Lula wins --- Hope for Brazil’s growth

November 1, 2006

On Sunday, October 29, Brazil’s President Luiz Inacio Lula da Silva, known worldwide as Lula, won his run-off campaign against former Sao Paulo Governor Geraldo Alckmin in a landslide victory, 61% to 39%.

Lula’s policies have been responsible for Brazil’s growth in the last four years. He has successfully guided the economy to its healthiest condition in 20 years. GDP growth is projected by the International Monetary Fund (IMF) to be 3.5% in 2006, inflation is down to 4.5% and the current account surplus is $11.1 billion. Last year, Brazil paid off their IMF loan early.

Lula has promised to increase GDP growth to 5%, which will be necessary to reduce taxes. To do this he needs to privatize state-run banks and reduce bureaucracy while maintaining programs for the poor.

However, he doesn’t have the majority in the Legislature to pass the needed reforms easily. He is dogged with corruption charges, which his opponent will use to block him. He must therefore reach outside his own party to gain the skills and support to make any changes needed.

• Quick Facts about Brazil:
  Ruled by Portugal for 300 years, became an independent state ruled by the military from 1822 to 1985, when it became democratic.
• Only slightly smaller in size than the U.S. Largest country in South America, shares borders with every country except Chile and Ecuador.
• Has 188 million people, about 2/3 of U.S., which has 298 million. However, relatively poor with GDP per person at only $8,277 compared to $9,304 for the world average and $41,477 for the U.S.

What It Means:
According to the State Department, Brazil led in the creation of:

• Mercosur,
• The Free Trade Area of the Americas (FTAA),
• The Group of 20 (G-20) coalition that represents developing country interests in the Doha Development Round of the World Trade Organization (WTO) negotiations.

As a result of its leadership role, Brazil meets regularly in working sessions with the United States on trade and other issues. It continues to influence the rest of South America, which may follow the lead of Venezuela and Bolivia. (Source: International Monetary Fund (IMF) web site, Voice of America web site, State Dept. web site)

Action Steps:
With Lula’s promise to increase GDP growth next, companies that do business in Brazil should do better. Make sure you have high quality Brazilian companies in your emerging markets fund. Large-cap U.S. companies should also benefit from Brazil’s growth.

Related Articles:

Lula not reelected, 10/4/06