At first glance, the victory of Luiz Inacio Lula da Silva in Brazil's presidential election in October looks set to bring even more turmoil to a region still reeling from Argentina's debt default at the end of 2001. The triumph of the former trade union leader better known as Lula was followed last month by the victory of another leftist, Lucio Guti?rrez, in Ecuador, and by gains for the anti-globalist left in Peru. Together with the defeat by President Hugo Ch?vez of a right-wing coup in Venezuela earlier this year, these events seem to offer proof of left-wing ascendancy across the region and confirmation that Latin America's 15-year experiment with market friendly reforms is over.
But Lula's triumph could be a sign of something different. There is a chance that his government will introduce precisely the kind of institutional and social reforms needed to make the market-based reforms introduced since 1994 by President Fernando Henrique Cardoso work more effectively. If Lula's government is able to deliver financial stability, good governance and social reform, it might offer a new social democratic model that would be relevant for the rest of Latin America.
All this may look very optimistic. For one thing, the Workers' Party (PT) is an organisation with its roots in the utopian tradition of Latin America's new left. Founded in 1980 by ex-guerrilla fighters, radical Catholics, Marxist intellectuals and militant trade unionists, the party fought its first elections on slogans like "vote PT against the bourgeoisie." Until quite recently, the party was completely out of sympathy with the efforts of President Cardoso to develop a market-friendly social democracy. When Cardoso set about stabilising Brazil's economy, reforming public finances and selling off state industry, he was opposed every step of the way by the PT.
Lula opposed the "Real plan" that eliminated hyperinflation, describing it as an attack on the working class. When Cardoso modernised Brazilian infrastructure by bringing foreign capital into the telecommunications and energy sectors, Lula opposed privatisation and promised to renationalise private utilities. While Cardoso carefully cultivated Brazil's image as a responsible creditor, Lula promised to suspend debt payments. Surely, say his critics, Lula will be hard-pressed simply to maintain financial stability, let alone increase Brazil's growth rate towards, say, the 4 to 5 per cent needed to address deep-rooted social problems. Dogged by external pressures, Cardoso was only able to manage an average of 2.4 per cent in his eight years.
So what are the reasons for optimism? First, the PT has moved towards the political centre. Lula lost three elections between 1989 and 1998 and found that by advancing a radical programme he was unable to win more than 40 per cent of the votes. Over the last five years, left-wing policies like renationalisation and a debt moratorium have been dropped one by one.
Electoral failure had another important consequence. It led Lula and his advisers to revise their opposition to forming alliances with other parties, diluting a political purism that was once one of the defining characteristics of the PT. During the election he made much of his choice of running mate, Jos? Alencar, a textile manufacturer and leader of the centrist Liberal party. In government the approach will continue, partly because the PT, with only 91 of the 513 deputies in the lower house, needs allies to govern.
The scale of the external financial pressures faced by Brazil, especially over the past year, has also played its part in the PT's move to the centre. Party leaders have come to realise that they will be unable to introduce reforms if they are continually fighting to defend their currency, and have therefore pledged to maintain financial stability. Lula's government is committed to meet fiscal austerity targets agreed by Cardoso with the IMF as part of a $30 billion bailout package in August. The party says it will offer greater independence to the central bank, a measure that will reassure investors about its continued commitment to fight inflation. "Inflation is the worst thing for us," says Jos? Dirceu, the party president who has done more than most to steer the party to the centre. "It is in our interest that Brazil doesn't destabilise."
But the change in the PT runs deeper than an adaptation to immediate realities. When Lula tells interviewers that "he has changed and Brazil has changed," he means it. PT leaders sometimes betray their radical origins with promises of a "rupture" with the existing development model, but are firmly committed to a mixed economy, in which private sector contracts will be respected and foreign capital welcome. It is hardly surprising that Dirceu and other leaders have long been at loggerheads with the party's hard left.
Experience in local government has also played a role in the PT's evolution. The party now administers several Brazilian states and more than 180 towns and cities. Generally, the experience has been positive. Mayors have won a reputation for hard work and honesty and PT administrations have struck up good relationships with the private sector. The best of them have brought energy and commitment to local government, combining fresh thinking in social policy with sensible fiscal management. Ant?nio Palocci, an ex-Trotskyist who is emerging as the party's most important economic policymaker, won his political spurs by turning round the fortunes of the southern city of Ribeir?o Pr?to, a task that involved cutting public sector jobs and partly privatising water and telecommunications.
This move to the centre bears some similarities to the way European social democratic parties jettisoned ideological baggage during the 1980s, but it has taken place at an exaggerated speed. Indeed, in some areas the PT has begun to move into the centre-left political space developed by Cardoso and his Social Democratic Party (PSDB), the most left-wing member of the multi-party coalition that has ruled Brazil since 1995. The overlap has been most pronounced in social policy. Some of the Cardoso government's social programmes-such as bolsa escolar, which makes the payment of social security dependent on school attendance-were pioneered by PT mayors. A number of PT members worked closely with Jos? Serra, the government's losing candidate in the presidential elections, when he was health minister, developing Brazil's innovative policy on generic Aids medicines.
Over the last three years, as economic problems have deepened, the convergence has accelerated, helped by the fact that the Cardoso government was far less enthusiastic about liberal economic policies than many of its counterparts elsewhere in Latin America. (Many banks and key industries remain in national-if not government-hands which means that the economy is more resilient in the face of external pressures.)
Moreover, had Serra won the election, he would have pursued an agenda not very different from the PT's. Like Lula, Serra, who comes from the left wing of the PSDB, favours a more interventionist industrial policy and insisted on a tough negotiating line in trade talks with the US. Serra and the PT both talked about the need to reform Brazil's chaotic tax system. And both are in favour of social security reform. Although the PT in opposition consistently voted down Cardoso's efforts to reform the costly and unjust system of public sector pensions, the PT has signalled that it would take a different approach when in government. Reform will be difficult for the PT since it will entail a clash with public sector unions, but it would free huge resources for more deserving social programmes. Brazil spends more on some 1.8m public sector pensioners-many of whom retire at 50-than on its entire state-funded health service.
Of course, the obstacles are immense. The prospects for the world economy are not encouraging. Brazil has a growing debt burden and cannot afford to lose the confidence of foreign investors. Although the hard left is in a minority, the PT is divided. But in two respects at least, Lula is well placed to handle these pressures. Born in the poor northeastern state of Pernambuco and raised in the industrial suburbs of S?o Paulo, Lula is a leader with whom poor Brazilians identify. He has moral authority in the way, say, that Nelson Mandela has with black South Africans. And Lula, for all his lack of formal education-he left school at 14-has been a successful negotiator and effective conciliator. In short, he has the political capital to make Brazil work.
