NOVEMBER MARKS the second anniversary of Luis Inácio Lula da Silva’s election as Brazil’s first president from the Partido dos Trabalhadores (PT, Workers Party). After two years in office, Lula has impressed the transnational corporations, the World Bank, and the International Monetary Fund (IMF) with his commitment to Brazilian and international capital. The response to his administration among workers and the social movements, however, ranges from ambivalent support to outright rejection.

Following a 0.2 percent contraction in 2003, the Brazilian economy is on target to grow by 4 percent this year. Agribusiness exports have increased by 44 percent thus far in 2004, while the production of durable goods between January and June rose by 28.2 percent over 2002. On most observers’ accounts, the Brazilian economy has genuinely "taken off" in 2004 and, helped by the U.S. economic recovery, is poised for continued growth in 2005.

At the center of Brazil’s economic growth are the neoliberal policies pursued by the Lula administration. Brazil faithfully pays its external debt; it maintains a primary budget surplus in excess of the figure demanded by the IMF; and it keeps interest rates at high levels in order to control inflation. Finance minister Antonio Palocci argues that these policies are necessary in order to "put our own house in order" before directing substantial government resources toward social ends. He justifies his position by pointing to the grim reality that Brazil’s external debt has reached 55 percent of its gross domestic product.

Lula’s fiscal policy as a whole is aimed at fortifying and expanding the export economy at the expense of social programs and the internal market. Hence, the national market has seen a decline of 0.8 percent in economic activity this year, with sectors of non-durable goods such as beverages, clothing, and footwear falling off by more than 7 percent in the first two quarters. Brazil’s central bank raised interest rates again–from 16 to 16.25 percent–at the beginning of September. The hike was interpreted as a message that preventing inflation continued to receive priority over attempts to reactivate the internal market.

The IMF-driven economic policies of the administration have eroded its credibility with the social movements that worked so hard for Lula’s election and which subsequently placed their trust in his political judgment. The current economic recovery has clearly benefited only the rich and the tiny elite of bosses in the export sector. For example, although the economy created a million new jobs in the first quarter of 2004, 54 percent of them paid the minimum wage of $130 per month.

Lula’s much-touted Zero Hunger program, moreover, has so far reached little more than three million of the fifty-four million Brazilians who are eligible for inclusion. While promising to settle 400,000 landless peasant families over his four-year term, Lula has accommodated only 28,700 after two years. Lula paid $50 billion in interest on the external debt in 2003, which amounted to five times more than the budget for health programs, eight times more than the education budget, and 140 times more than the money directed toward agrarian reform. Between January and June 2004, profits in the financial sector jumped by 14.7 percent over 2003. Yet, 25 percent of the economically active population remains unemployed or underemployed.

The reality that Lula’s government is neither socialist nor anti-capitalist–and not even anti-neoliberal–has been slow to sink in for some sections of Brazil’s social movement. One leading member of the Landless Rural Workers Movement (MST) has characterized Lula’s administration as "half popular" and "half bourgeois." Other activists buy the line that patience is required and that Lula will make good on his promises at the first possible moment. This type of political confusion has meant that the level of social struggle has remained generally low. The MST and the CUT (Brazil’s main trade union confederation) have in fact acted as mainstays of the Lula administration, buffering Lula’s objectively antagonistic relationship with the social movements.

Nevertheless, it is important to note signs of a possible return of struggle in recent months. On September 7, almost two million Brazilians in more than 1,800 cities and towns responded to the annual call of the organization Gritos dos Excluidos (Shouts of the Excluded). The largest protest took place in the São Paulo area and drew more than 90,000 marchers. Demonstrators demanded an end to Lula’s economic policy, a binding plebiscite on the external debt, and the acceleration of agrarian form.

Presently, workers in the banking sector are waging an important strike that has captured national attention not only for its economic demands but also for its political character. Lula has unleashed the police to crush the strike and has refused to negotiate. And the strikers have not only shown themselves willing to battle Lula and the PT, but they also launched their action against the wishes and directives of the CUT and their own local union leaders.

The majority of the Brazilian Left supported the PT from its formation in the late 1970s to the present. Significant sections of the Left still back the PT, but divisions are beginning to develop. Several prominent individuals and organizations have moved into opposition to the PT as a result of its neoliberal policies. But these forces are not united.

If a renewal of struggle may be occurring today in Lula’s Brazil, it is developing in the context of a fragmented and divided Left. The revolutionary socialist PSTU (Partido Socialista dos Trabalhadores Unificado) has suffered a split led by expelled PT congresspeople and senators, who have formed the rival PSOL (Partido do Socialismo e da Libertade). The CUT itself has experienced a split, which has led to the formation of a direct-action based union confederation, Conlutas, which has also led the fight against Lula’s attempt to legislate union "reform" aimed at curtailing union independence.

The PT and Lula still retain the loyalty of millions of poor Brazilians. In municipal elections held in October, the PT increased the number of mayoralties it holds from 187 in 2000 to 300, and its votes shot up from twelve to sixteen million. But the PT may be in store for a few unexpected surprises in this month’s second round of municipal elections. São Paulo’s mayor, Marta Suplicy, from the PT lost to the Social Democratic Party (PSDP) candidate José Serra 44 percent to 36 percent in the first round held October 3. And, as ISR went to press, the polls were favoring Serra over Suplicy 52 to 36 percent in the second runoff vote.

Lula’s minimal reforms, combined with the economic recovery, have created a contradictory situation, in which millions of Brazilian poor people consider Lula to be their candidate. At the same time, the vote in São Paulo shows the disaffection that is beginning to develop among key sectors of the Left and the working class. Without dismissing the importance of the elections, it becomes more necessary than ever to launch a reenergized and united campaign of direct action in order to make possible a new Brazil based on economic and social justice. Such a campaign requires political clarity about the neoliberal character of Lula’s government–a clarity that has yet to fully penetrate broad layers of Brazil’s social movements.