ministry of mines and energy and the Bolivian ministry are talking. This conversation could take a month, it could take three months, it could take four months. But the reality is that we are in the period when the price agreement is up for renewal. So, it is normal that we are at the negotiating table, it is normal.

I sometimes think that if say a referendum like they had in France over the European constitution were to have taken place in Brazil and the Brazilian people had voted against it, how we would have been attacked: “Why doesn’t that third world country from Latin America, radical, leftwing, this that or the other?” But in France there was a vote from the right and a vote from the left against the referendum. In England they spent a lot of time not wanting it…discussing the European Union, the spent a lot of time arguing about the single currency, and all this was seen as quite normal. And in a democracy, it is normal. Democracy without disagreement isn’t democracy. Consensual democracy doesn’t exist.

I think that we have to be clear about he following. First, Brazil is working for peace in Latin America. Second, Brazil is working to help consolidate the democratic process in Latin America. Third, Brazil is working according to what we can actually do because we are a poor country. We are working to see if Latin American development might take place in a more collective and mutually-supporting way between the countries, so that we can grow together, because it doesn’t do to have one richer country surrounded by poor countries.

I’ve said this because every president I meet asks me about Latin America. I can say the following: if there is one place in the world that I can say lives in peace it is Latin America and South America.

I know that speeches often worry people. But a speech is a speech. One day I spoke to Bush and Chávez. I said this: this fight between you is very interesting, because Venezuela depends almost exclusively on selling its oil to Bush. So, it could stop selling oil and create a delicate situation for the US. Bush could stop buying oil from Venezuela and also create a delicate situation. But you keep buying and selling. So I think we should take into account the political experience of Latin America, what we were 20 years ago, 15 years ago, and take into account what is happening now. I can say it out loud: this is the most peaceful part of the world today. We have internal problems, we have problems among ourselves just like anywhere else.

One time I saw on TV someone throw a cup of something at Tony Blair, I think it was talcum powder or salt. The other day I saw someone throw a cup of blood at Schroeder when he was prime minister of Germany. Here in Brazil that doesn’t happen. If it happened, well, good grief. These things don’t happen here. Here we are – thank God – learning to consolidate the democratic process in Brazil and Latin America, in adversity.

FT: This process involves a lot of personalities. Tell us a little bit about this. About Hugo Chávez and the entry of Venezuela into Mercosur.

LULA DA SILVA: Venezuela’s arrival in Mercosur is very important, because before people treated Mercosur as if it were just the southern cone. Now, we are connecting the Caribbean to Patagonia. Venezuela is a country of 30 million people, a country with important development potential, a country which has a lot of oil, a lot of gas and so we want to build together with Venezuela strategic development projects for the continent. There are Chávez’s political problems with the US, but this is a problem of Venezuela and the US, it is not a problem that involves Latin America, that involves South America, that involves other countries. We have changed our trade policy and never stopped having a good relation with the US, we have never stopped having a good relationship with the European Union. We created the G-20 and it led to no antagonism with the European Union or with the US, because I think we are learning to live together in a more civilized way, taking into account the situation of each country.

So the entry of Chávez into Mercosur…I’ll give you an example. Brazil exports to Venezuela practically $2.5bn. It’s a lot. Brazil has financed the Venezuelan metro, Brazil has financed roads, bridges. We have a partnership to build a refinery in Pernambuco between PDVSA and Petrobras.

I think our relationship with Venezuela is a quality relationship, a relationship of trust. I talk a lot with President Chávez about the need to behave in a way that doesn’t create problems for other countries. From time to time there is a problem. It is important to remember that on January 25, I was 25 days into government when I proposed the group of friends to help find a way out for Venezuela. I remember as if it were today that when we proposed that the US take part there were those who said I was giving Venezuela up to the US. And I said to Chávez, look, Chávez, we are not creating a group of friends of Chávez, we want to create a group of friends of Venezuela. I mean to say people who will work together so that we can consolidate democracy.

And look how funny this is. I included Spain. Spain had been the only country to recognize the coup. And his really annoyed Chávez. He was in New York and I asked him to come to Brazil and he came. We spent four hours meeting with him to show the importance of having the US and Spain in the group of friends. And afterwards, it was a success, because various parties checked the electoral process, the referendum: Jimmy Carter came with his foundation. And we were consolidating the process, taking into account all the time that we had to talk a lot, argue a lot. Sometimes there are misunderstandings. This is the role that Brazil can play.

FT: Is it important for Venezuela that the opposition participates in the election in December?

LULA DA SILVA: Well, in every conversation I have had with President Chávez, he thinks it is extremely important that the opposition participates.

FT: And are you giving advice to him to keep this thing open?

LULA DA SILVA: I am a good friend of Chávez and the relation that Chávez has with Brazil is a good relation, ever since the time of president Fernando Henrique Cardoso, because Chávez has been in government for almost eight years. Kirchner and I have talked a lot with Chávez. I mean we have to take the tension out of our relations, with whoever it may be, so that we can consolidate democracy. The more we consolidate institutions, the less we need to worry about the next government, whoever it is. If the institutions are solid, we know we will have democracy. So we are talking a lot, in all our meetings we talk a lot. Our relations with Argentina, I think, are the best relations we have had. Brazil has a good relationship with Peru. Brazil has a very good relationship with Colombia and with Ecuador. I’d say the following: Brazil has to take more responsibility than the others, because we are bigger. We have more people, more territory and our economy is larger. So we have to be more generous in our relationships. We have to be more patient. This is what I said to prime minister Tony Blair. England, historically, is an extremely important country. England will always have an important role in Europe, because it is a country with extraordinary political and cultural dimensions, as well as being a rich country. Brazil, in South America, together with Argentina, has that role, of trying to create conditions under which things can be resolved in the best possible way, at the negotiating table, without friction. And I think that we are managing it.

I just want you to understand that our democracy is very young, and because it is young it is still getting stronger. And I think we in Brazil have already demonstrated unequivocally that democracy is here to stay, definitively. It is not half-way democracy. It is democracy to its ultimate consequences.

FT: You’ve run for president many times down the years and learnt a lot about being a candidate. What have you learnt about governing in the past three and a half years?

LULA DA SILVA: The first important thing about governing is to have control over the machinery of government. In a country the size of Brazil, it takes time to get control of the machinery. It’s always like this. In the first year you sow, to reap the results during the remaining years. I think we are in a period now that I would say was almost magical in Brazilian politics. We are in a period of economic solidity with everything happening in a favourable way. We have strong social policies, we are implementing strong educational policies, and we are projecting for the future things that will be extremely important in consolidating Brazil as a developed country.

One thing that causes great difficulties in a democracy, and at the same time is extremely important, is your relationship with the National Congress. I think that in all democratic countries this is a relationship that often appears in the press as being a relationship of conflict but, when you look closely, deep down, deep down, the National Congress is a portrait of the country at the time of the election and, so, you have to get along with it.

I think this was a very important lesson but most important for me was to get control of inflation, to double our exports, to make credit available to the Brazilian people which I believe today is more abundant than ever before.

Do you want to know something? I can say to you: I think to govern is good. The pleasure of seeing things happen, the pleasure of planting something and seeing it germinate and grow. I think this is an extraordinary lesson, especially the lesson of living together in democracy and diversity.

Look, I began my government proposing a tax reform and proposing a reform of the pensions system. We enacted the pensions reform, which is a long-term reform, and we did half of the tax reform, because the federal part was dealt with but the state part wasn’t. I believe we will have to finish this second phase of the tax reform to consolidate a fair tax regime in Brazil.

You have followed things closely and you know that the first year was a very hard one. Very hard because inflation was on the way up, because Brazil’s credibility was very small, Brazil’s country risk was very high and we enacted what was possibly the biggest fiscal adjustment that anyone has ever done in this country, to be able to consolidate, without selling a single public-sector company. We sacrificed our own flesh. And we have begun to reap the rewards, which today, in my opinion, are consolidated. Look, we have arrived at a moment… when I won the presidency we were forced to sell dollars to make the dollar cheaper. Today we are being obliged to buy dollars to increase its value. Our reserves were very small and today our reserves are more or less consolidated, we have a current account surplus when before we had a current account deficit. Just the fact that you don’t have to work with the constant worry that, at the end of the year, you’ll have to borrow money from somebody to balance the books, makes me sleep peacefully.

One thing that is very gratifying is to know that in my government, in the past 36 months, after many, many years, 90 per cent of trades unions have reached agreements on pay rises above the rate of inflation. I was a union leader at a very important time and when we lost only a little of our pay [to inflation] I was satisfied. Today, union leaders reach agreement getting real wage increases. And we have managed to do all this without letting go of fiscal responsibility. How? Because I learnt in the cradle, I learnt from my mother, who was illiterate, that we can only spend what we have. We don’t spend for others to pay. And this has directed my behaviour here. In other words, if we need to increase our [budget] surplus, we will do so. You remember that it was 4 per cent, 3.75 per cent, and I increased it to 4.25 per cent with no problem.

FT: Just on that point. The increase in the surplus has been criticised because it was achieved while making interest payments and while reducing investment, but while current expenditure has continued. Couldn’t the adjustment have been of better quality?

LULA DA SILVA: Look, I pay interest because I have a very large debt, I inherited a very large debt. And you can see that it is being reduced. Every year it has reduced a little. But I took over a very large debt. I had taken on the responsibility of honouring this country’s commitments, of honouring contracts, and I did. And I will continue to honour them, because we have won something very important and that is the right to walk with our heads held high. And you can only do that if you have really fulfilled your duties.

I’ll give you an example. I found out that Brazil hadn’t made its payments to the United Nations on September 23, 2003, when I was going to make a speech at the UN. Kofi Annan spoke, then it was going to be me, then president Bush. And when I was getting ready to speak, I was reading my speech, and my aide came up to me and said: “President, Brazil hasn’t paid the UN for a long time.”

Well, I went to make my speech. It was a speech that was very tough on the war in Iraq and also raised the question of fighting hunger around the world. Then I began to think, I’m going to speak and in a minute the president of the assembly will tap on the microphone and say: “Mr President of Brazil, if you want to talk tough, first pay what you owe.” Just to give an example of Brazil’s situation. We didn’t pay the UN, we didn’t pay the FAO, we hardly paid anything.

I believe that honouring our commitments was what allowed us to get to where we are now. I can promise you that it is many, many years since Brazil has enjoyed the kind of tranquillity over the economy that it is enjoying now.

All the other countries are increasing their interest rates and Brazil is cutting its interest rates. And even the heavy adjustment that we made hasn’t reduced our investments in social policies. You notice that I use the word “investment” in social policies, because usually in Brazil people say “spending”. I talk about investment, because it is investment in people, it is investment in a part of society that is excluded. We increased spending on social programmes from R$7bn [in 2002] to R$22bn in 2006. It’s a great deal of money.

This is why the 2004 census shows that 3 million people have risen above the poverty line, this is why Brazil’s Gini Index is improving, this is why infant mortality is falling and why social policy is reaching everybody. There are 11.1m families getting the Bolsa Família. I don’t want them to get it all their lives. In a few years from now I want us to have achieved a stage of development that provides jobs so that these people can live off their wages. This is the Brazil that I want to build.

This has not stopped us from investing a lot in education. I will end my mandate with four new federal universities, with six faculties turned into universities, 42 university extensions and 42 technical colleges. There hadn’t been one [new one] since 1998. And I am doing this because we have approved the Fundeb [a fund for education that has been approved by the Senate but has yet to be approved by the Lower House]. This means an extra R$4.3bn for education. We have added an extra year of school for our children, who used to start school at seven and are now starting at six. We created ProUni, which has put more than 200,000 more young people in university. If we don’t invest in education and in social policies, Brazil will not make the leap in quality from being a developing country to being a developed country.

FT: But on the other side from those who criticise spending on debt instead of on investment are those who criticise spending on current expenditure instead of on investment. Wouldn’t it have been possible to make a better quality adjustment in spending?

LULA DA SILVA: We do what is possible, given the amount of money available. I learnt when I was young that when you take on a debt, you pay it. So we have taken on the commitment of honouring our debts.

At the same time, on current expenditure…lots of people say: “The government spends too much on running costs.” But the machinery of government has to work. You can’t have the public machinery breaking down, with poorly paid public servants, working in a climate of ill-will. There are technicians, in Brazil, of the highest quality, earning R$8,000 a month. These citizens can go to the private sector and earn R$30,000 or R$40,000 a month. A technician at Petrobras, who earns R$20,000 a month, that people think is a lot of money, can be hired by a private group and earn R$80,000, R$90,000, R$100,000 a month.

So, we have to do this combination. We have to pay our debt properly, guarantee that it will be paid, because this is the only way to reduce our debt, and it is being reduced. Foreign debt is reduced, domestic debt is reduced, the current account surplus goes up, our ability to invest goes up, our trade surplus goes up, workers’ pay goes up, the minimum wage goes up, and Brazil continues to be in a situation that I would say was good.

Today, compared to many other countries in the world, Brazil is in a position that I wouldn’t say was completely solid, but Brazil is in a solid position. In the past, if the United States sneezed, we caught pneumonia. Today, if the United States sneezes, we sneeze too.

Now, look, we are thinking about the future. In January 2007 we start work on a petrochemicals complex in Rio de Janeiro, an investment of R$14bn. We start work on a refinery in Pernambuco with almost $2.7bn. We have already started work on a railway linking Pernambuco to Fortaleza, the port of Suape to the port of Pecém, R$4.5bn. We have started work on the BR-163 highway that connects the north of the country, Santarém, to Cuiabá, which will be the best built highway in ecological terms in the world, it will be a new standard, and we have just started work.

I believe that things are more or less coming together. To get to where we are, we have made sacrifices. In my first year I used up all my political capital doing what had to be done, to be able now…

FT: There are people in the PT [the ruling Workers’ party] who are demanding change. The PT’s directives for a government programme calls for a “leap in quality” in the next government and for a change of paradigm to a new standard of development. How do you see this – after all, you are president of the country but also a historic leader of the PT?

LULA DA SILVA: Look, first of all, I don’t know what is in [the PT government programme] yet because this is in a process of debate, I don’t know what’s in it yet. I am sure that the comrades will have to bring the government programme to me for me to agree with it or not, because there has to be an agreement between the programme and the candidate who is going to put it into practice. What people don’t see very clearly is this: when people talk about a new standard of development, in fact, as I have just told you, 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. If we had done something crazy in 2003, I’m not sure that we would be here now.

So, a lot of work was done to consolidate a domestic political alliance, to consolidate an international political alliance, to change the standard of Brazil’s relations with the world, to talk a bit more with the rest of South America, of Latin America, talk a bit more with Africa, with the Middle East. To form strategic partnerships with China, with Russia, with India, with South Africa, to change a little the trade geography of the world, to counterbalance a little this trade geography, and this is happening right now.

The G-20 is something very important. The developed world is still very powerful, is still rich, but it knows that in anything it does at international level it has to listen to the G-20, because today, with the G-20, they have to take into account a China, an India, a Brazil, a South Africa, a Mexico, an Argentina. So what have we done? We have turned ourselves into political players, when before we were just supporting actors.

FT: Growth in Brazil has been erratic in recent years, sometimes going up, sometimes down. What can be done to make growth sustainable?

LULA DA SILVA: Growth is like that all over the world. There are times when England grows by 1 per cent, times when it grows by 3 per cent. Japan spent ten years without growing at all. Brazil is on the planet Earth, so we, too, are governed by a compass that coordinates the world. Brazil goes up and down in accordance with the world’s possibilities. What we have built, in fact, is macroeconomic stability that makes us less vulnerable to the threat of crisis. This we have managed to do. I have always said this: if Brazil grows a few years together at a rate of 4.5 to 5 per cent, the country will make a leap of quality in a short time. Our government will end with an average rate of growth of 3.9 or 4 per cent, which is twice the rate that Brazil was growing at before. Now, it is still too little. We want to consolidate this for several years. Why? So that we can have sustainable growth.

FT: But how do you do that? What are your priorities, what are the practical measures that make this happen, that bring down interest rates, that produce investment?

LULA DA SILVA: It is happening now, it is happening right now. You have seen that interest rates were at 26.5 per cent, and today they are at 15.25 per cent and will keep falling. The [long-term subsidised rate] at the National Development Bank that was 9.75 per cent is now 7.5 per cent. Consumer credit, payroll-backed credit. So millions and millions of Brazilians were given access to credit. This is all money that is circulating in the market. This has allowed us to undertake some projects. Look, Petrobras alone has $87bn of investments until 2010, that’s Petrobras alone, part of which, $75bn, will be invested in Brazil, in ten years, in energy infrastructure.

In ethanol, biodiesel and H-Bio Brazil today has a limitless source of negotiations with other parts of the world. Nobody can compete with Brazil on ethanol. 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. Just to give you an idea, in the 18 months that we’ve had biodiesel, we’ve already got 100,000 workers in the fields, camponeses working because of the biodiesel programme. And there will be a lot more, because it was designed with a social function and not simply as a fuel.

What is the social function? To take the poorest parts of Brazil and plant castor-oil plants, dendê oil palm, so that we can give jobs to the poorest people in the fields, with guaranteed prices and with incentives for companies that buy from small producers. And all these things are being consolidated now.

Let me give you an example of the things that have happened in Brazil. Next year, we’re going to complete 22 per cent of everything done in terms of electricity transmission lines in the past 122 years. In four and a half years we’re doing 22 per cent of everything that’s been done in 122 years.

I’ll give you another example. The North-South Railway, of which you’ve heard, began in 1987. So, how many years from 1987 to 2002? That’s 15 years. In 15 years 215 kilometres were built. We, in 40 months, did 150 kilometres and we have already put out to tender another 350 kilometres of railways.

When I won the election, Brazil didn’t make rails, didn’t make wagons and didn’t make locomotives. Brazil is making rails, it’s making wagons and it’s making locomotives. We made big sacrifices and now what’s ahead of us is not talking about the past, but making proposals for what to do in the future, not only in the area of development… I’ve already given you some examples: the petrochemicals complex in Rio de Janeiro, the steel port in Rio de Janeiro, the steel port in Ceará, the Transnordestina railway – joining the port of Pecém to the port of Suape – H-Bio, and digital television, with the agreement for the Japanese to bring a semiconductor factory to Brazil, binging Brazil into the microelectronic age because, in 1990, various companies who were here relocated to Asia. And we want to bring them back, so that Brazil can get into this very sophisticated area.

FT: But what’s needed to take this forward? What will be your immediate priorities in a second mandate?

LULA DA SILVA: First, these projects are already underway. Second, we have to be serious about fiscal policy.

FT: What does that mean?

LULA DA SILVA: It means that we have to control spending, only spend what we are able to spend, invest a lot in education. I’ll give you an example of avoiding spending: last week, the National Congress approved a measure extending the increase in the minimum wage [from R$300 to R$350 a month from April 1] to all pensioners [getting more than the minimum wage]. This would give us a hole in the pension accounts of R$8bn, this year alone.

I have an election coming up, I could let it get past. I didn’t propose it. But my sense of responsibility doesn’t let me do that. So the government will use its veto. I’m going to veto it because my concern is with Brazil, not with the election. The election is a circumstance, but Brazil goes on a lot longer than elections.

We are putting a lot of faith into the renewable energy programme. There is an enormous number of new processors setting up in Brazil. Biodiesel… there are several companies setting up, in fact Petrobras has already contracted for three biodiesel plants. All this means future development.

FT: This means that you’re not looking for a radical change in the model, you’re aiming to continue…

LULA DA SILVA: There is no radical change in the model. What is radical change in the model? What do the Brazilian people want? That Brazil grows, and generates jobs that create income. This is what we are going to do. The day someone comes up to me and says: “President Lula, do some magic, make us stop growing by 5 per cent and start growing by 30 per cent a year and with no inflation.” Controlling inflation is no small thing in an country like Brazil. In Europe no, control of inflation is already consolidated, it has been for many years. But in Brazil, keeping inflation at 4.5 per cent is a real battle. And we will keep it there, because we understand that controlling inflation is a real gain for the workers. Controlling inflation means higher salaries for the part of this country that works.

FT: One thing that’s of concern to a lot of people we talk to, sources and readers, is the judicial environment in Brazil. It goes from accusations of corruption in Congress to the flexibilisation of laws, the interpretation of laws by the courts, such as in Varig’s creditor protection programme where the law is being stretched in various directions. Things like this create a lot of concern among investors over an environment which is not exactly one of respect for the law. Is there any imperative to change this environment?

LULA DA SILVA: First, nobody has enacted more reform of the judiciary than my government. It was us who sent to Congress all the changes there have been in the judiciary, including the creation of a Council of Justice.

Historically, in Brazil, the mass media have been controlled by a small number of families. This has been true ever since there began to be important and influential media here in Brazil.

Now, it’s important to understand that Brazil has been dealing with this in the most democratic manner possible, meaning that the judiciary has a very great responsibility. What damage has the judiciary done to any foreign investors, if that investor was behaving inside the law? None at all.

FT: The problem is that the laws are very flexible.

LULA DA SILVA: But all around the world the courts are flexible, in the whole world you have the argument in favour and against, otherwise you wouldn’t need [courts]. In England you have prosecution and defence lawyers and the attorney general. In Brazil it’s the same. And cases go all the way to the Supreme Court, and the Supreme Court has always ruled with the greatest possible competence. I think there are few countries where these things are respected as much as they are in Brazil.

Now, when a company does something wrong, it has to be punished, which isn’t happening in Brazil, we don’t have examples of that here. What we have seen is in the United States, companies making mistakes and being closed down and their owners sent to prison. We have had a very comfortable situation in Brazil both in the National Congress and in the judiciary. You have a problem in one sphere of power, a judgement is taken in another all the way up to the Supreme Court, where the final decision is taken. And the Supreme Court has been directed by respect for the Constitution and for correct and just decisions.

Which congress in the world doesn’t have any problems? Show me one. The only place there are no problems is where there is no national congress. I see it every day on the television: there are problems in England, France, the United States, in Italy. In Italy we are coming through a period in which, in a few years, nine prime ministers have fallen and Italy carries on.

Here in Brazil, we have already consolidated the democratic process. We impeached a president and nothing happened. I governed for a year and a half with two congressional inquiries going on, or three, and nothing happened. The institutions work, they are consolidated, and this is very important. And this is what I try to pass on to the world, every time I talk to people. I have asked our legislators to travel more, so that we can make more contact with people so that they don’t reach conclusions on hearsay, but that they make value judgements based on the reality of our country. And, today, it is a country with a consolidated democracy. The institutions work.

Here, in Brazil, the days are gone when contracts were signed and not respected, today contracts are honoured. The rules are agreed and respected, for big and small alike.

FT: Big concerns such as fiscal responsibility and sustainable growth seem to be the same for you and for the main opposition candidate for the presidency. What would be the difference between a second Lula mandate and a government under Geraldo Alckmin?

LULA DA SILVA: We are not the ones who have to be different. Look, it’s very difficult, if you are realistic and know Brazil, to produce a government programme that people don’t believe will be implemented. The government does not have to come up with a big programme, the government has to consolidate its policies and point out to society what will be the next steps. It’s not the government that has to be different, but the opposition.

Now, the opposition also knows that if it promises Father Christmas to the Brazilian people, the people won’t believe it. We have a history to talk about, we have a past, present and future for people to talk about. We have to measure what happened in Brazil over the past 20 years, over the past 30 years, the past 10 years, the past four years, and based on that you make proposals for consolidation. As I’ve said, from the point of view of the future development of Brazil, we can begin with digital television and move on to biodiesel, H-Bio, the railways, the highways, the petrochemicals complex in Rio de Janeiro, the steel complex in Rio and in Ceará, the refinery in Pernambuco. In other words, a great many things, as well as the $87bn of investment by Petrobras, of which $75bn will be in Brazil.

The gas pipelines we are constructing…the Coari/Manaus pipeline, that will definitively secure energy independence for Manaus; the two hydroelectric power stations on the river Madeira, which we intend to put out for tender this year, which will produce nearly 10,000 megawatts. Also in the energy field, we are building a water and energy system in Brazil for which I believe we have the technology to make us competitive. The production and growth of ethanol in Brazil, all this makes me optimistic and makes me believe that we have a very promising future. And I won’t throw this away, I won’t take any populist measures of the kind that you celebrate at night and regret the next day. I prefer caution and seriousness, because chicken soup and caution don’t do any harm to anyone, much less a president of the Republic. We will keep on with strong social policies, because we have to put right inequalities that have built up over centuries.

FT: Could I ask a something about this institutional strength that you have described? Is it strong enough to prevent another mensalão? Because the mensalão demonstrated some institutional weakness. Now that time is passing and the episode is being left in the past, how do you…

LULA DA SILVA: First, what does the episode of the inquiries in the National Congress demonstrate? That Brazil can survive congressional inquiries. I don’t know how many countries in the world, I don’t know how many presidents in the world would survive three congressional inquiries going on at once. And, in Brazil, the government survived and emerged strengthened.

Now, there is a process going through the judiciary and we’ll see if the accusations are true or not, if they have any basis or not because, so far, what you have is the report from the Lower House that will go to the judiciary. And we will see if the investigation by the judiciary, if the judgement will… And Brazil has survived this in tranquillity, with not one bit of interference from the president of the Republic, at any moment, in the work of the inquiries, and much less in the Brazilian press. Nothing works with so much freedom in this country as the press, as the congressional inquiries, because I believe it is this that will consolidate our democracy.

You don’t consolidate democracy by hiding the facts or, much less, avoiding their investigation. A small truth is worth much more than a big lie. And Brazil today is a small truth. We don’t want to be the eternal lie, that Brazil threw away all the opportunities it had. We don’t want to throw away, we want to consolidate. When it comes to frustration, the national football team is quite enough. What we need now, in economics and in politics, is to strengthen Brazil’s internal and external stability.

FT: And not change the model?

LULA DA SILVA: Look, you change things in accordance with evolution. If you had asked me, three years ago, if we would make the investments we are making, I would have said: we don’t have the money to do that. But today we do. So, we will make the investments. Investment in education will continue, why? Because the only chance Brazil has to transform itself into a developed nation is by investing in education. Taking care of primary education, secondary education and university education. Can this be done in three or four years? No, this will take a generation, but somebody has to make a start.

FT: Do you feel more comfortable now, after…last year must have been very difficult?

LULA DA SILVA: Let me tell you something. I never lost my calm. I tell you this with the faith I have in God, at no moment did I lose my calm.

FT: A few moments of anxiety, of tension?

LULA DA SILVA: A few moments of anxiety, because being maligned…In Brazil this is how things are, a common citizen can take legal proceedings against the president of the Republic, but the president of the Republic can’t take action against a member of congress that slanders him, because the member of congress has immunity. There is no place for my worries and frustrations while I excursive my mandate as president of the Republic. To be president of the Republic is to be in a position that is too important for you to go around saying what you shouldn’t and offending people, blaming people. This is not the role of the president of the Republic.

Who knows, one day, perhaps all my worries and anxieties may be expressed, but only when I no longer have the responsibility of being president of the Republic. I always say that the president of the Republic has to take the position of the country. How many brothers and sisters do you have?

FT [Richard Lapper]: One.


FT [Jonathan Wheatley]: The same.

LULA DA SILVA: I have a lot. When you are small, you fight a lot with your brothers and sisters. If there is no mother or father to calm things down, the family goes to way every day God sends.

So, the role of the president of the Republic is a bit like this. First, he can’t get upset. Second, he can’t take any decisions off the cuff, he must always count to ten before taking any position, he can’t respond to everything that is said about him. Very often you are attacked and have to respond with good manners. Very often, people transmit hatred towards you and you have to transmit peace to them. This is the role. The day when I am no longer president of the Republic, then I’ll be able to say what I want in the way I want.

FT: So you have to be a little above all this?

LULA DA SILVA: You have to, the president has to be above everything.

FT: Keep a distance.

LULA DA SILVA: The president has to keep a distance. For example, I think one of the big reforms that we will have to do next year is political reform. Political reform is urgent and necessary in Brazil.

FT: Why?

LULA DA SILVA: Because we have to consolidate the political parties, to make them more serious, [introduce] party loyalty, public campaign finance. Various things must be done so that Brazilian politics is seen in a better light by society.

FT: Is this the most urgent reform?

LULA DA SILVA: It is, in fact it should have been done some time ago. The fact is that to enact political reform, you need the help of the National Congress. We will have to see, when there is a new Congress, if there is the opportunity to enact political reform.

I, for example, was always against re-election [of the president for a second consecutive mandate], I believe re-election is bad, it’s not a good thing. We will have to create the political strength… It’s better for you to have a mandate of five years and no re-election. It’s much better. Now, you need agreement among the political parties to make this possible.

FT: Are you confident of achieving an agreement with the PSDB about this?

LULA DA SILVA: I am always a man of great confidence, I am very optimistic. That is why I always say that we Brazilians never give up.

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