MercoPress. South Atlantic News Agency

The “Lula factor”

In an attempt to avert the “black” Friday of last week, and his presidential chances, Brazil's Socialist candidate Luiz Inacio Lula da Silva promised to honor foreign debt and continue with the current stabilization program if he wins October's presidential election.

During the Workers Party convention over the weekend, Mr. Lula who leads comfortably in the polls publicly committed himself to "honor all national and international contracts", keep inflation down and follow the current government's economic targets.

Mr. Lula also announced the conformation of his running ticket with Senator Jose de Alencar, from the Liberal Party, and a tycoon of the Brazilian textile industry.

The announcements follow a week of financial instability and investors jitters that peaked last Friday with the Brazilian currency dropping to its lowest against the US dollar and the country risk rocketing to 1,700 points just below beleaguered and defaulted Argentina.

The situation was made worse when US Treasury Secretary Paul O'Neill said it made no sense support Brazil with fresh IMF funds, since "it would mean wasting US taxpayers money in political instability".

With October approaching and Mr. Lula firmly ahead in the polls almost doubling his runner up, ruling coalition candidate Mr. José Serra, financial markets in Brazil have become increasingly nervous about the "Lula effect". Investors are not entirely convinced that the presidential candidate has effectively given up his long standing ideas of rescheduling Brazil foreign debt or even declaring a moratorium.

Last April, Brazil's country risk stood at 700 points, the US dollar cost 2,30 Reales, now it has jumped to 2,84, the stock exchange was bullish and the president Cardoso administration numbers were satisfactory.

But with all polls indicating Mr. Lula could be Brazil's next president, investors and markets have began speculating how a future Workers Party administration and political stability would operate.

Rough times ahead for investors, and hard thinking for Brazilian voters.