MercoPress. South Atlantic News Agency

Lula defies economic critics with policy defence.

Luiz Inácio Lula da Silva made a resounding defence on Thursday of orthodox economic policies during his first year as Brazil's president, in spite of the worst performance of the economy in at least five years.

Unpopular belt-tightening measures, including draconian budget cuts, had paved the way for a sustainable economic recovery next year, the president said in a nationally televised address to commemorate his first year in government.

"It was a period of sacrifice and reconstruction," the former metalworker told leaders from politics, business and civil society who gathered in the presidential palace. "Many thought Brazil wasn't going to make it . . . but the time of uncertainty is over and we recovered investor confidence. Brazil has found its path - 2004 will be much better than 2003."

The virtual approval in congress of the government's social security and tax reforms helped push Brazil's country risk premium to a record low this week. With inflation under control and interest rates falling sharply, most private economists now foresee economic growth of between 3.5 and 4 per cent next year, after this year's stagnation.

Following repeated protests from leftwing hardliners within his Workers' party (PT), Mr Lula da Silva praised Antonio Palocci, his market-friendly finance minister, as a defendant of economic stability.

"There were a number of times when PT congressmen wondered whether Palocci was mistaken. He wasn't," Mr Lula da Silva said. "The economic policy is not Palocci's . . . but the government's."

In response to criticism that his economic policies were merely a continuation of his predecessor's, Mr Lula da Silva went out of his way to highlight his government's "creative, sovereign, and active" foreign policy.

Mr Lula da Silva, whose recent visits to Libya and Syria upset some critics, also reiterated his support for the fight against international terrorism. His increasing ties with China, India and South Africa, he said, simply showed Brazil's maintenance of legitimate trade interests.

In spite of a tight budget, the government had made progress towards social equality, insisted the former union leader, who took office on January 1 after a landslide victory. In addition to a proactive defence of minorities, his flagship anti-famine programme had overcome initial hurdles and already reached 5m impoverished people, he said.

Even with fiscal discipline, Mr Lula da Silva promised more funds for infrastructure investment and social welfare policies next year. Yet he acknowledged that the sustainable economic growth needed to improve social equality depended not on the simple will of the government or the people" but largely on instruments to "increase internal savings as well as private foreign and domestic investment".(FT)