- The Washington Times - Wednesday, October 30, 2002

The election of Brazil's first socialist president could leave the United States with greatly diminished influence over the economic policies of Latin America a region that embraced Washington's free-market views two years ago.
President-elect Luiz Inacio Lula da Silva, a 57-year-old union activist with Cuban-trained advisers, campaigned against President Bush's idea of creating a free-trade zone in the Western Hemisphere, belittling it as a plan to "annex Latin America."
And the financial markets have waited breathlessly for months to see whether Mr. Lula da Silva makes good on his earlier threat to stop paying some of the government's $260 billion in debts. The prospect of default has sent Brazil's currency plummeting 40 percent since April.
Mr. Lula da Silva once described the financiers on Wall Street as "economic terrorists," but in the waning days of the election campaign backtracked on his default threat and sought to move to the center politically.
While still maintaining that Brazilians voted overwhelmingly for "another economic model," Mr. Lula da Silva is promising to maintain key free-market reforms adopted during the 1990s.
U.S. Trade Representative Robert B. Zoellick said yesterday that he has no indication that Mr. Lula da Silva will boycott the trade talks, but added that the United States is prepared to move on negotiations without Brazil, if necessary.
Despite guarded optimism, no one in the administration knows whether Mr. Lula da Silva will turn out to be a moderate interested in building on predecessor Fernando Henrique Cardoso's market reforms or a radical who undoes them. The president-elect has promised to end hunger and create jobs for Brazil's 54 million poor people.
"Lula's got his work cut out for him," said Frank Vargo, international vice president of the National Association of Manufacturers, which is warning that a financial reversal in Brazil like the one in Argentina a year ago would be devastating for U.S. businesses and the global economy.
The United States has much at stake in Brazil. The largest U.S. banks have $66 billion in loans outstanding there, and American companies have invested $54 billion in plants and other physical assets. Big U.S. firms derive on average about 3 percent annually from sales to Brazil's 170 million consumers.
Mr. Lula da Silva's campaign rhetoric has "troubled a lot of investors," Mr. Vargo said. U.S. businesses are hoping that he will appoint economic ministers who respect the country's financial commitments and keep a rein on government spending, despite his sweeping promises to the masses.
Mr. Lula da Silva's advisers insist, however, that their first job will be to carry out his campaign commitments. The head of his transition team is longtime friend Jose Dirceu, founder of Brazil's Workers Party, who trained as a guerrilla in Cuba. Mr. Dirceu was dispatched as an emissary to Wall Street in July.
Despite the rapid deterioration of U.S. ideological influence in Latin America's largest economy, investors and policy-makers are optimistic that the two countries will find common ground and build on their trade relations.
"You have to be careful not to see Lula as a bellwether," said Miguel Diaz, director of the South American program at the Center for Strategic and International Studies, who said that Brazilians are aware of the benefits from low inflation brought on by market reforms.
"There was a rejection of the Washington consensus, but the election was also a reaction to rising crime, increased drug consumption" and corruption among the elites who were the primary beneficiaries of the more open economy, he said.
"People want to be able to move up the economic ladder faster," he said. "The economic rags-to-riches stories are few and far between in Brazil."
Mr. Diaz sees Mr. Lula da Silva primarily as a pragmatist who will avoid causing disruptions to the economy that might threaten his re-election.
The president-elect will get involved in trade negotiations, he said, but will "drive a tough bargain" and demand difficult concessions from the United States, which this year enacted barriers to Brazil's agricultural and steel exports that have greatly irritated bilateral relations.
While the loss of closely allied ruling coalitions in Brazil and Argentina has occurred in the past year under President Bush's watch, Mr. Diaz said that Mr. Bush could not be blamed for the sweeping changes occurring in Latin America.
"You have to give Bush credit. He spent enough time and attention on Latin America to get [fast-track trade authority] approved one thing the Clinton administration didn't do. It took a humongous amount of political capital to do that," he said, noting that the United States is poised to re-engage Latin America in trade talks as a result.

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