Sun, Nov 05, 2006 - Page 11 News List

Brazil's Lula pressured over austerity

POLICY DEMANDS Leftist backers and many Brazilian businesspeople are urging the president to deliver on the tropical-style New Deal which he promised in 2003


After a landslide victory to a second term last week, Brazilian President Luiz Inacio Lula da Silva faces growing pressure to stray from the conservative economic policies that brought unusual stability for four years to Latin America's biggest economy.

Da Silva spent much of his first term hewing to austere fiscal and monetary policies designed to tame Brazil's historic inflation and balance the government's books. The policies succeeded and convinced businesspeople and investors that his left-leaning administration would not resort to the populist, nationalistic agenda that over decades helped him rise to power as a firebrand former labor leader.

But the austerity, characterized by high interest rates and reduced government investment in the economy, has restrained annual growth to a four-year average of 2.7 percent, a rate far below rates of most other developing countries in the world.

So leftist backers and many Brazilian businesspeople are now urging the president to pursue greater growth by investing his renewed political capital in more flexible economic policies, lower interest rates, and costly, but much-needed public works projects.

Their demands amount to the tropical-style New Deal that da Silva promised but did not deliver on taking office in 2003. They also revive a longstanding debate here that pits defenders of economic stability against proponents of development-focused policies.

Encouraged by the president's strong showing at the ballot box on Oct. 29, members of the economic development camp in recent days have grown increasingly vocal.

Tarso Genro, a longtime stalwart of the ruling Workers Party and da Silva's minister of institutional relations, on Sunday told local press that a second term would put an end to the administration's "neurotic preoccupation" with inflation at the expense of growth and income redistribution.

The comments on Monday caused the real, Brazil's currency, and stocks at the Sao Paulo Stock Exchange to slip as investors questioned whether Genro was flagging a wholesale shift within the administration away from the economic prudence of the first term.

Markets since then have rebounded with da Silva's moderate comments in a televised address on Tuesday evening: "We have everything from now on to grow more quickly and broaden our social policies. We have everything to boost employment, improve education, health and safety."

"But," he added, "we'll do it with great fiscal responsibility and inflationary control."

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