Victory for Lula

Tuesday, October 31, 2006

LUIZ INACIO Lula da Silva overcame some formidable negatives to win reelection as Brazil's president on Sunday, including a squalid series of corruption scandals and a lackluster record of growth during the past four years by Latin America's largest economy. But the reasons for his victory are mostly positive. The former metalworker and union leader, universally known simply as Lula, has been able to mobilize millions of Brazil's poor, who previously were largely excluded from the country's developing economy and democracy. Many of those people have seen tangible improvement in their lives thanks to Lula's policies, which have lifted some 8 million people out of poverty in a country of 185 million.

Lula's achievements have come without the populist trappings, irresponsible fiscal policies or erosion of democracy seen in other Latin American countries -- most notably, neighboring Venezuela. Brazil's often precarious finances are in better shape today than four years ago. International Monetary Fund loans have been paid off, inflation is a mere 4 percent and the country has $60 billion in foreign reserves. Poverty reduction has come about largely because of an innovative program under which the government provides poor families with a monthly cash subsidy if they meet certain requirements, such as sending their children to school and having them vaccinated.

With four more years to work with, Lula's challenge will be finding ways to tackle the big problem he failed to address: Brazil's sluggish growth. Redistribution of wealth is important in one of the world's most economically unequal societies, but Brazil can't prosper when it is growing at a rate below 3 percent, or less than half the rate of other emerging economies. Economists in and outside Brazil largely agree about what is needed: reductions in the sprawling state bureaucracy and runaway government spending, and in Latin America's highest taxes.

Unfortunately, the president hasn't shown much inclination to tackle these tasks. During his runoff campaign against a centrist former state governor, Lula ranted against what he said was the danger that Brazilian state companies and banks would be privatized. In fact, such privatizations are needed, as are more steps to liberalize trade and encourage foreign investment.

Lula campaigned against Brazil's foreign creditors four years ago, then surprised them by adopting orthodox fiscal policies after he took office. He would be wise to take the same course now and tackle the reform of the state, even while continuing programs for the poor. He has the opportunity to propel himself, and Brazil, into a position of leadership in Latin America by demonstrating how poverty can be addressed by sensible and sustainable policies rather than ruinous populism.

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