MercoPress. South Atlantic News Agency

Lula says Brazil is tired of being an “emerging power”

Re-elected Brazilian president Luiz Inacio Lula da Silva announced his second term will be dominated by political dialogue, government reforms and economic growth to ensure the battle against poverty continues and Brazil definitively abandons the “emerging countries” group.

However analysts believe Lula da Silva's agenda will be more conditioned to cutting endemic corruption and government inefficiency, plus reforms that effectively boost economic growth if the promised goals are to be achieved in his second four year mandate.

Political dialogue to build a coalition is essential because in spite of the president's landslide support, his Workers Party lost Congressional seats and will need to reach an agreement with the leading force in Congress, PMDB, if reforms are to be passed.

Reforms include taxing and fiscal, political and labor and another attempt with social security, a nut which has proved too hard to crack for his first term and previous administrations.

And even if he manages a workable coalition, which could include a shared cabinet, the main opposition party, PSDB of defeated Geraldo Alckmin promises to keep bashing the Lula administration with the corruption scandals of his Workers Party that have stunned Brazilian public opinion and forced the president to Sunday's run off.

"Many investigations were set aside for the elections, and the opposition will want to pick them up and go deeper," says Joao Augusto de Castro Neves, a political scientist at the Brazilian Institute of Political Studies. "They don't want to work with him, so they will hit him as hard as they can; any small mistake will be seized upon. Everything indicates that the climate will be even more combative than before."

Besides, the election showed a divided Brazil along geographic and economic lines: Lula won in the poorer north and Alckmin in the more prosperous south. His solid north support can be tracked to the wide reaching assistance program that makes monthly payments to at least eleven million families.

Reforms are considered vital to boost the Brazilian economy that under the Lula administration has grown at an average 2.6% annually, half Latinamerica average and well behind rival developing nations such as China, India, Korea and even neighboring Argentina's 9%.

Brazil has the highest tax burden and highest interest rates in the region and a budget that officials admit will have to be slashed.

President Lula's spending pledges have raised concern among some investors after the government boosted expenditures 16% in the first nine months of the year, more than the 12.8% increase in tax collection during the same period. But according to Lula's promises, "we're going to have a strict fiscal policy'' and insisted "we can't spend more than we earn".

Lula said he expects the Brazilian economy to grow 5% next year and pledged to lower social security costs, limit bureaucracy and improve conditions for investment in the country. Some of that growth will be powered by infrastructure projects already underway.

However Tarso Genro, political co-ordinator and main advisor of President Lula was more loquacious: "low growth rates and a neurotic concern with inflation without taking into account income distribution are over".

According to the American Chamber of Commerce in Brazil chairman Helio Magalhaes, from a business point of view "the tax burden needs to be reduced, government spending has to come down, and social security needs to be reformed because it generates such a huge deficit. And the government needs to invest in infrastructure to create the conditions for long-term investment".

President Lula finally said that in spite of "a strict fiscal policy", in the coming four years Brazil will abandon the category of "emerging country" and join the developed nations club.

"We have the foundations for an extraordinary quality leap in this coming four years; we solved the macroeconomics problem but now we're tired of being an emerging power: the Brazilian people hope things will move improve and move much faster". "If in my first mandate we advanced at 80 kilometres per hour, in these next four years we'll be advancing at 120 kilometres per hour", he promised.

Finance Minister Guido Mantega who is expected to remain in the new cabinet said he favoured a gradual approach to cutting the budget gap. The budget deficit is currently in the range of 3.5% of GDP and is kept under control with extremely high interest rates.

"I'm proposing a gradual annual accumulated reduction of 0.1 to 0.2% on current expenditure" he said.

The Brazilian government current expenditure has risen to 17.6% of GDP in the last four years. Brazilian inflation is in the range of 5% but the Central Bank basic reference rate is above 14%.