Brazil laps up the Lula and Dilma show

Lower infant mortality, greater equality, a growing middle class, agricultural and oil riches: the past decade has been one of transformation in Brazil. The first in a four-part series assesses the prospects when its talismanic leader departs after next week’s presidential poll

TO UNDERSTAND the transformation Brazil has undergone in the past decade you only have to visit the São Paulo neighbourhood of Paraisópolis. Here in this Brazilian Paradise City, a densely packed favela, or shanty town, of almost 100,000 people, locals say they have never had it so good. There is plenty of work, money is circulating and the city government has finally abandoned plans to evict them and is instead working to improve services.

“Everyone feels things getting better. People have more money and are feeling wealthier than before. My eldest son left school recently and straight away got a good job in construction,” says one long-time resident, a housewife named Maria Villa dos Santos.

Dos Santos has just come from the local outlet of Casas Bahia, Brazil’s biggest furniture and electrical-goods chain, where she paid the latest instalment on her family’s purchases of household appliances. For most paulistanos, favelas such as Paraisópolis, with its maze of narrow streets and alleys, are a no-go area. But two years ago Casas Bahia opened the outlet here, its first in a favela, as it was eager to tap into this growing consumer market. Many of its customers, considered squatters by the authorities until recently, are now using credit cards to buy kitchen units, fridges and flat-screen televisions.

From his small carpentry workshop, which opens on to the street, Pedro Martins has no doubt about who is responsible for the upswing in fortunes in Paraisópolis. “It is thanks to Lula,” he says. “Once he got in, things started to change. Before him, politicians had no interest in us, but he has been the best president we have had in the last 30 years. Lula understands and cares about the poor. He was here for us.”

Tomorrow week Brazilian voters go to the polls to elect a successor to Luiz Inácio Lula da Silva. After two terms, and eight years in office, he cannot stand again, though polls show that, with his approval rating at almost 80 per cent, we would cruise home were he on the ballot. Instead the tens of millions of Brazilians whose lives improved during his presidency look set to do as he asks and elect as his successor Dilma Rousseff, an economist who was his powerful chief of staff. Polls show her winning an outright victory in the first round.

One Paraisópolis voter responding to Lula’s call to vote for Dilma, as everyone in Brazil refers to her, is Pedro Martins. “She is from the same party as Lula and worked in his government, so I will be voting for her. Here I think many people will be voting Workers’ Party,” he says.

Dilma’s dour image has hardly mattered in a race dominated by Lula’s charisma. But it would be wrong to believe, as some in the almost exclusively right-wing Brazilian media do, that a victory for Dilma will be the result of Lula’s increasingly populist touch. It is, to use a cliche, the economy, stupid.

“We have had massive upward social mobility under Lula, with people leaving extreme poverty, and a tremendous expansion of the middle class,” says David Fleischer, professor of politics at the University of Brasília.

The growth of a middle class during Lula’s two terms was “made possible by two things”, says Emy Shayo, an economist with JP Morgan in São Paulo. “One is credit. People suddenly have access to credit, because interest rates came down. They used to be 25 to 30 per cent. Today they are 10. Why? Because we didn’t shift course. The longer you stay in an inflation-targeting regime, the more you bring rates lower.

“Second, companies used to be afraid of what would happen if a leftist government came to power. Now they have visibility for the first time, and they are planning for the future and investing more.”

The dual effect of economic stability and social programmes led this week to Brazil being ranked by the charity ActionAid as the developing country doing most to end hunger among its population. The Bolsa Família, or Family Grant, social programme (see panel, right), combined with a quadrupling of spending on primary healthcare, means that infant-mortality rates have plunged, with the country on track to meet its Millennium Development Goal of reducing infant mortality by 75 per cent three years ahead of schedule.

Meanwhile, the gentle decline in Brazil’s notorious income gap between rich and poor, under way since the 1990s, accelerated under Lula, and now the country predicts it will eliminate extreme poverty by 2016. Already the middle class makes up most of the population.

This success has sparked a new confidence in a country that during the lost decade of the 1980s watched emerging Asian economies, such as South Korea, catch up and overtake it. Earlier this year Lula predicted that Brazil would become the world’s fifth-largest economy by 2020. It has already gone from being a major debtor, dicing with default in 2002, to one of the key countries that, during the financial crisis, forced the G8 to expand into the G20. It is already an agricultural superpower and expects to become a top-five oil exporter within the decade as it taps new offshore reserves. Hosting the World Cup in 2014 and the Olympic Games two years later will, its leaders hope, show off to the world a country that, after centuries of underachievement, is finally fulfilling its potential.

But despite these successes Lula has his critics, and not just those in the press who dismiss him as another Latin American populist and the Bolsa Família as nothing more than vote-buying. Dilma’s main opponent in the presidential race, a Social Democrat named José Serra, never tires of pointing out that the Bolsa Família grew out of programmes started when the opposition was last in power. He says that Lula is reaping the economic benefits of the difficult structural adjustments it made, and which Lula consistently voted against.

Meanwhile, critics to Lula’s left are aghast at the love-in between the government and the country’s banks, which, like the residents of Paraisópolis, have never had it so good. And although income inequality is diminishing, this does not take account of non-income wealth, such as financial and property investments. In 2006 the federal government paid €71 billion in interest on its debt, 80 per cent of which went to the 20,000 richest families in Brazil. In the same year the total cost of Bolsa Família was just €9 billion.

But if the rich have also done very well under Lula, it does at least mean that there has been none of the political and social tension between haves and have-nots that has accompanied the efforts of more radical governments in neighbouring Venezuela and Bolivia.

“The bankers are winning, the industrialists are winning, but the poor are also winning,” says Jorge Abraão of government research institute Ipea. “When you look at salary income between 2003 and 2009, the income of poor Brazilians grew three times faster than that of wealthy Brazilians. Yes, the rich won as well, but we have an economic growth that is benefiting everyone in a way that permits poverty and income inequality to decline.”

One area where the administration has accomplished little is in reforming a state machine that is expensive but inefficient. “Lula did not want to risk his huge popularity on difficult reforms,” says David Fleischer.

This has left such vital areas as the legal system operationally dysfunctional and incapable of providing justice promptly. Those accused of serious crimes can remain at liberty for years, even decades, while their cases worm their way through the courts. Judicial precedents do not have the force of law, meaning 180,000 cases are before the supreme court, which cannot function.

Despite a minor, and still largely unimplemented, reform during Lula’s first year in office, the lavish public pension system has a huge deficit, with the government spending the same portion of GDP on pensions as older, richer European countries. Red tape makes Brazil one of the most difficult countries in the world in which to open a new business, according to the World Bank. The byzantine tax code is another major cost for employers, while also hitting the poor hardest. Archaic labour laws, and the huge court bureaucracies employed to administer them, are another area left untouched by Lula.

Now that the economy is demanding better-trained employees, the disaster that is public education is becoming more apparent. “You never hear Lula talk about education, and you see the results,” says Norman Gall, executive director of the Fernand Braudel Institute of World Economics in São Paulo. “The number of kids enrolled in high school is decreasing. Kids think it is just irrelevant, and yet they need a high-school diploma. There is increasing awareness in the ruling classes that this is a desperate problem.”

But the biggest reform that Lula has left untouched during his eight years is one fixing the fragmented and corrupt political system. Rather than reform it, Lula cut deals with corrupt politicians and political parties that he vehemently condemned in opposition, all in the name of governability.

“Lula has persistently yielded to and protected the worst performers in the political system to safeguard a congressional majority,” says Gall. “He has catered to the worst instincts of this system, and this is a big problem, because he has now embedded and strengthened these worst instincts to the point that they will be more of a problem to successive governments.”

The result has been a series of corruption scandals during Lula’s years in office. These have weakened his support in the traditional middle class, though not among the poor.

While Lula may not have transformed Brazil quite as much as he claims, he has transformed for the better the lives of enough Brazilians for him to leave the presidency as perhaps the most popular Brazilian leader ever.

Once he has left the Planalto presidential palace the task for whoever follows him will be to build on his economic and social successes while tackling some of the urgent reforms he ignored, which, if left unattended, risk the bright new future that seems almost within grasp.

Keeping it in the family: How Lula's flagship policy changed Brazil

“Lula has inaugurated a new phase of presidential relations with the voters because many of them consider that he is one of them,” says David Fleischer, professor of politics at the University of Brasília. “He came from a very poor background; he clawed his way up São Paulo’s labour movement to become a powerful union boss and then leader of the Workers’ Party. So a lot of people see their own image reflected in him, someone who has a fourth-grade education and who began down at the bottom and made his way up the ladder. He has an empathy with the common man and woman, and he speaks their language.”

To get an idea of how far Brazil has come, it is worth remembering that Lula’s flagship policy when he was elected in 2002 was called Zero Hunger. It was a plan to end the spectre of not having enough to eat that still threatened millions in one of the world’s biggest food exporters. Zero Hunger was merged with other programmes set up by Lula’s predecessor to become the Bolsa Família, or Family Grant, Lula’s flagship social programme. More than 12 million of the country’s poorest families now receive a monthly allowance so long as their children go to school.

The Bolsa Família, which touches an estimated 40 million voters, has been transformative, sparking the economic reactivation of regions of Brazil mired in centuries of poverty.

“These families did not have a monetary income before. They lived in a pre-capitalist world, shut out from consumption. Now they can buy goods and services from the market,” says Jorge Abraão, head of social research at the government-led Institute of Applied Economic Research (Ipea).

Lula has also raised the minimum wage each year, returning some of the economic power that the country’s poorest workers lost in the hyperinflation of the 1980s and early 1990s. But perhaps his most important policy decision on coming to power in 2003 was to leave in place the free-market economy that he had fought against when in opposition.

“The biggest change is that we had the formation of a middle class in Brazil during the Lula years that we didn’t have before,” says JP Morgan economist Emy Shayo. This combination of economic stability and Lula’s social programmes has had a dramatic impact.