For nearly seven years, he's done a spectacular job as Brazil's president. But can Lula resist the temptation to throw it away?
Sep 22, 2009
He's in New York this week to kick off the 64th session of the United Nations General Assembly. The cameras may focus on the embodiment of American cool, Barack Obama, or on flamboyant autocrats and chest thumpers like Iran's Mahmoud Ahmadinejad and Venezuela's Hugo Chávez, but the biggest star on hand will be the blunt, bearded onetime lathe operator: Brazil's president, Luiz Inácio Lula da Silva. After nearly seven tumultuous years in office, the man everyone calls Lula continues to enjoy an approval rating above 70 percent. That would be a remarkable feat anywhere, never mind in a continent where presidents are a disposable commodity. "That's my man right there," Obama greeted him at the G20 summit in London in April. "The most popular politician on earth."
How da Silva earned such acclaim says plenty about how wealth and power are shifting in this postcrash age. With his leadership, Brazil has withstood the global crisis better than almost any other nation: not a single bank went under, inflation is low, and the economy is growing again. "People doubted it when I said we would be the last to fall into recession and the first out," Lula told NEWSWEEK in an exclusive interview. "But just wait and see, this December. We are going to create a million jobs this year." That's not as good as it may sound: a million jobs would only just about replace the jobs his country has lost since October 2008. But Brazil is looking pretty good compared with most places; it's outpacing Russia and joining India and China—the other big emerging powers tagged collectively BRICs—to lead the way back to global economic growth. Gone are the days when, as Goldman Sachs chief economist Jim O'Neill jokingly recalls, "people told me I put the B in BRICs to make the acronym sound better."
Brazil's man of the moment says he couldn't give a fig for the polls. "If you have flawed policies and try to sell them with false publicity, your ratings won't last," he says. But the question now is whether he can continue to parlay his own star power into gains for Brazil—and, more pointedly, whether he is about to throw away much of what he has accomplished as president. He has just 15 months to go in office, and his favored successor, chief of staff Dilma Rousseff, has little national name recognition and none of her boss's charm. Despite his overwhelming popularity, recent polls say she's running a distant second and losing ground to the opposition's choice, São Paulo Gov. José Serra. "Lula's aura is not transferable," remarks Donna Hrinak, a former U.S. ambassador to Brazil. To compensate, the former labor firebrand has begun doing just what his critics feared when he first took office in 2003: tightening government control of the economy, looking the other way when key allies are caught with their hands in the public till, and spraying money about with abandon.
In the name of helping poor and working-class Brazilians—but with a close eye on next year's election—da Silva has repeatedly pumped up the minimum wage (up 67 percent since 2003, nearly 40 percent over the pace of inflation) and is boosting government pay and pensions, a move that can only add to the next administration's troubles. "We have to give a little more to those who earn less," Lula says. Yet that's the sort of populist talk that gives many the chills. "The risk is the legacy of fixed expenditures and budget commitments that Lula will leave for the future," warns former finance minister Mailson da Nóbrega. The public payroll is growing at more than 10 times the rate of public investment in roads, bridges, and ports. Meanwhile, da Silva has done nothing to ease the country's total tax burden, the highest in the emerging markets at 36 percent of GDP. And when Senate leader and former president José Sarney, who controls a key block of votes in the allied Brazilian Democratic Movement Party, came under fire for handing out jobs to cronies and kin, Lula rushed to his defense, saying Sarney "could not be treated like an ordinary person"—an odd choice of words, coming from a man of the people.
Still, if there's one constant truth about Lula, it is that things are subject to change. "I am a walking metamorphosis," he likes to say, quoting the 1970s Brazilian cult singer Raul Seixas. On the surface, he bears no more than a faint resemblance to the roughcut union man of 30 years ago, or even to the politician he became in the '80s and '90s, stumping for the poor and forgotten till he went hoarse. The once black curls and unkempt beard are neatly trimmed now and shot through with gray. In place of his old stained workshirt and denim bell-bottoms, he dresses in smart suits tailored to flatter his barrel of a body. His lifelong lisp has lessened, and long hours of practice have refined his shop-floor grammar and vocabulary. The man who took office saying he would be content to improve the lot of the Brazilian poor is now convinced of Brazil's mission to transform the world. "Brazil is a country with solid, democratic institutions," he says. "We have shown nations some lessons about how to confront the economic crisis."
And yet in deeper ways he's the same as ever. He still speaks in the sandpaper basso profundo that electrified his fellow metalworkers. And for all his polished manners and fine clothes, nothing vexes Lula more than being trapped in his office. "He gets nervous when he spends too much time at his desk," says his cabinet chief, Gilberto Carvalho. "He says, 'I need to get out and travel, and meet people.' His connection is with the little guy." The president likes nothing more than to ditch protocol, go off script, and (to the despair of his security detail) wade into an adoring crowd. Nevertheless, to his credit, he has resisted his followers' urgings to amend the Constitution so he can seek a third term and warns against the false high of celebrity. "Popularity is like blood pressure," he says. "Sometimes it's high and sometimes it's low. What you need is to keep it under control."
That's a skill he acquired the hard way. Starting in 1989, he ran for president three times, surging in early polls only to hit a wall on voting day. By the late '90s he was on the verge of quitting politics. Instead, he did something bolder: he remade himself. He stopped his fist-waving harangues, climbed into a suit, and hired a speech coach and a marketing wizard. More important, he tempered his leftist politics. The turning point was June 2002. He was ahead in the polls, but Brazil's economy was tanking—largely, it seemed, because investors were spooked by the prospect of President Lula. He responded with a "Letter to the Brazilian People," pledging to honor contracts, pay down the country's debts, abide by the International Monetary Fund's requirements, and generally play by the rules of the market. It was the gamble of his career, the political equivalent of tacking into a hurricane. Hardliners from his Workers Party (PT) accused him of betraying and caving in to bankers and capitalist carpetbaggers. Business executives were also wary: could the "new" Lula be trusted? Investors sat on their hands.
He won by a landslide, but the hard work had only begun. The pre-election financial turmoil had gutted economic growth and forced a steep devaluation of Brazil's currency. "It wasn't easy," recalls Lula. "We had no foreign credit. Our [hard currency] reserves were extremely low. Inflation was showing strong signs of resurgence. The economy was gridlocked." But an even bigger challenge was to live down the hard-left image he and the ruling PT had acquired over the years. "We took office amid a huge crisis of mistrust," says Carvalho, his cabinet chief and a longtime friend. "We were a minority in Congress. The press was skeptical." After all, Carvalho allows, "Until then everything we'd stood for was not paying the foreign debt, raising salaries. It would have been a disaster."
To convince lenders Brazil was serious, Lula increased the "primary budget surplus"—the money the government puts aside every year to pay debt and interest—and boosted lending rates to a scorching 26 percent a year, throttling growth in order to kill inflation. He also kept government wages and pensions under control. "The unions and many people in the party hated it," says Ricardo Kotscho, a friend and former press aide.
International money men still weren't sure. "We knew he'd been a union leader and the president of a political party. What I really wondered was if he had the guns to be president," says former World Bank president James Wolfensohn. So Wolfensohn sent out a feeler, offering to dispatch a team of experts to brief Lula's government on the key issues facing the international economy and Latin America. He didn't know how the new president would respond. "A lot of leaders throw the presidential seal at you," says Wolfensohn. "But Lula lapped it up. He was like a piece of blotting paper. He realized he had a major job to do and that running an election was different from running a country. For me, it characterized the man."
Da Silva has operated that way ever since, putting pragmatism ahead of ideology and, for the most part, fiscal restraint over the quick fix. "No one in their wildest dreams would have thought Lula would behave the way he has," emerging-market investment guru Mark Mobius, of Templeton Asset Management, told me a year ago. Now Templeton has $5 billion in Brazil, more than it does in China. For sure, Lula had plenty to work with. With a web of hydroelectric stations and half its fleet of cars running on clean-burning sugar-cane ethanol, the country has long been the benchmark in renewable energy. Clever agronomists have turned the harsh tropical backlands into a breadbasket, exporting more beef, soybeans, and frozen chickens than any other nation. But Lula also added value by stumping for Brazilian brands abroad. "We had to make it clear that Brazil is not a minor country," he says. "Brazil has the Amazon [rainforest], but also makes airplanes and cell phones." And just as his labor rallies once galvanized the hardhats in São Paulo, his aggressive diplomacy has rallied poorer nations to demand free trade and a new deal in the international economy.
His real genius, however, has been his ability to sell unpalatable reforms to a largely poor population that looked to him as something of a savior. "Lula's popularity helped him make risky decisions that often required sacrifices," says José Dirceu, a former Workers' Party commander who fell to a corruption scandal. More important, unlike the supremos and populist demagogues who abound in Latin America, he did it playing by the rules. "Lula's respect for democracy and elections is a big plus," says former Treasury chief Joaquim Levy. "Very often he has been able to translate key values of democracy in ways that make them more concrete to people." The president still has his work cut out for him, and not much time left to accomplish it. "This is a country that has suffered from low self-esteem," he says. "Brazil needs to recover its pride. And I think things are happening. I hope those who come after me can work to transform Brazil into a great economy."
The economic crash put Lula's skills as a persuader to the test. "It was frightening," da Silva recalls. "We had no credit, no money in September, October, November, December, January, February, and March." But instead of lurching to the left, his instincts took him to the center, steeling him against populist pressures. He gave the central bank a free hand to control inflation, even at the price of curbing growth. "We knew there were no miracles," he says.
Still, the crisis inflamed Lula's old rancor over "savage capitalism" and the folly of the free market. He blamed the subprime market mess on "white-skinned, blue-eyed" bankers and ridiculed the champions of deregulation and the "minimal" state. "In the '80s and '90s it was fashionable to deride the state," he says. "But in the blink of the eye, the [free] market nearly bankrupted the world. And who did they go to for a bailout? The state." This is not as fierce as it sounds. While Lula roundly denounces his predecessor's sell-off of state-owned industries, he made a point not to reverse the process after taking office. "I think privatization was a mistake, but I had to work to do," he says. "I couldn't afford to spend my mandate fighting with the old government." Clout, not dogma, is what fuels Lula.
Clearly part of this is realpolitik as Lula works to cement Brazil's preeminence. "As the dominant economy in the region, Brazil has to be comprehending of its neighbors," he says. "It's like the relations of father to son." He even defends the ham-fisted rule of Venezuelan strongman Hugo Chávez. "Give me one example of how Venezuela is not a democracy!" he demands. But Lula's larger ambition is to assert Brazil's place on the world stage. He makes no secret of his own national pride. Back in 2003, the G7 nations finally opened up their annual gathering to some of the less-wealthy countries, and Lula was among those invited. He stood before the meeting in France and marveled at how unlikely it was that he, a peasant's son, was now addressing some of the most powerful people on the planet. Then he turned the tables: why not hold the next G7 meeting in Brazil, he challenged. "After all, in 20 years maybe only three of you will still be around." Not everyone was amused. But no one missed the point.
Correction: The original version of this story said Obama's "That's my man" comment was made at the Summit of the Americas; it was actually made at the G20 meeting in London.