Brazil's President Lula 'Father of the Poor' Has Triggered Economic Miracle

Brazil is seen as an economic success story and its people revere President Luiz Inácio Lula da Silva like a star. He is on a mission to turn the country into one of the world's five biggest economies through reforms, giant infrastructure projects and by tapping vast oil reserves. But he faces hurdles.

Elizete Piauí has been waiting patiently for hours in the shade of a mango tree. She is wearing plastic sandals and baggy shorts over her thin legs. At 40 degrees Celsius (104 degrees Fahrenheit), the air is shimmering on this unusually hot day in Barra, a small city in the Sertão, the heart of northeastern Brazil. But Piauí isn't complaining, because today is her big day, the day she meets the president, who is working to provide her hut with running water.

The rattle of a helicopter signals his arrival. The white aircraft circles once over the crowd before landing. A motorcycle escort accompanies the Brazilian president to the ceremony.

Lula gets out of the limousine wearing a white linen shirt and a green military hat. Ignoring the local dignitaries in their dark suits, Lula heads straight for the crowd behind a security barrier. "Lula, Papai! (Papa Lula!)" Elizete calls out. He pulls her to his chest and shakes the hands of others in the crowd, allowing them to touch, stroke and embrace him. Beads of sweat are running down his flushed face, and people are tugging at his shirt, but Lula soaks in the attention. He feels at home here, in one of Brazil's poorest regions.

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Photo Gallery: Brazil's "Father of the Poor" Transforming Economy

Foto: EDSON PASSARINHO/ AFP

The president spends three days traveling through the Sertão. He knows the route. He came to the region 15 years ago for the first time on a campaign tour, traveling by bus and staying in inexpensive guesthouses. He made stops in every village square, seven or eight times a day, and usually held his speeches from the back of a truck. His voice was usually hoarse and weak by the evening, and he had to change his sweat-soaked shirt up to 10 times a day.

"He is Still One of us"

Now he travels in helicopters and armored cars, while police cars, their blue lights flashing, lead the way along country roads. Volunteers have set up air-conditioners and buffet meals at Lula's lodgings, and sometimes they even roll out a red carpet. The press criticizes the expense, but it doesn't trouble most Brazilians because they're proud of their president. He has made it to the top, they argue, so why shouldn't he enjoy his success? "He is still one of us," says Elizete, "because he is the father of the poor."

Lula is familiar with the fate of the Nordestinos, as the people in Brazil's poor Northeast Region are called. He was born in the Sertão, but his mother eventually put the children on the back of a truck and took them to São Paulo, 2,000 kilometers to the south. Lula's eventual rise to power began in São Paulo's industrial suburbs. His mother was one of the hundreds of thousands of have-nots who left the drought-plagued Sertão with its dried-up fields and livestock dying of thirst, and migrated to the wealthy south to work as doormen, waiters, construction workers or domestic servants.

In a plan to turn this arid region green, Lula is tapping into the waters of the 2,700-kilometer Rio São Francisco, the lifeline for large parts of Brazil. The river provides water to five states, but it makes a wide loop around the Sertão. Under Lula's plan, two canals will bring water from the river across 600 kilometers (375 miles) into the drought-ridden areas. "It's the least I can do for you," Lula calls out to the people in Barra.

Controversial Project

The mega-project, which requires bridging a 200-meter (656-foot) altitude difference, is slated to cost 6.6 billion Real, or about €2.6 billion ($3.9 billion). Lula has deployed soldiers to the region to excavate the canals. Eight thousand workers toil away at the construction sites as earthmoving equipment digs through the steppe. If all goes well, 12 million Brazilians will benefit from the diversion project, which is scheduled for completion in 2025. It is Lula's biggest and costliest project, and probably also his most controversial.

His supporters liken him to US President Franklin D. Roosevelt, who dammed the Tennessee River in the 1930s to provide electricity to the region and who launched the New Deal, a massive investment program to overcome the Great Depression. But critics see the undertaking as a massive money pit. It has also drawn the ire of environmentalists, and even the Bishop of Barra has already gone on two hunger strikes against it. He fears that the diversion project will only cause the river to silt up even further, and claims that the irrigation would mainly benefit the agricultural sector.

The bishop is nowhere to be found, and we are told he is attending meetings outside the city. In truth, however, the cleric is keeping a low profile. Criticism of the president is frowned upon in his congregation. Lula speaks the language of ordinary people, telling his supporters stories of his youth, of the days when his mother would send him to fetch water and he would return home balancing the heavy bucket on his head. He was five at the time.

Brazil was once called "Belindia," a term coined by a businessman who saw the vast country as a cross between Belgium and India, a place of European wealth and Asian poverty, where the chasm between rich and poor seemed insurmountable. Lula was the first to build a bridge a between the two Brazils.

Now he is both the darling of bankers and the idol of the poor. With the so-called worker-president at its helm, Brazil is attracting investors from around the world. Jim O'Neill, the chief economist at Goldman Sachs, invented the acronym BRIC, for the emerging economies of Brazil, Russia, India and China, and predicted a bright future for the South American giant. But his colleagues derided him. China and India certainly had prospects, but Brazil? For decades, the country was seen as a shackled giant, plagued by never-ending crises and inflation.

Rising Economic Power

But today "B" is the star among the BRIC nations, with experts predicting up to five percent growth for the Brazilian economy in 2010. Brazil is currently growing faster than Russia and, unlike India, does not suffer from ethnic conflicts or border disputes. The country of 192 million has a stable domestic market, with exports -- cars and aircraft, soybeans and iron ore, oil and cellulose, sugar, coffee and beef -- making up only 13 percent the gross domestic product.

And because China replaced the United States as Brazil's biggest trading partner at the beginning of this year, the country is not as severely affected by the slump in the US market as it might have been. Brazil's banks are strong and stable, and hardly encountered any difficulties at all during the crisis. Most important, however, is the fact that Brazil is a stable, Western-style democracy.

The country has repaid its foreign debt, and it has even become a lender to the International Monetary Fund (IMF). The government has accumulated more than $200 billion in reserves, and the Real is considered one of the world's strongest currencies. International experts foresee a decade of prosperity and growth for the country. Lula predicts that Brazil will be one of the five biggest economies on Earth by 2016, the year Rio de Janeiro hosts the Olympic Games. It will host the soccer World Cup in 2014.

And then there are Brazil's seemingly unlimited natural resources, vast fresh water reserves and oil. Brazil exports more meat than the United States, and China would be in a tight spot without Brazilian soybeans. At aircraft manufacturer Embraer's hangars near São Paulo, Brazilian engineers build airplanes for airlines around the world, including short-range aircraft for Lufthansa.

Overwhelmingly Popular Patriarch

In other words, President Lula has good reason to be bursting with self-confidence. US President Barack Obama and French President Nicolas Sarkozy are courting him, while Wall Street practically worships him. He is even the subject of a new film "Lula, the Son of Brazil," which premiers in January and depicts the saga of his rise from shoeshine boy to president.

All of Brazil is basking in the fame of its president who, less than seven years after coming into office, now enjoys an approval rating above 80 percent. The opposition has all but disappeared and the national congress has become submissive. Lula runs the country like a patriarch, so much so that his predecessor, Fernando Henrique Cardoso, is already accusing him of "authoritarianism" and warning that Brazil is on the road to state capitalism.

There is a kernel of truth to Cardoso's claims. Lula has never had any confidence in the market's ability to heal itself, and he sees the state as the framer of a new social order. He loves impressive projects and nationalistic gestures. He is a pragmatist, but he despises speculators. "White people with blue eyes" brought the world to the brink of financial ruin, he said recently. He meant bankers.

The financial crisis has only confirmed Lula's skepticism toward capitalism. Lula believes that Brazil coped with the crisis more effectively than other countries because the government took corrective action early on. According to Lula, fighting poverty and the equitable distribution of income cannot be left up to the market.

Burgeoning Middle Class

Under his leadership, millions of Brazilians have joined the middle class. The evidence of this social upheaval is everywhere: In the shopping centers of Rio and São Paulo, crowded with loud families from the suburbs, or at airports, where young mothers stand in line at the check-in counter, waiting to board an airplane for the first time in their lives. "The gap between rich and poor is beginning to close," says economist and poverty expert Ricardo Paes de Barros.

The key to what is probably the biggest redistribution of wealth in Brazilian history is the Bolsa Família social program, under which any needy mother who can prove that her children are going to school receives up to 200 Real (around €80) a month from the government. It may not seem like much at first glance, but this government subsidy helps millions of people survive in northeastern Brazil.

Social experts initially criticized the program as nothing but a handout, but now it is seen as a model worldwide. More than 12 million households receive subsidies, with most of the money going to the Northeast. Thanks to Bolsa Família, the once poverty-stricken region has started to boom. Many Nordestinos have started small companies or opened shops, and industry has discovered the Northeast as a market. "Now the region is growing under its own steam," says Paes de Barros.

Lula was blessed with luck. His predecessor, Cardoso, had already stabilized the economy, shaken by hyperinflation, when he was finance minister in 1994. He imposed a currency reform on the country and pushed through laws that forced the government to pursue sensible budget policies. Lula has not changed any of this.

There was also no need for Lula to reinvent Brazil's economic and social policy. Brazil has a tradition of government dirigisme reaching back to the 1930s.

Brazil's Own Marshall Plan

The nerve centers of the country's economic policy are housed in two imposing skyscrapers in downtown Rio. The National Development Bank (BNDES), which has its offices in a glass-and-steel tower, was created with American help and using Germany's KfW Banking Group as a model, and it financed a Brazilian version of the Marshall Plan.

In the 1990s, the BNDES successfully handled the privatization of many government-owned companies. Today it provides assistance in corporate mergers and acquisitions, helps ailing companies and finances the government's strategic investments.

The BNDES is highly regarded. It is believed to be largely corruption-free, and it pays the country's highest salaries. "A year ago, foreign banks were knocking on my door asking whether Brazil was prepared for the financial crisis," says Ernani Teixeira, one of the bank's finance directors. Teixeira was able to reassure them, noting that the BNDES had set aside 100 billion Real in additional reserves. Last year the bank issued more loans and loan guarantees than the World Bank Group -- and even turned a respectable profit.

The second pillar of the Brazilian economic miracle stands diagonally across the street: a concrete block, illuminated at night in the national colors, yellow and green, is the headquarters of the semi-governmental energy group Petrobras. The company plans to invest $174 billion in the next four years in drilling platforms, ships and other equipment to exploit large oil reserves off the coast of Brazil.

A year-and-a-half ago, Petrobras discovered new oil beneath the ocean floor. However, the oil will be difficult to tap, as it is capped by a layer of salt at depths of at least 6,000 meters (19,700 feet). The first wells are not expected to begin producing for at least another six years. The revenues from this offshore oil will be deposited into a fund that the government uses primarily to finance new schools and universities.

Lula recently introduced draft legislation that would regulate the exploitation of undersea oil reserves, thereby strengthening Petrobras's monopoly. Experts fear that Lula is creating a powerful, corruptible monster corporation.

Bureaucratic Hurdles

Wasn't the massive power outage that simultaneously shut down large parts of the country two weeks ago a warning signal that the government may have bitten off more than it can chew? The modernization of Brazil's crumbling infrastructure is moving forward, but slowly. Billions of dollars in investments in ports, road construction and the energy sector exist only on paper, with implementation hampered by a Kafkaesque bureaucracy and sluggish judiciary. Also, the country also hasn't had much success combating crime.

Lula has one more year in office, after having resisted the temptation to manipulate the constitution to guarantee his re-election for a third term. Eager to preserve his legacy, he pushed through the nomination of his chief of staff, Dilma Rousseff, as his successor, despite resistance within his own Workers' Party.

Rousseff, who was a member of left-wing guerilla groups after the 1964 military coup and was later imprisoned for several years, has a reputation as a competent technocrat, but she is seen as unapproachable and authoritarian. She has been following the president on his travels around the country, opening new roads and power plants. Lula supports her as adamantly as if he were campaigning himself.

She is also with him on his tour through the Northeast, even though doctors removed a tumor from her armpit only a few months ago. She is believed to have recovered, and she now wears a wig following chemotherapy. Her face is pale and her smile seems frozen. The president pulls her to his side when he walks up to the microphone, and he repeatedly mentions her name. Few people in the region know who she is.

Elizete Piauí, still completely intoxicated by her encounter with Lula, has seen her on television. She knows that she is Lula's candidate, and she will campaign for Rousseff, even though she would prefer to see Lula remain in office. "I will vote for anyone he proposes," she says.

Lula has also promised to return once more. Before his presidency ends, he plans to make another trip to the Northeast to see how far the construction work on the Rio São Francisco has progressed. Perhaps, Elizete hopes, he will have fulfilled her greatest wish by then, and she will be able to serve him a glass of water -- from her own tap, in her own hut.

Translated from the German by Christopher Sultan
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