Argentine economist: Lula's concessions strengthen foes of change

Fred Feldman ffeldman at
Wed Aug 27 02:26:24 MDT 2003

lula And The Argentine Signal

by Atilio Boron

Brazil is facing a critical situation in its history: a party from the
left has come to government with a widespread popular legitimacy,
crystallising the hopes of the large national majority which yearns
for a radical change to the policies implemented in recent years.
These policies have resulted in deep economic depression, the
escalation of foreign dependency and the impoverishment and social
exclusion of large sectors of Brazilian society.

In spite of the enormous expectations Lula raised, not only in Brazil
but also in the whole of Latin America, these changes have still not
been produced. On the contrary, what has been seen is an increasing
implementation of the orientation imposed by previous governments,
even exaggerating some of the most characteristic features, such as
the policy of high interest rates.

The old policies are continuing with renewed gusto, while the new
ones, like "zero hunger", still have not been introduced. In his
electoral campaign Lula insisted that hope must conquer fear.
Unfortunately, until now at least, the absurd fear of possible
reprisals in the market has conquered hope, incarnated in the figure
of the working-class President.

As an Argentine, a Latin American and, in particular, as an
uncompromising "Brasilophile", I would like to share some reflections
which I believe could be of some use in the discussion regarding the
economic and social future of Brazil.

I believe that it is of the utmost importance that the debate
regarding the most appropriate policies to honour the electoral
promises made by Lula and the PT take into account some lessons from
Argentina's recent history. The existing differences between our
countries are not so great as to think that we cannot learn anything
from one another. And in a situation like the current one I believe
that Brazilians should pay a great deal of attention to the image
mirrored in Argentina. For some years, for example, there seems to be
a "repetition compulsion" in the Brazilian economic authorities that
appears to inexorably lead them to emulate whatever foolishness is
being tested on this side of the Río de la Plata.

This happened when we adopted Plan Austral, shortly afterwards
imitated in Brazil under the name Plan Cruzado; it happened again when
Domingo F. Cavallo invented convertibility and established a crazy
parity in the exchange rate of one peso to one dollar, only to be met
with an even more irrational imitation in Brazil which set an exchange
rate of 0.80 cents of the Brazilian "real" to the dollar, something
which, as in Argentina, was much closer to delusion than to serious
economic reasoning. Since Argentina could not sustain this absurd
exchange rate, Cavallo and his successors had to resort to
increasingly inflated interest rates in order to attract foreign
capital to maintain the spell.

Finally, the inevitable happened, causing the collapse of the
financial system, the "corralito", and the deepest and most prolonged
economic crisis in Argentine history. In passing, the government that
took these policies to the extreme paid a very high price for their
recklessness: the mass demonstrations of 19 and 20 December 2001 that
put an end to (President) De la Rúa, Cavallo and the Alliance

Looking at things from the Argentine perspective, the policies that
are currently being followed in Brazil, with phenomenally inflated
interest rates in a world in which money is lent at a rate of 3%
annually, seem to draw inspiration from those same fantasies – since
they were not serious ideas – that brought about the economic and
financial collapse of Argentina. We can only hope Brazil reacts in
time to avoid a repetition of the Argentine outcome.

But apart from these disturbing parallels there are other things which
worry me even more. Looking back at the days of the Menem era, in the
nineties, one is confronted with the same type of admiration and
praise that is today being lavished on Lula. The admirers are the
same: the world financial establishments, the Director General of the
IMF, the President of the World Bank, the Secretary of the United
States Treasury, the White House, the leaders of G-7, the
international financial press, the large financial speculators, the
CEOs of the monopoly conglomerates, etcetera. What they are saying of
Lula today is the same as they said of Menem: that he was a valiant
governor, that he had abandoned his far flown ideas characterised by
populism and state intervention, that he demonstrated prudence and
good sense in the management of the public budget, that he had learnt
to interpret market signals correctly, that he had overcome the
irrational populist fear of globalisation.

They also praised his "reformist" zeal in social security matters, in
the opening of the markets, in financial deregulation and in the
privatisation of state-owned companies. His calls to "modernise" the
trade unions and to "de-ideologise" labour negotiations were received
with a round of applause, as were his initiatives, fortunately
thwarted, to tax the public university. In summary: the same people
and the same arguments of yesterday, addressed to Lula and the PT

These people and their immense propaganda apparatus repeated everyday
that Argentina was on the right track, was a model to imitate, that
its future was secure and many other lies of the kind. When the
debacle occurred all these individuals fell silent and blamed the
Argentines for the disaster. It would be a good idea for Brazil to
take note of this lesson. The praise of the pillars of current
international disorder is not accustomed to giving good advice to the
governments established by the peoples' vote.

If it means to keep faith with its electoral promises, but also with
something much more important, its historical identity, the PT
government has to definitively abandon the neo-liberal policies that
have, unfortunately, inspired its governmental administration. Among
many other reasons, -about which literature on the matter contributes
an amazing battery of empirical arguments and evidence-, because these
policies do not serve to generate growth, nor much less to
redistribute wealth. With these policies, Brazil will never make
progress and will continue to be one of the most unjust countries on
the planet.

This is not just my opinion. It is also the opinion of the majority of
the most well- known economists in Brazil and the world, and it is
inconceivable to suppose that all of them are wrong, while a certain
few, incrusted in the government offices in Brasilia, are endowed with
the truth.

According the Nobel Prize-winner for Economics, Joseph Stiglitz, the
IMF's recipes do not turn out and the international evidence which he
provides in his latest book is overwhelming. In no part of the world
have these policies brought about an end to the crisis or allowed
these countries to move along the path of economic growth and
distributive justice. Can a miracle be produced in Brazil? In the
Argentina of a few years ago they used to say, "God is Argentine". I
hope that no one will say the same foolish remark in Brazil.

When asking friends in the government why Brazil does not try other
policies the response seems to be copied from the manuals of business
schools in the United States: we need to win the confidence of
international investors, we need to bring foreign capital to Brazil
and we have to respect a very strict fiscal discipline, because to do
otherwise would mean the "country risk" would shoot sky-high and
no-one would invest a dollar in the country.

Not a lot of effort is needed to demonstrate the total fragility of
this argument. If there is a country with all the conditions to
successfully try out post neo-liberal politics in the world, then this
country is Brazil. If Brazil cannot, who could? The Ecuador of Lucio
Gutiérrez? A possible government of the Frente Amplio in Uruguay?

A possible government of Evo Morales in Bolivia? Argentina, I doubt
it, as there would have to be extremely favourable international
conditions. Brazil, on the other hand, has everything: an immense
territory, all sorts of natural resources, a huge population, an
industrial structure among the most important in the world, a society
scourged by poverty but with an elevated degree of social and cultural
integration, an intellectual and scientific elite of a world-class
level and an exuberant and plural culture. In addition, Brazil has
sufficient capital and a potential tax base of an extraordinary
magnitude but which still remains unexplored due to the strength of
the owners of wealth, who have vetoed any initiatives in this respect.

The corollary of "conservative possiblism" is resistance to change:
nothing can change, not even in a country with Brazil's conditions. If
not, assure some government officials from Brasilia, the penalties we
will suffer for abandoning the dominant economic consensus would be
terrible, and would liquidate Lula's government. Again, a close look
at Argentina's recent economic history can be educational. Argentina
cultivated "possiblism" intensely, from the days of Alfonsín to the
moments of the final disaster.

After the collapse, President Duhalde lost more than one year in
fruitless and un-conducive negotiations with the IMF to no avail, but
which revealed the deep-rooted presence of "possiblism" in the Casa
Rosada (the presidential palace). This ghost still agitates Argentine
politics, and even if there are some encouraging signs such as the new
regulations limiting the movement of speculative capital, the dangers
of a recurrence of these suicidal policies are too large to pass

The false realism of "possiblism" led Argentina to the worst crisis in
its history, by tying down the policies and the state to the whims and
greed of the markets. On the other hand, when it had no other option
than to declare a messy and disordered default, things did not further
deteriorate for all that. Before, there capital did not flow in and
neither does it now. But the timidly heterodox trial set in motion
after the default, above all in recent months, resulted in a modest
revival of the economy and the practical demonstration that even a
country that is weaker and more vulnerable than Brazil can resume
growth if it turns a deaf ear, for whatever reason, to the (bad)
advice that the IMF has lavished on the country for decades and to the
numerous promises of support from the "international financial
community". Why should Brazil follow the policies dictated by the main
promoters of the endless succession of crises and recessions which are
affecting economies all over the world?

What self-respecting economist – and I am talking about economists,
not the spokespersons of corporate lobbies disguised as economists –
can believe that it is possible to grow and develop while inducing
recession through exorbitant interest rates and reducing public
expenditure, suffocating the domestic market, increasing unemployment,
slowing any growth in consumption, facilitating the operations of
speculative capital, burdening the poorest sectors of society with
indirect taxes, while subsidising the strongest and granting the large
monopolies the right to veto taxes?

I am sure that many of my friends in Brasilia would tell me I am
right, but would say that for the moment there is nothing else to be
done. What is needed now is stabilisation, and the time for reform
will come after. A serious error. President Lula does not have three
and a half years in front of him. He has a maximum of eight or nine
months of effective government. More concretely, until the end of the
2004 Carnival. After this he will not be able to take any serious
initiative and much less of a genuine reformist nature. The continuous
but futile effort that he will have been forced to undertake will
prevent him from even beginning to implement structural
transformations, which Brazilian society has been demanding for so
long. The Right, emboldened by his hesitations and concessions, will
have a much more favourable power balance than at present. Its
powerful lobbies, its corporate organisations, its mass-media and its
international contacts with the "guard dogs" of international
financial capital will offer a formidable barrier against any 11th
hour attempt to promote progressive polices.

If until now the Right has been content to use, successfully for sure,
the tactics of "praise and seduction" to domesticate Lula's
government, there is nothing to indicate that if circumstances
change – for example, if Brasilia decides to adopt other policies –
its mentors would abstain from recourse to their favourite methods of
"pressure and extortion" such as those applied to Chávez and those
which produced the collapse of the Chilean economy during Salvador
Allende's government. In such a case, Lula would not only have to
battle with a much stronger opposition. His relative power would be
reduced due to the demoralisation of his own party and the disillusion
of the millions of Brazilians who trusted in his electoral promises
and who, after a time, remain with empty hands.

When the moment arrives to fight the causes of this momentous
frustration that is Brazil today, one of the most unjust capitalist
countries of the world, his own coalition will be irreparably damaged
by the lack of confidence and frustration. While the conservative
forces are well aware of the privileges that they need to defend and
how to do it, and do not hesitate to put it into practise, the huge
masses will be faced with a much more confusing panorama. The masses
do not know where the government is taking them nor to what point it
will be ready to fight a battle to construct the new Brazil which they
long for. For this reason it is a fatal error to suppose that they
have much time ahead of them. Time plays against the reformist
soporifics of Brasilia and in the favour of its adversaries, because
"the party of order" is increasing its force every day while the
emerging social forces are getting weaker with the course of time and
the lack of change. The former are strengthening themselves
ideologically, emotionally and organisationally; the latter are
confused, demoralised and disorganised. It is easy to predict the
result of a battle where the contenders appear so unevenly matched.

Successive Argentine presidents have opted to govern by calming the
markets and promptly satisfying each of their complaints. The voices
of big capital and the IMF echoed thunderously in Buenos Aires, and
the government did not waste a minute responding to its mandates. The
results are in view. It is true that there is no comparison between a
figure as loved as Lula and a figure from the political underworld
such as Menem or someone as inept as De la Rúa. Nor is there any
comparison between the Justicialist party or the Alliance (this
insipid mix of radical dilettantism and "frepas" opportunism) and the
PT, one of the most important political constructions at a world
level. But neither a respectable leadership nor a great party of the
people guarantees the right direction for a government. During the
Stalin era, the leader and the party were said to be infallible.
Today, fortunately, there is no one who still believes this. And a
concrete analysis of the concrete situation, as was said in other
times, leaves us extremely concerned about the future of Brazil. We
are sorry to say this, but we are convinced that Lula and the PT
government are advancing along the wrong path, at the end of which
they will not find a new, more just and democratic society but a
capitalist structure that is more unjust and less democratic than what
came before and, in addition, much more violent. A country in which,
at the end of this process, the dictatorship of capital, covered with
ethereal pseudo- democratic robes, will be iron-fisted than before,
demonstrating the fact that George Soros was right when he advised the
Brazilian people not to bother electing Lula because in any case the
markets will govern. And, as is well known, the markets do not govern
democratically, nor are they concerned about social justice. It would
be well-advised, then, to save Brazil the horrors that "possiblism"
and policies of "placating the markets" produced in contemporary
Argentina. My friends in Brasilia should study carefully what has
happened in my country and, above all, once and for all abandon this
time-honoured habit of copying our failures. (Translation y ALAI)

* Atilio A. Boron is Executive Secretary of CLACSO-Latin American
Council of Social Sciences.

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