BRAZIL: Election Campaign Dominated by Market Forces

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Jun 21 2002 (IPS) - The economic and financial turmoil shaking Brazil in the run-up to the October elections demonstrates to what extent democracies in the developing world are conditioned by the terms and requirements of the financial market, according to local analysts.

The decline in Brazil’s economic indicators in the past few weeks is largely attributed to the real possibility of a triumph by the leftist Workers’ Party (PT) presidential candidate Luiz Inacio Lula da Silva.

Despite signs that Lula, the front-runner in the polls with nearly 38 percent ratings, has become more moderate and toned down his rhetoric, the markets remain nervous.

The local currency, the real, has lost 10 percent of its value so far this month, while the stock market and foreign debt bonds are down, and Brazil’s country risk rating has increased more than 40 percent.

Credit rating agencies have downgraded Brazil’s ratings, attributing the decision to the uncertainty surrounding the elections, and to the polls that show the PT candidate with twice the level of support enjoyed by the governing social democracy party candidate, former health minister José Serra.

Such developments have fed into the arguments of the government and the parties of the ruling coalition, which have been continuously warning of the risks posed by opposition candidates who fail to present a clear picture of their economic platform, their commitment to stability, and their willingness to continue meeting Brazil’s debt obligations.

The PT will thus have to make an enormous effort to convince business, and especially bankers, that its government will be centrist, not leftist.

Lula and economists in his party have given their assurances that a PT government would live up to all of Brazil’s commitments, including foreign debt payments, and would negotiate with the International Monetary Fund.

Lula, a four-time presidential candidate, has not only presented more moderate proposals this time around, but has also forged an unusual electoral alliance.

His vice-presidential running-mate will be José Alencar, a prominent textile industrialist and a member of the conservative Liberal Party (PL), which is largely controlled by evangelical religious leaders.

The agreement to form a coalition was clinched late Wednesday, due to the direct intervention of Lula and Alencar, who were able to overcome the resistance of the leadership of both parties. The alliance is aimed at countering the nervousness of the market.

We are living under “a dictatorship of the market,” economist Antonio Carlos Lacerda, president of the Brazilian Society of Research on Transnational Corporations and Economic Globalisation (Sobeet), told IPS.

But only “the most vulnerable countries, which are dependent on foreign capital and financing,” like Brazil, are “hostages” of this situation, said the analyst. In contrast, he pointed to China, which has more than 240 billion dollars in foreign reserves and enjoys a large trade surplus.

According to the logic of the financial system, credit is only granted to individuals, companies or countries that are in a strong economic situation, noted Lacerda, a professor at the Catholic University of Sao Paulo.

In his view, Brazil is a victim of the current economic model, which has accentuated vulnerability to external factors by exclusively focusing on maintaining a stable local currency, with low inflation and high interest rates, while forfeiting growth and a more active foreign trade policy.

But “the days of that economic model are numbered,” and it will be modified even if the ruling party candidate wins the elections, because the current policies are unsustainable, predicted Lacerda.

Nevertheless, he recognised the financial market’s heavy pressure against Lula’s candidacy, despite the “conservative” economic policies and tight fiscal discipline followed by the PT in the towns and states it governs.

Banks and investors are keen on maintaining the current economic policies, which have brought them high interest rates, a “comfortable” way of raking in big earnings, said Lacerda.

In that context, a triumph by Lula would unleash chaos in Brazil, said Hungarian-American investor George Soros in an interview with the daily Folha de Sao Paulo.

Fears of a debt default lead investors to prepare themselves by pulling out their capital, which weakens the local currency. That triggers crisis and insolvency, the first signals of which have already been seen, said Soros.

To avoid such a disaster, the financial sector and the United States will make sure Serra triumphs, thus ensuring the continuity of the current model, predicted Soros, who admitted that such a process was anti-democratic.

But the executive secretary of the Economic Commission for Latin America and the Caribbean, José Antonio Ocampo, said this week that the fears surrounding a possible victory by Lula were unjust and unfounded, because whatever the outcome of the elections, foreign investment in Brazil will not be in danger.

Democracy in Brazil is “a valuable asset” and not a risk, said the head of the regional United Nations agency, who pointed out that “political analysis is not the forte” of investors.

However, the tension is growing as the elections, scheduled for Oct 6, draw near. (If no candidate wins the necessary number of votes, a runoff will be held on Oct 27).

Recent measures by the Central Bank and the government of Fernando Henrique Cardoso, like a correction of the value of public debt bonds which affected millions of investors, and the government’s difficulties in refinancing the public debt, have accentuated the jitters.

The opposition accuses the government of provoking the uncertainty, and committing “electoral terrorism.”