Lula: Seeing Eye to Eye with Business

The leftist candidate pledges to pursue growth

It was an extraordinary event. Ninety of the biggest names from Brazilian industry, banking, labor, and grassroots groups met with Luiz Inácio Lula da Silva on Oct. 19. Lula, as he is known to all, is the leader of the left-wing Workers Party and by all indications Brazil's next President. The gathering, held just days before an Oct. 27 run-off election, was an exercise in inclusion all too rare in Brazilian politics. But South America's biggest economy will need all the unity it can muster to pull through one of the most treacherous political transitions in the 17 years since democratic rule was restored. "Lula will have to work quickly to build alliances," says Richard Feinberg, a professor of international political economy at the University of California at San Diego. "It will be a real test of his ability to govern."

The Saturday encounter was the first concrete evidence that Lula means business when he says he wants the maximum amount of debate on Brazil's pressing economic and social problems. If elected, the onetime metalworker has promised to create a Council for Economic & Social Development, a multiparty body that would help frame government policy. "Lula has this romantic idea of building a new social pact," says backer and informal adviser Eugênio Staub, President of Gradiente, Brazil's biggest manufacturer of home electronics. "But he can make it work. He is a very good politician."

Other prominent businesspeople are joining the Lula camp. Roberto Setubal, president of Banco Itaú, Brazil's second-biggest private-sector bank, had been rooting for the ruling-party candidate, José Serra. But with Serra languishing at 30% in the polls, Setubal is getting ready to work with Lula. "Any government will be able to count on my support," he told the press upon leaving the Oct. 19 meeting.

Staub and Setubal see eye to eye on one important point: the need for economic growth. Even Serra's supporters concede that the outgoing government sacrificed growth in its quest to root out inflation. Over the past eight years, Brazil's economy expanded at an average annual rate of less than 3%. That figure will fall to 1.3% this year--a rate equal to the increase in its population. Most economists agree that growth must rise above 4% a year if the country is to make decisive gains in the fight against poverty. It's also critical if Brazil is to continue servicing its $260 billion public debt.

Wall Street fears Lula will be forced to default. But for now, Brazil Inc. believes he will make good on his pledge to keep servicing the debt and stick to the strict fiscal targets spelled out in the existing agreement with the International Monetary Fund. Indeed, Lula may have to go further than his predecessor--by reforming a tax system that encourages evasion, overhauling a near-bankrupt pension system that drains public finances, and modernizing the archaic labor code that demands heavy social contributions from employers while stunting wage growth. Ironically, these are some of the reforms Lula's party has traditionally opposed. But without progress in these areas, Brazil's economy will never achieve sustained high growth rates. "Both the tax and pension reform are now inevitable," says Salim Mattar, president of Localiza Rent a Car, a leading chain in Latin America.

Business leaders even admire Lula's unifying rhetoric. At the Oct. 19 gathering, this son of a humble stevedore stressed that fighting hunger would be the first priority of his administration. Coming from a leftist like Lula, the pledge would seem to be a signal for a big ramp-up in social spending. But Lula is pragmatic. "They will have to be creative in designing well-targeted programs," says Feinberg. "And they do have a history of innovation in grassroots participation."

Lula's party, known by its Portuguese initials PT, does boast a solid record in this area. In 1995, the PT-headed state government of Brasília kicked off a program that pays poor parents a modest monthly stipend to keep their children in school. The program, dubbed Bolsa Escola, was so successful in curbing child labor and boosting primary-school attendance that it was expanded to cover 10.7 million children nationwide.

Brazilians, aware that Wall Street and other international investors are watching to see if their country implodes, a` la Argentina, are ready to rally behind their next leader. In Setubal's words: "We are all in the same boat called Brazil." And no one's willing to rock it right now.

By Jonathan Wheatley in São Paulo

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