Ed 31 - Swisscam

economia brasileira
brazilian economy
2003:
Brazil
under
Lulalight
How will the Lula administration look?
The "softer" profile of the center, moderate in
tone, conciliatory, that emerged during the election
campaign? Or the radical left, combative, in
favor of divisive solutions - so long the keynote cry
by the PT (Workers Party)?
by Rodrigo Azevedo
T
his is now the key question in evaluating
scenarios for Brazil in the
medium and long term. We expect to see
it answered in the coming months, through
the new administration’s actions and
appointments during the transition period.
Recent signs indicate that the PT will seek
to establish a moderate profile. However,
the transition period until the swearing-in
in January, will offer several opportunities
for Lula to gain confidence from investors
on this light and moderate profile.
Factors to focus on will be: (1) the profile
of the cabinet members, in particular the
names of the economic team, to be announced
in early December; (2) the formation
of the political base in Congress;
(3) progress on the congressional agenda
- in particular, regulation of the financial
system, independence for the Central
Bank, votes on the 2003 budget, the percentage
adjustment to the minimum wage,
and to wages of government workers,
and (4) the PT government’s position on
a potentially dangerous subject: debate
on renegotiation of contracts for the debt
owed by the state and municipalities to
the federal government. This is a quicksand
that could seriously weaken one of
the pillars of the recent fiscal responsibility
in Brazil.
Another major test should be the new
administration's position on negotiations
with the IMF. An IMF mission recently
visited Brazil to collect data for the first
It will be difficult to sustain
this "light" stance politically
amidst an adverse environment
of low growth, high unemployment
and inflation pressures
revision of the Brazilian program, with a
view to release a US$3bn tranche. Since
the macroeconomic variables involved in
the program have behaved more adversely
than expected, the resulting rise in
the net debt/GDP ratio, and in inflation
expectations, would recommend a
tightening of fiscal and monetary policy.
As monetary tightening is already in
progress, the key discussion will be the
need to increase the primary surplus
target for 2003. It is likely that these
negotiations will really be ended, though
only during the second review of the
IMF/Brazil program, in early February.
The main thermometer for the restoration
of confidence will be the path of the exchange
rate. At its R$ 3.90/US$ level of
October, the Real was undervalued by
about 51% in real terms relative to its
average for the last 3 years, and this
helped to re-ignite fears of a return of
inflation, and restructuring of public debt.
If the light profile for the Lula government
is confirmed, this could mitigate the pressures
on capital flows, leading to a modest
4 Swisscam nº31 01/2003