MercoPress. South Atlantic News Agency

Interest rates and Lula's popularity remain high

In spite of his praised performance in the Evian G8 summit in France before the leaders of the world's richest countries, Brazilian president Luiz Inacio Lula da Silva is still pressed by the ongoing interest rate controversy that divides his administration.

The orthodox that have Mr. Lula's full support favour high interest rates and slower economic activity as long as it helps combat inflation, ("bitter medicine", as described by the president), while the other side with vice-president and textile tycoon José Alencar as leader want lower rates to expand production and consumption.

In his absence acting president Mr. Alencar went on national television to argue that growth was necessary to create jobs, "but how are we going to grow with the basic interest rate Selic at 26,5%?".

Mr. Alencar said high interests retract consumption, investment, and "since we're a country with under consumption, how can you reduce consumption further when there's no consumption?". Unemployment in Brazil last April was 12,4% of the working population.

The orthodox team includes Economy Minister Antonio Palocci and Central Bank president Henrique Meirelles, while Mr. Alencar is supported by most Ministers linked to social areas and virtually the whole Workers Party legislative group.

However President Lula from France sent a tough message, "we all know rates have to go down, but this will happen quietly and without precipitation. You can't lower interest rates bragging".

Mr. Lula's firm orthodox policy that has been praised by the IMF and foreign investors but condemned by most of his own party hasn't impeded the Brazilian president's popularity from growing and now stands at 78%, according to the latest opinion polls.

The poll taken at the end of May shows his popular support increasing from 73% in April to 78% in May. Mr. Lula won the presidential election with 61% of the vote in the October run off.

Interestingly trust in the Lula administration capacity to steer the economy fell 3,3 points from April and is now 54,6%. But perception of inflation as a problem, jumped from 38,2% last April to 43,2% in May.