Lula's Spending Spree Catches Up To Brazil

Rousseff 's & Lula's Big Secret

Over the past couple of years President Lula been active on a farewell tour of the world proclaiming new social programs he sponsored in the name of international charity and goodwill. Lula hopes the history books will be kind to him.

Subsequently, he lent Fidel Castro billions of Reals to rebuild Cuba’s crumbling cities. Lula gave Reals to build roads in Bolivia and spent billions more in Venezuela so Hugo Chavez could rebuild the transportation system. Lula also forgave 700 billion in defaulted loans to several African states.

While he was on his multiple worldwide tours he was also brokering trade agreements, including business deals to bring nuclear energy to Brazil, as well as creating more hydroelectric dams in the Amazon. He made an agreement with the Russian space program for future space exploration. In all of these agreements, Lula rarely disclosed the amount or terms of these deals to his government.

Claiming national security reasons for his fiscal privacy, Lula invoked medidas provisórias, a measure which would allow him to act on behalf of the government without Congressional approval. Yet, legislators were concerned, because medidas provisórias was mandated by the Constitution only to be used as a tool by the executive branch to assist in making quick decisions in times of emergencies.

Yet, while Lula was traveling and proclaiming Brazil’s bright economic future, he never spoke about any “economic emergency” in Brazil. In fact, Lula was presenting Brazil’s economic miracle to the world in the best possible light. He even used the measure to improve the publicity concerning a Formula One race being held in Sao Paulo.

In the past, medidas provisórias was used by former president Fernando Henrique Cardoso in his first term just three times. The Real was under stress and devaluing during a time of high inflation. President Cardoso used the measure to bypass Congress to stabilize the Real using medidas provisórias. His quick actions eventually created the bedrock that would lift Brazil into prominence as a world economic power.

 Former President Cardoso

Lula, who led the opposition against Cardoso at the time, charges that Cardoso was becoming a dictator. Years later, Lula adopted Cardoso's economic framework himself and used the controversial measure 16 times in his first term. Since then, as president, Lula has used the measure on average of four times a month.

As much as Lula tried to hide his government’s fiscal management, it eventually came to the surface near the beginning of Lula’s second term on April 7, 2006. Minister Dilma Rousseff, acting on behalf of Lula’s government, made a decision not to loan VARIG, the beleaguered national airline, any more money to operate. Lula was busy telling everyone else in the world about Brazil’s economic muscle while Rousseff was secretly telling VARIG Lula could no longer support the company because the government did not have the money. VARIG, a respected airline, which dates back to the origins of aviation, was out of business, and 11,000 jobs were lost in Brazil. At the same time, Lula came up with $R 170 million to pay to international bankers as interest on overdue loans.

Of course, much of this information is conjecture and based on rumors and speculation. This is because the Lula government was operating in violation of the government’s own fiscal transparency laws. The media never complained and few judges would go against Lula in the courts and investigate these claims of corruption. And nothing changed. To Lula, there was simply no reason for transparency simply because he did not feel he was accountable.

Initially, there was protest led by Jose Serra, an opponent who had lost to Lula in 2002 and again in 2006. Serra called for an investigation by the Judiciary saying that Lula’s financial chicanery was a clear violation of the Constitution. Without the support of the Lula-dominated media, the protest came to naught.

On the eve of the 2010 election, the powerful Lula government propaganda machine continues to promise a prosperous future that would be fueled by vast oil deposits, nuclear power generation and hydro projects in the Amazon. However, the world is watching closely. The experts understand that Brazil’s promise is not immediate. It could take another two decades before Brazil could generate enough electricity to determine affordable market prices and reasonable costs to the average consumer. In some quarters, Lula’s promises for immediate revenues are sounding hollow.

Currently, much of Brazil’s economy remains based on its exports, but the country no longer has the leverage it once had because inflation within Brazil is hurting foreign sales with higher costs. Traditional revenues from its cash crops are slumping as the worldwide recession continues to linger, and other countries such as Vietnam, China, Turkey and India continue to batter Brazil with competitive pricing.

 Presidential Candidate

José Serra

José Serra and Dilma Rousseff may never meet in an actual debate. If they did, a couple of questions would determine each candidate’s approach to the next government’s economic policies: How will Brazil pay its bills? If Brazil were to default on its loans, what will the government do?

This election is not about the economy, but it should be. Perhaps this is why former president Fernando Henrique Cardoso decided to make a rare appearance recently on the Internet. Events have reached such a critical moment that Cardoso felt it was necessary to come out of retirement to warn his countrymen of the impending economic catastrophe that awaits the next government.

Cardoso, who is the architect to bring stability to the Real, led a government which went on to lead Brazil’s booming economy into the new century. Cardoso warns that the present government has acted for far too long as if it were making simple transactions. He says the matter is not about fiscal privacy. It is about disrespecting democracy. By continuing to circumvent the Constitution and ignoring the laws of Congress the “current president” has shamefully abused the voters and the election process. There will be serious economic consequences, he adds.

By the time of the elections, the voters themselves will be feeling the pinch of an economy gone sour. All across Brazil, the department stores in shopping malls are losing retailers. Restaurants are closing and cultural events are losing attendance. Auto sales are decreasing while basic costs like grocery items are increasing daily. Imported goods are fueling inflation. The roads are still not fixed in Rio and in other large cities more and more people are out of work incapable of paying their bills. Little or no work has actually begun on the large number of ambitious infrastructure projects promised to be completed for the 2014 World Cup or the 2016 Summer Olympiad.

What if Brazil does not have the money?