Lula Needs a Lift from America

By Moises Naim

Originally published in the Financial Times, on June 19, 2003

George W. Bush should be as bold with Brasilia as he was with Baghdad. In Brazil's case, however, instead of regime change his aim should be regime support. And rather than military force, he should wield his country's enormous economic influence.
Mr Bush's help will be critical in determining whether President Luiz Inácio Lula da Silva is a success or a failure. So when he meets the Brazilian leader in Washington tomorrow, Mr Bush should show the world that the US is prepared to act pre-emptively - not just to punish regimes that pose a threat to its security but also to reward governments that ward off those threats.

Brazil is an ideal target for a supportive US strike because so much rides on Mr Lula da Silva's success. His policies have been almost the only source of good news in Latin America for a long time.

Earlier this year, while the world was preoccupied with Iraq, Mr Lula da Silva was making the right headlines in Brazil. Contrary to what many had feared, once elected, this leftist union boss did not behave like a traditional Latin American populist. Instead he showed a sophisticated understanding of the difficult and often subtle compromises that are needed to rescue Brazil from a precarious social and financial situation.

After becoming president in January, Mr Lula da Silva quickly appointed a competent economic team. He reallocated military expenditure to social programmes, supported painful but necessary increases in interest rates, launched his "three-meals-a-day" anti-hunger scheme and pushed important pension and tax reforms, notwithstanding the opposition of many within his Workers Party.

If Mr Lula da Silva fails to alleviate the plight of Brazil's poor, while retaining international creditworthiness and an attractive investment climate, Brazil will face a deep financial and social crisis. A crisis crippling Latin America's largest economy would derail Argentina's tentative recovery and dim growth prospects for the entire region - and even for North America.

If he succeeds, Brazil should become a powerful engine of growth for the continent. More importantly, success would show that market-oriented policies, international openness and social equity can go together, an idea that is under attack in most parts of the developing world.

Mr Lula da Silva has already proved willing to take unpopular decisions in order to avert a crisis. Now it is Mr Bush's turn.

He must show unambiguous support. To understand why, the US president need only imagine what Latin America would be like if the whole continent were to emulate the populist model of political and economic development now championed by Venezuela's Hugo Chávez. For if a discredited Mr Lula da Silva is pushed out of office, the chances are that Brazil's government would fall into the hands of a Chávez-style populist strongman who will wreck the economy and align Brazil against the US and alongside Fidel Castro's Cuba.

Strong support from the White House would calm the anxiety that financial markets still harbour towards Brazil and help lower interest rates, while sparking renewed interest among foreign investors. Also, by extending a generous helping hand in the form of trade liberalisation, Mr Bush would make life easier for the Brazilian president. For Mr Lula da Silva needs more than Washington's rhetorical approval to sustain his economic reform programme.

Mr Bush should offer his Brazilian counterpart an ambitious but credible round of trade liberalisation between the US and Brazil. Unfortunately, there has been little progress in trade, despite the cheery talk coming from both governments.

Brazilians do not believe Washington can muster the political will to lift restrictions on their exports to the US. Ethanol, steel, shoes, citrus products, sugar and many other sectors in which Brazil is highly competitive face steep barriers to the US market. As usual, behind these protectionist barriers lurk powerful lobbies with enormous influence over the US Congress and the White House.

An assumption that Mr Bush is unwilling to pay any political price at home to help Brazil has further reduced the Brazilian government's waning enthusiasm for trade talks. Many Brazilian diplomats and trade negotiators harbour serious doubts about a free trade accord modelled on the North American Free Trade Agreement. They deride Nafta as a form of annexation that Mexico chose and say Brazil will never accept it. US trade negotiators complain about Brazil's own protectionist instincts.

Leadership from the White House can turn all this round. A generous, credible trade proposal from Mr Bush might be impossible for his Brazilian counterpart to resist. Breaking the trade stalemate with Brazil will require the kind of audacity that Mr Bush has shown in the Middle East. The difference is that the costs of helping Brazil are much smaller, the chances of success are higher and the benefits would be more immediate.

The writer is editor of Foreign Policy magazine