Mark Weisbrot is co-director of the Center for Economic and Policy Research in Washington, DC, and president of Just Foreign Policy. His latest book is Failed: What the “Experts” Got Wrong About the Global Economy (2015, Oxford University Press).
"In the Roman empire, only Romans voted. In modern global capitalism, only Americans vote," declared George Soros in June. "Brazilians do not vote."
He spoke too soon. With only weeks remaining till the presidential election on October 6, Workers Party (PT) candidate Luis Inacio Da Silva--"Lula," as he is popularly known--is still leading in the polls. His closest competitor, Ciro Gomes, is an ordinary politician whose rise to second place was fueled by harsh populist rhetoric against the IMF, neoliberalism and the economic failures of the current administration. The ruling party's candidate, José Serra, is a distant third--despite Soros's claim that Brazilians had no choice but to elect him.
The Wall Street-Treasury Complex, as Columbia economist Jagdish Bhagwati has named the IMF and its private sector allies, won't be able to pick the president this time. So they are going for second best: choosing the policies. On August 19 President Fernando Henrique Cardoso met with the contenders and tried to rope them into pledging support for continuing IMF policies over the next three years. "The candidates," he told the press, "whether they want to or not, will have to commit to these [IMF] agreements."
We'll see about that, too. The IMF recently approved a $30 billion loan, with most of it to be disbursed in installments next year. The idea is that the IMF can cut off the flow of money if the new government deviates from its program of fiscal and monetary austerity. That's the way it usually works, but this time Imperial Rome may not get to choose the policy any more than the proconsul.
Why not? First, Brazil has an explosive debt burden. The IMF's latest loan was intended to stabilize Brazil's bond and currency markets, so as to prevent a default before the election. It will also help US banks, which have outstanding loans of more than $25 billion in Brazil, to get some of their money out, on more favorable terms, before the collapse. (The IMF may as well have written the check to Citigroup, FleetBoston and J.P. Morgan Chase.) But it will not prevent a default.
The default--or "restructuring," if it takes place in an orderly, negotiated manner--will make plain to everyone the failure of the Cardoso/IMF model in Brazil. Since 1994 growth has been rather slow--about 1.3 percent in per capita income annually. At the same time, the public debt has soared relative to the economy--from 29 to 60 percent of GDP. And this was on top of $100 billion worth of privatization, a massive raiding of public assets that should have helped government finances significantly. The country's foreign debt has also swelled. This is truly an enormous mortgaging of the country's future, with very little to show for it. For Cardoso to lecture the current candidates about fiscal austerity is like Ronald Reagan and George Bush Senior--who presided over a similar record-breaking debt run-up in the United States--telling their successors to please keep the deficits down.
The business press seems to have missed the irony of all this, and instead has blamed Lula's rise in the polls for the current financial crisis. That, they say, has spooked investors, causing the currency to fall (26 percent so far this year), foreign credit to dry up and the country's risk premium to soar to the level of Nigeria's. But this picture confuses the event that triggered the crisis with the actual cause. Just as the accounting and corporate scandals did not cause the stock market collapse in the United States--stocks were overvalued relative to any conceivable economic future and had to crash sooner or later--Brazilian bond prices aren't falling because Lula is ahead in the polls. The real reason for the financial crisis is that the smarter (or more risk-averse) bondholders have done the necessary calculations and concluded that Brazil cannot pay its debt. Although some gamblers will hang on to collect high returns in hope of jumping ship at the last minute, default is inevitable.
But that's no reason for Brazil to surrender its democracy to Washington and Wall Street. The PT has a reasonable reform program: lower domestic interest rates (now set by the central bank at 18 percent, among the world's highest), some support for domestic industry and small and medium-sized agriculture, and a "zero hunger" program, including food stamps, for the poor.
Brazil used to have one of the fastest-growing economies in the world: From 1960 to 1980, income per person grew by 141 percent. From 1980 to 2000 it grew by 5 percent, or hardly at all. This is the story of Brazil's neoliberal experiment. It is similar throughout most of the region: hence the spreading political unrest. A Workers Party victory could change the history of Latin America.
Lula might just be the right person for the job. Born into an impoverished peasant family in one of the poorer areas of Brazil's Northeast, he confronted hardship and hunger, and by the age of 12 had to go to work. He rose through the ranks of the metalworkers' union and was jailed for labor activism during the military dictatorship. He was elected to Congress in 1986, where he helped win some important provisions for workers' rights, healthcare and education in the new (postmilitary) Constitution. Tens of millions of poor and working people in Brazil identify with both his personal and political struggle against the injustice of one of the world's most unequal societies. He has been compared to Nelson Mandela, fighting to bring the poor of Brazil out of economic apartheid. And the PT also has considerable support among those in the educated classes, many of whom recognize that the party's program makes more economic sense than the slow-growth, high-interest-rate, explosive-debt scenario of the past and present.
But winning the election is only half the battle. One reason the IMF is so eager to postpone the inevitable until after the election is so it can threaten the new president with default if he doesn't knuckle under. If he wins, Lula and the PT will have to explain to the country that they didn't create this mess and stick to their program as the way forward. It won't be easy, but it can be done.