A Review of the first year of the Lula government in Brazil

Just over a year ago the overwhelming electoral victory of the Partido dos Trabalhadores (PT – Workers' Party) in November 2002, and the inauguration of Lula (Luis Inacio Lula da Silva) as President on January 1st 2003, reflected a profound turn to the left in Brazilian society. For more than a decade the implementation of a so-called neo-liberal policy had failed to solve the chronic problems of the economy and on a social level the majority of Brazilian society, affected by poverty, hunger and repression, had seen a worsening of their working conditions and of life in general. The massive vote for Lula was an expression on the electoral plain of a deep desire for change which not only affected the working class of the cities and the countryside (the traditional base of support for the PT), but also large sections of the middle layers of society who had also been damaged by the policies of the two governments of Fernando Henrique Cardoso.

As we said at the time of the PT victory, the events have to be seen in the context of a process of social and political unrest that is affecting the whole of Latin America, where in some parts there are openly revolutionary situations. Compared with the majority of other countries in Latin America, Brazil is in the strange situation of having a party like the PT, which was formed in 1979 with a clear class orientation and which, for more than two decades, has been the political reference point for the majority of activists in the trade unions, the countryside, on a community level and amongst the students up and down the country. This reality, together with Lula being thought of as "one of us" by the oppressed masses in Brazil, ended up with all the desires for change being expressed on the electoral plain.

By voting for the PT the great majority of Brazilian society put their money on a fundamental change, on a political alternative which they understood would be diametrically opposed to the one that had been put into practice under Cardoso – which relied on the more or less open support of all the Brazilian bourgeois parties - thereby beginning a new stage in the political situation in the country.

The fundamental contradiction of the new political situation which has opened up in Brazil is that at the same time that the leadership of the PT is riding on the crest of an immense and profound surge to the left, it does not have any alternative which goes any further than managing the crisis of the capitalist system and, as a result, is aggravating the social injustices and the economic imbalances which have been exactly the reason for the surge towards the left.

In fact if there is something which has characterized the first year of the Lula government it has been how quickly and harshly it has begun to apply the adjustment measures demanded by the capitalists and the IMF. The revolutionary situation in Argentina, Venezuela and other Latin American countries, together with the fact that Brazil was on the edge of an economic collapse, forced the leadership of the PT to make up its mind far more quickly and clearly than it had previously foreseen in relation to the policies it was going to pursue, especially as regards the economy. The commitment has been clear: to continue and deepen the policy of Cardoso.

The decision of Lula's government, with Palloci at its head – the strong man, the Minister for Economic Affairs – was as follows: to remove as quickly as possible any doubt that the market could have about the new government and to make use of the authority that the PT enjoyed to take shock measures, despite the fact that they would fall more harshly on the social base of the party. In reality the situation demonstrates quite clearly that the margins that exist within capitalism for a policy that is distinctly different from the so-called neo-liberal one are practically non-existent.

The logic of the measures that have been taken throughout the year is obvious. "Reassuring the markets" means, among other things, cutting social spending and any other spending that the capitalists are not interested in, in order to guarantee that the service charge on the state debt would be paid. One of the most meaningful and symbolic measures that the new government carried out in its economic policy was to increase its target in the primary fiscal surplus, as demanded by the IMF, from 3.9% of the GDP to 4.5%. (The primary fiscal surplus is a term that is rarely used in European countries. It is roughly equivalent to a budget surplus before the payment of any interest. It is mainly used in Latin America for countries which have built up a massive state debt which is often greater than the GNP for any one year. The term refers to the debt that the state has to pay before any interest payments have been made.)

Another measure that the government carried out in order to avoid the flight of foreign capital was to increase the interest rates from an already scandalous 25% to 26.5%. Then half way through the year the rates were reduced to 16.5%. However even this figure is not something that can be seen as positive, given that it is still one of the reasons for an outflow of wealth from the public sector to the national and international financial sector, which is making a fortune by buying up the state debt.

Interest rates in Brazil continue to be very attractive to speculators, above all because of the historically low rates that exist in the USA and Europe. This internal and external indebtedness is a real burden that hinders the social and economic development of the country and is a situation that had always been condemned by the PT. A single figure can help us to understand the immensity of this really modern form of pillage: 44% of the state budget for the year 2000 was set aside to pay the service charge on the external debt, compared with 5.9% to be spent on Health. There is no basis in reality to think that the effects of these economic policies under a PT government will be any different. Reality is harsh and concrete. The federal public debt, which includes the external debt, grew by 8.1% in 2003, from 893,000 million to 965,000 million reales (more than USA $300,000,000,000). This increase obviously means that there will be an increase in the amount of public money that goes to pay not only the interest on the debt but also the capital debt itself.

In effect the aim of a primary deficit, which was necessary to honour the servicing of the debt, had been achieved, but at the cost of a very severe adjustment in the budget. A statistic which shows up very clearly the line adopted by the government has been the fact that public investment for the year 2003 was a third of the worst year out of the eight years under Cardoso: 0.27% of the GDP compared to 0.7% in 1999. In 2001 investment reached 1.21% of GDP. The Ministry of Transport for example, which is responsible for the main works that are carried out on the infrastructure of the country, would spend only half of the amount that was invested the previous year, which in itself was seen as being low.

Another similar measure that was carried out was the reform of pensions, with special attention being paid to civil servants. The government has used all its authority to justify the reform and has even accused the civil servants of enjoying privileges that others did not have and of earning astronomical salaries. This happens with 4% of them, who earn more than the president himself, but not with the 70% of the federal employees who are retired and who are receiving pensions of less than 1500 reales (some US$500) per month. It has to be said that for the majority of Brazilian workers, who are working without any contract of employment for very low wages and even in slave-like conditions, a pension like this (although clearly not enough to live on) would be seen as an amazing gain. Nevertheless the amount that it is estimated the State will save by this reform, some 56.000 million reales in 30 years, will not go the poorest sections of society but to the richest: in the first five months of 2003 the State had already wasted 65.000 million reales in interest payments on the State debt.

In addition to pension reforms the government has passed a law to reform the tax system which, it seems, will increase indirect taxes at a time when in Brazil some 70% of taxation is already raised through consumption and not through income. The government agenda for 2004 leaves no doubt that its intention is to continue with the same economic policy. It has extended the aim of achieving a primary surplus into 2004 and 2005; it has announced reforms in relation to trade unions and the workplace; it is going to pass a law regarding bankruptcies; it is going to continue the aim of favouring the independence of the Central Bank, which will mean that the economic policy of the government will be subjected to the interests of capitalism.

It is a paradox that despite the tremendous electoral defeat of Cardoso and his neo-liberalism, several men who are trusted by the capitalists and who defended the policies of the previous government, have important positions in the government team drawn up by Lula. For example the Agriculture Minister, Roberto Rodriguez, is openly linked to the landowners; Furlan, the Treasury Minister, is an important businessman; Meireles, the president of the Central Bank, was at one time world president of the Bank of Boston. The Vice-President himself, Jose Alencar, is the most important textile magnate in the country. In January the government appointed 9 ministers from the PMDB, a right-wing party which came out of the MDB (the "democratic" boot of the military dictatorship).

It is obvious too that there are ministers from the PT in the government. If only there were more! However, the combination of PT ministers alongside bourgeois ministers does not mean there are policies that are in some way halfway between the two groups. The reality is that the policies are openly bourgeois. It is as if the bourgeoisie has received a present from the heavens, where the PT, the workers party, is in effect an oxygen tank for them, allowing them to rule through the PT when both the leaders and the parties of the bourgeoisie are not only discredited but in a complete crisis. The social consensus that Lula boasts of means, in practice, that he and the PT ministers use their authority among the masses while the right wing determines the political direction that has to be followed. Although, in order to respect the truth, it also has to be said that ministers like Palloci from the PT are so eager and willing to defend capitalism that the bourgeoisie would probably confer on him the honour of representing them directly.

This situation cannot last for long and at bottom reveals the enormous political weakness of the Brazilian bourgeoisie. In the short term the massive authority of Lula continues to prevail, as does the patience of the masses. There is a certain margin for maneuver as long as the working class and the peasants do not enter upon the stage ready to do battle, or there isn't another financial crisis like that of 1999. But what is certain is that both factors are implicit in the situation and it is difficult to foresee exactly when and which will be the particular factor that begins to unravel the whole process. In addition, the economic situation and the political mood are intrinsically bound up with the international context.

In spite of the government celebrating the fact that the economy has been stabilized and that the financial crisis has been postponed, what is certain is that the year 2003 revealed a picture of an almost economic recession with a pyrrhic growth of 0.1% of the GDP. Industrial production too was slightly negative, minus 0.47%. Direct foreign investment in 2003 came down to $9,200 million, whereas in the year 2000 it had reached $30,000 million. The factor which helped avoid an even more sombre picture was the growth in exports, above all to China, which only just failed to replace Argentina as the main destination for Brazilian exports, together with the recovery of Argentina, which had been through a catastrophic period. Within these exports the area known as agro-business has become more important and now makes up almost 50% of exports. But the fact that the Brazilian economy depends to a large extent on exports (among which raw materials play a large part) and continues being so sensitive to the behaviour of foreign capital, in itself shows just how vulnerable it is.

The government is giving much more importance to its foreign policy and the growth of new areas for trade, even using a slightly defiant voice in relation to US imperialism (MERCOSUR, G-20, etc.). Nevertheless it would be extremely difficult for Brazil to avoid reality: its main trading partner is the USA ($16,690 millions in 2003) which is also trying to conquer the world market. The next trading partner is Argentina, which is a long way behind ($4,650 millions), followed by China ($4,530 millions). Trading problems with the USA are well known and with the neighbouring country of Argentina there is to all intents and purposes an atmosphere of a trade war. It would therefore be very difficult for the external pull of trade to have sufficient power to have a knock-on effect in the rest of the economy. Lula wants to appear as a rebellious international leader, the creator of a new, more just, commercial arrangement, but what is certain is that on all the basic questions he accepts the rules of the game of imperialism. In addition he is using his persona as a reasonable, but unruly leader, to act as a counterweight to the persona of Chaves and Castro, both of whom can stir up far more dangerous revolutionary feelings.

Many economists are toning down the optimism of the government, indicating that at the moment there aren't any solidly visible signs of recovery because the rate of investment continues to be at historically low levels. They say that the economic recovery in Brazil will be like the flight of the chicken: short and low. In any case what is most important is what effect the general statistics within the economy have on the rest of society.

Half way through 2003 Lula hastily announced that Brazil had entered into a period of spectacular economic growth after a much needed period of adjustment. In its programme the PT government set out its objective of creating 10 million jobs in four years and of doubling the value of the minimum wage in the same period. Even in 2003, however, in order for this objective to remain nothing more than words on paper, the GDP would have to grow by 5%. In reality an economic growth over many years at figures of more than 5% would be the only way that the government could explain how it was going to satisfy both the bankers and the poor. But this perspective is nothing more than conjecture that has no base in reality. At the moment only the former, the bankers, are being satisfied.

The harsh reality is that the rate of unemployment in the Greater Sao Paulo area, the most industrialized part of the country, has reached the figure of 19,9%, the highest since 1985. According to the Brazilian Institute of Geography and Statistics (IBGE) the real average output of workers fell by 13% between November 2002 and November 2003.

In the countryside the government promised that 60,000 families would be settled, given land, during the year, compared with the 180,000 that the MST (Movimento dos Trabalhadores Rurais Sem Terra – Landless Workers Movement) demanded. It is estimated however that it would be difficult for this figure to even reach 25,000. In Brazil there are 4 million peasant families without land. No other country in the world has such an unjust pattern of land ownership compared to Brazil (according to the MST website less than 3% of the population owns two thirds of Brazil's arable land – translator). The government has already announced its plan for Land Reform, but after contacts between the MST and those responsible for carrying out the Reform, a certain deception is becoming evident: the large estates have been excluded from the Plan and, in addition, it does not offer any concrete economic support that would improve the situation of those who have been given land, support which would also encourage others to do the same. In spite of the PT being moderate in this area – for example it has not even carried out its promise of abolishing the provisional law of the last government which stated that any land that peasants had occupied illegally would be excluded from land reform – unrest in the countryside has increased remarkably. Land occupations by peasants have already exceeded the figure for 2002 and the landowners have replied with more murders. Just as in the 1980s the landowners are openly talking of rearming themselves to fight against the occupations and of calling counter demonstrations against the marches organized by the MST. The landowners are complaining that the electoral victory of the PT has breathed new life into those without land, who now believe that one of their own is in the government.

For the present the social tensions have not been expressed in a widespread manner. We have witnessed the first clashes with the strike of the civil servants against the reform of the pensions. The growing tension in the countryside is also symptomatic of what is happening.

The PT is not just any party and Lula is not just any leader. They both have deep roots in the masses, especially amongst the most oppressed sections. In the consciousness of poor people there is a great reluctance to believe that after such an historic event as the coming to power of their party things are going to continue as they were before. But this situation will not last indefinitely.

The crisis which is taking place in the very leadership of the PT is perhaps the clearest sign that sooner or later the situation is going to explode. Three federal MPs and a woman senator were recently expelled from the party because of their opposition to the pension reform and in general because of the path that the government is taking. But it is obvious that this is the beginning of the beginning of a much deeper crisis. It is absolutely inevitable, and even more so in the political and economic context of Brazil, Latin America and the world that the tremendous tensions between the classes will be reflected in a mass party like the PT.

It is true that the turn to the right of the majority of the leadership of the PP is nothing new. It is a process that has been brewing for years. Nevertheless, the turn to the right has sharply accelerated in the past year, provoking a real shock in the party and opening up much more obvious divisions at the top. The hardest criticisms of the government have come from the rank and file of the PT itself or from movements that have historical links with the party, such as the MST. Part of the parliamentary grouping has been organized into a critical fraction. There are ministers who are continuously expressing their bitterness and impotence at the delay to the famous social reforms that they were expecting. As one minister came to say, the worst thing is not that they have not yet specified what the changes are going to be, but that there is no reasonable prospect that there are going to be changes.

Is it not perhaps of any significance that after just one year of the government, the divisions, at least the symptoms of divisions, are so advanced? What will happen when it becomes even clearer for the masses that the promised phase "B", the redistribution of wealth and social prosperity, is not going to take place after them having gone through the brutal social adjustments of plan "A"?

The more bureaucratic the measures are that the present leadership of the party takes against internal opposition, the more it will grow. It is for that reason that although we are completely against the expulsion of the comrade MPs and senator, we do not share the idea of launching another party. In Brazil the conditions for a successful revolutionary process exist. The fundamental problem of the Brazilian working class is the absence of a mass party with a revolutionary leadership. But the task of building a genuinely revolutionary socialist party will, to a large extent, take place by intensive work convincing and explaining to the workers who now support Lula.

The PT is a mass organization. It has been and still is the political reference point for millions of activists and fighters in the towns and in the countryside, even if most of them are not even members and even if they are they don't attend meetings of the party on any regular basis. Millions of people gravitate towards a party that did not come into being as a laboratory invention, but because the most organized section of the working class burst into the political arena during the fight against the dictatorship. Workers parties that are truly mass parties are not created by a campaign. They come into being because of great changes in the organization and consciousness of our class and are therefore events that do not happen very often.

Lenin very clearly saw the need to build other workers parties and another International after having analyzed the implication of the treachery of the reformist leaders of the Second International who gave their support to the beginning of the war in 1914. Nevertheless, it was not until after the great experiences that the masses went through in the revolution of October 1917, and after a patient struggle to build a majority within the old organizations, that they began to build communist parties.

Bureaucratic restrictions or organizational measures should not be used as excuses by revolutionaries for not carrying out the fundamental task of counteracting the influence of reformism on the most conscious and active layers of our class. It is probably true to say that never before have expulsions created such feelings of distrust amongst the rank and file. It goes further. To a far greater extent than in the past the expulsions have created an audience for and an interest in the ideas of those that have been expelled. A comradely attitude towards the rank and file and the leadership of the PT combined with a resolute defence of the programme of the socialist transformation of society, as well as an unambiguous restatement that battle will be joined to change the direction of the party, would have a far greater impact than the declaration of another party.

Before creating another party the working class will try time and time again to change their own party. There is no doubt that from wherever it may come the spark that provokes a mass movement in Brazil will have profound repercussions at all levels of the Party and it cannot be discounted that it will cause a crisis in the government.

It is also possible that the strains among the leadership of the PT and in the government will be expressed in confrontations that are even more violent than those that have occurred up to now. And these could happen even before there is a movement of the masses. The government's agenda is such that the pace of the "reforms" is not going to decrease. The party will be subjected to even greater stresses and strains even if the commitment of Pallocci to neo-liberal orthodoxy indicates an economic, social and political stabilization.

According to what we have been able to read in the Brazilian press the leadership of the PT is planning to call a National Meeting of the party with the aim of ensuring that the party speaks with one voice to those who are outside the party. The Meeting was originally scheduled for 2005 but there are sections in the leadership who want to bring it forward because they want to "homogenize/harmonise" the party (that is prepare the ground for more expulsions) before the differences from above end up having a more organized form from below, thus making it more difficult to control the party. The municipal elections for November 2004 will also be another test. These will create more stresses and contradictions. It is possible that the PT will be punished in the polls and that this will be combined with the bourgeois allies of the government moving even away so that the government will face blows from the left and from the right.

Whatever happens the growth of a left current with a mass base in the PT, probably based on an increasingly radicalised broad layer of leaders from the trade unions, the community and peasant movement – many of whom now solidly support Lula – will have a far greater political impact on Brazilian society that any premature split in the party.

One of the most important lessons that must be learnt from the first year of the Lula government is that there is no third way between capitalism and socialism. When Lula announced his intention of creating a policy for all classes, for the rich and the poor, we said that it was impossible. Lula has enormous authority because of his working class origins and his long history of struggle. Because of this authority it has been possible to resurrect the idea that a better world for millions of people could be made compatible with the rules of the game of the system, that capitalism with a human face is possible. This is completely mistaken. It did not take very long for the policy that was going to be the flagship of his administration - the Zero Hunger (Hambre Cero) plan which aroused so much sympathy all over the world – to end up as nothing more that a simple declaration of intentions!!

The same fresh gigantic forces that brought the PT into government will sooner or later move into the field of action. The oppressed will never abandon the fight because their very lives are a constant struggle to survive. The political change in Brazil heralds a confrontation between the classes in which once again the programme of the socialist transformation of society will be seen to be the only way out of the hell that capitalism means for the majority of the Brazilian people.