Lula triumphed over José Serra, who was the handpicked successor of outgoing President Fernando Henrique Cardoso and the Brazilian Social Democratic Party. During his two terms as president, Cardoso religiously pursued neoliberal economic policies under pressure from the International Monetary Fund and the world financial community. The result has been a nation in which one-third of the population lives below the poverty line and in which social inequality has mushroomed.

In the months preceding the election, international investors hammered Brazil’s currency—the real—and reduced Brazil’s lines of credit out of fear that a victory by Lula would mean an abandonment of fiscal austerity and a possible repudiation of Brazil’s external debt. The real has lost 40 percent of its value since the beginning of 2002. Yet currency markets remained calm during the last week of October, as Lula acted to reassure investors.

But whatever assurances he has given to investors, Lula’s election is part of a growing trend in Latin America in which millions are rejecting the failed neoliberal policies of Latin America’s traditional political parties.

Lula’s program

In his first post-election speech on October 28, Lula adopted a somber tone aimed at lowering mass expectations of immediate and sweeping change. He reiterated his campaign pledge to honor existing commitments, such as keeping up payments on the external debt, and he even went so far as to refer to his coming administration as a government of “austerity.” Swearing to behave with “fiscal responsibility,” he insisted that his government cannot “offer miracles.”

The next day Lula outlined the first measures he will take when he assumes office January 1. These include the creation of a new Department of Social Emergency, which aims to provide food to 22 million of the most impoverished Brazilians. Lula also promised to use the resources of banks that are still state-owned to invest in new public works and public health projects. The new programs are meant to create jobs in an attempt to address Brazil’s substantial and rising unemployment.

In overall terms, Lula indicated that his economic policies will reflect a return to development strategies based on import substitution. This means an aggressive program of exports in sectors of the Brazilian economy that are competitive on the world market, combined with the investment of profits in strengthening sectors of the economy in which Brazilian products compete unfavorably with imported goods.

Looming crisis

The recent decline of the real will help Brazilian exports. But the economic conjuncture as a whole bodes ill for Brazil.

Many analysts expect a debt crisis to seize the country later this year or in early 2003. At the end of September, titles to Brazil’s external debt were trading at half of their face value—a sign that investors already consider the external debt to be “unrecoverable,” according to economist José Martins. Brazil’s international currency reserves, moreover, are disappearing at the rate of $250 million per day. This means that only $10 billion will remain at the end of November. By way of comparison, Argentina’s reserve fund stood at $9.4 billion in mid-October.

Even after a $30 billion loan from the International Monetary Fund in September, the new Lula government will quickly confront the possibility of default. Brazil’s internal debt, too, has reached an unsustainable level. Thus, the most likely scenario is that the government will soon have to choose between paying the external debt and paying the internal debt—in which case default becomes inevitable.

A social explosion?

Brazil’s looming economic crisis will have its most significant impact on the relationship between Lula and the masses who elected him. A metalworker with only a fifth-grade formal education, and a leader of the great strikes that ousted the military dictatorship in the 1980s, Lula is regarded by ordinary working Brazilians as “their president,” and his future government as “their government.” But the combination of the debt crisis, a worldwide recession, and the PT’s concessions to the international financial community suggests that Lula will prove unable to meet his supporters’ expectations for profound social change.

Over the course of the 1990s, Lula and the PT have steadily evolved away from their combative leftist origins and toward a position of accommodation with transnational and national capitalism. Lula’s decision to prioritize debt repayment and to accept “fiscal austerity” clearly illustrates the PT’s rightward shift. So does Lula’s about-face on the Free Trade Area of the Americas (FTAA).

In September, more than 10 million Brazilians participated in a plebiscite on the FTAA sponsored by the Catholic Church’s Pastoral Commission, the Landless Rural Workers Movement (MST), the United Workers Socialist Party (PSTU), and a host of non-governmental organizations. Just over 98 percent of voters answered “no” to “Should Brazil sign the FTAA agreement?”; almost 96 percent answered “no” to “Should Brazil continue to participate in negotiations over how to implement the FTAA?”; and almost 99 percent answered “no” to “Should the Brazilian government hand over part of [the national] territory—the Alc’ntara military base—to control by the United States?”

But shockingly absent from the plebiscite campaign against the FTAA were Lula and the PT. The PT had contributed vigorously to the 1999 plebiscite on whether to pay the external debt, in which more than 95 percent of the six million Brazilians who voted demanded the outright repudiation of the external debt. Of course, those results—achieved in great measure because of the efforts of the PT—represent neither Lula’s nor his party’s position on the external debt today, since Lula has promised to pay it.

The PT further weakened its historically anti-imperialist stance when it actually withdrew from helping to organize the anti-FTAA plebiscite. It opposed holding the referendum during the electoral season. It also objected to the second and third questions included on the ballot concerning negotiations on the FTAA and the sale of the Alc’ntara military facility. When these questions were not removed, the PT refused to support the plebiscite. Lula clearly means to follow through on the FTAA in one form or another, and he has no intention of opposing a U.S. military presence on Brazilian soil.

Yet the only way out of the economic disaster that awaits Brazil includes stopping payments on the external debt and breaking completely with the IMF and FTAA. Without debt repudiation, Lula cannot create the eight to ten million new jobs he has promised. Keeping ties to the IMF also means that foreign banks will decide what is the acceptable level of poverty, quality of education, and availability of health care for Brazilians. And if the PT moves ahead with the FTAA negotiations, it will eventually give transnational corporations—especially U.S. multinationals—a green light to intensify their pillage of the country.

Lula’s victory is a marvelous expression of the shift leftward in Brazilian politics, and the rejection of the traditional bourgeois parties, in the face of years of neoliberal attacks on the poor and the working class. But the stage is set for a major clash in coming months between what Lula has promised his supporters and what he can actually deliver—and between Brazil’s urban and rural workers and the political party that is supposed to be theirs. Expectations are high, and so will be the anger if Lula continues to show himself incapable of standing up to U.S. and Brazilian business interests. The moment will arrive when Lula will face a decisive choice: to lead the fight of Brazil’s workers and poor for a better world, or to administer the crisis of neoliberalism and global capitalism as best he can in the interests of his new friends at the IMF and FTAA.

Tom Lewis is on the editorial board of the International Socialist Review.