Lula's secret in Brazil to stabilize the economy without giving up oil

A year ago, there were more bad omens than hopes at the start of the third presidential term of Luiz Inácio Lula da Silva, better known as Lula. The Brazilian leader returned to power after a very narrow victory over his predecessor, Jair Bolsonaro, with a weak economy and political polarization that led hundreds of Bolsonaro supporters to storm, on January 8, the headquarters of the high courts and Congress, in Brasilia, to treat sabotage the start of the new presidential term.

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With about half of the voters determined to oppose Lula by all means, more or less open support for Bolsonaro from sectors of the military command, and a new parliament dominated by center-right and right-wing forces, Lula walked over embers in the first days of his third presidency.

His double mandate of the first decade of the century had been left behind, when he experienced the honeys of popularity, with an economy on the rise thanks to high oil and grain prices, and a social policy that allowed 25 million Brazilians to be lifted out of poverty.

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Lula, 78, set three objectives for this new beginning, and to leave behind the nightmare he experienced in the middle of the last decade, when he was convicted of corruption for the unclear acquisition of a luxury apartment, and for the links of many of his associates from the Workers' Party and other forces allied with the Lava Jato scandal, the payment of 350 million dollars in bribes by the Odebrecht firm to officials and politicians. The process was later annulled, after Lula spent more than 500 days in detention.

The first objective was stabilize the economy and recover public accounts to finance their social plans. The second, reactivate the environmental agenda and, above all, stop the deforestation of the Amazon rainforest. And the third, to resume Brazil's international leadership, which had faded due to the bad external press that Bolsonaro earned.

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“Lula did not enjoy a grace period in his first months and had to face a hostile parliament,” political scientist André Rosa, from the University of Brasilia, explained to AFP a few days ago. But he armed himself with patience, focused on his goals without being blinded by his leftist ideology and, little by little, managed to sustain the support that allowed him to win the elections at the end of October 2022..

At the end of 2023, Lula had around 40 percent favorable opinions according to a Datafolha survey, and approval levels for his management above 50 percent according to Quaest polls, far from the 80 percent with which he left power. in 2010, but with a reasonable margin to continue with the political and economic commitment of his third term.

Growth and reforms

Unlike what happened in his first terms, when the export boom allowed him to finance his ambitious social programs, at the beginning of this third administration, Lula found the public coffers drained. He then set his sights on controlling expenses, to achieve greater efficiency in budget execution..

Bolsa Familia, the flagship program of his first presidency, recovered that name that had been changed by Bolsonaro. But – more importantly – he once again raised controls and demands on the beneficiaries, who had been eliminated by his predecessor.

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In this plan that benefits 22 million households, to obtain each family the aid of 600 reais per month (115 dollars, about 440,000 Colombian pesos), children must go to school and be vaccinated. Lula added 150 reais for each child up to the age of 6.

But the great challenge was to gain the trust of the business community, key to reactivating the economy. Under the leadership of the Minister of Finance, Fernando Haddad, Lula's government carried out a tax reform that the private sector had been demanding for more than three decades.

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With a tangled tax system, which included 5 types of consumption taxes at the regional and federal levels, corporate income tax reporting was a nightmare. The simplification will imply a single VAT, from which the bulk of the products in the family basket will be exempt..

Although its implementation will take a couple of years, the approval of the reform was assessed positively by risk rating agencies: at Christmas, S&P Global raised Brazil's sovereign debt rating from BB- to BB. Weeks ago, Fitch had done the same.

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Lula and his minhacienda have been lucky: due to the war in Ukraine, cereal prices rose at the beginning of 2023. Becoming the world's leading producer of soybeans and corn, Brazil benefited from this and closed the first quarter of the year with agricultural GDP growth of 12.5 percent..

At the same time, increased investor confidence led to the creation of almost 2 million jobs. Added to this is that Haddad managed to convince the Central Bank to lower interest rates, a measure made possible by the drop in inflation to 4.5 percent. Brazil will grow almost 3 percent at the end of 2023, when a year ago the Central Bank's forecasts pointed to just 1 percent.

Environmental pragmatism

Apart from the economic front, Lula opted to combine two strengths of his profile: his speech against the deforestation of the Amazon (triggered under Bolsonaro) and an active external agenda to tell the world that Brazil is back on the international stage.

To gain credibility, he promised to stop the pace of felling of the Amazon rainforest, which, within a few months of his arrival at the Planalto palace, had managed to decrease by half, a result that he proclaimed on each of his 15 trips abroad. in which he visited 24 countries.

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With the same environmentalist accent, increased Petrobras' investments in the development of renewable energies, planned for the period 2024-2028, from 4.4 billion dollars to almost 12 billion dollars.

But as Jean-Louis Martin, economist and associate researcher at the French Institute of International Relations (Ifri), explained a few days ago in a conversation at the Círculo France-Amériques in Paris, “Lula's priority is not the environmental agenda, but the “he fights against poverty, and to do so, he knows that he needs to promote oil exploration and increase crude oil production.”

For this reason, Petrobras' strategic plan allocates more than 64 billion Petrobras dollars to these activities. Adds Martin: “Lula knows that to fight poverty she needs economic growth and that, for that, she requires the enormous resources of oil.”

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Brazil is the largest oil producer in Latin America, with 3.6 million barrels per day, above the almost 2 million in Mexico, 750,000 in Colombia and 650,000 in Argentina, all above the 500,000 in Venezuela, a country whose decline is dramatic, after having reached 3.5 million barrels per day at the end of the last century.

“Lula is making great efforts to stop deforestation and promote renewable energy,” explains Gaspard Estrada, director of the Latin American Political Observatory of the famous Sciences Po, in dialogue with EL TIEMPO. But, adds Estrada, “unlike Gustavo Petro in Colombia, he is pragmatic and knows that it would be suicidal to give up oil and gas now.”.

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This allows us to understand something that some environmental leaders have criticized Lula: his country's adherence, as an observer, to OPEC, the great club of crude oil producers. According to Estrada, with Lula “Brazil is not going to deprive itself of being an actor in the oil world.”

A decision is pending – opposed by environmentalists – to open a wide marine strip near the mouth of the Amazon to oil exploration. Experts speak of gigantic reserves there, which can raise Brazil's daily production to more than 5 million barrels. The most likely thing is an intermediate decision, which opens one part and vetoes another, in line with Lula's objective of staying away from any radicalism.

This pragmatism extends to foreign policy as a whole. That's why, Brazil finally accepted China's idea of ​​expanding the Brics group (which both make up with Russia, India and South Africa) and which several Arab countries have just joined. Lula gave his approval in exchange for China's initial agreement to the expansion of the UN Security Council, to which Brazil aspires to join as a permanent member.

By blowing out the first candle of his third term last Monday, Lula can be satisfied. He stabilized the economy, stopped deforestation in the Amazon and returned Brazil to an important role on the international stage.

But there are dark clouds on the horizon. Economic growth appears to have slowed in the final quarter of the year, and forecasts for next year are just 1.5 percent, which will reduce Lula's room to expand his spending and social investment plans.

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Insecurity – whose decline was one of the achievements of the first half of Bolsonaro's mandate – threatens to rebound in states such as Rio de Janeiro and Bahia, with a homicide rate that has stopped its significant decline at the end of the last decade.

And in the same surveys that record that more than half of those questioned approve of Lula's management (December Quaest survey), the percentage of those who disapprove reaches 43 percent, much more than the 28 percent who disapproved in February. For the year ahead, the Brazilian president will have to redouble his efforts and hope that his pragmatism, and some good luck, ensures that the end of 2024 is also above expectations.

MAURICIO VARGAS LINARES
FOR THE TIME

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