Wrong Choices

This is a (translated and edited) text of the blog of Miriam Leitão, economist and columnist for O Globo
The response of Lula’s government to the financial crisis has serious defects: some market sectors are benefiting but not the entire economy, and incentives are given without something in return. The car, a product for the middle class and the rich got a tax waiver, the employees of the automakers received an employment guarantee, but the sugar-alcohol sector has neither, not even a guarantee of the labour laws.

In the United States, aid to the automakers was given under the condition of environmental improvements. Here, nothing was requested from the automakers, except to keep labour employed, which creates a distortion in the economy: all Brazilians can be dismissed, except employees of the automotive sector and public officials.

March 30 was the “Day of Cars”, here and in the US. There, the president of General Motors fell in disgrace because the government refused his plan for the adjustment and adaptation to the requirements. I do not want to compare the aid of billions of direct tax-dollars to the coffers of the auto-industry in the US, to the tax waiver here, but insist that this was a great opportunity to induce changes upon the Brazilian auto-manufacturers.

The new president of GM will have 60 days to submit a new plan, but already started to say that the new cars will be different. Frederick Henderson said that the automaker is one or two generations behind in green technology for cars and that the company will have to learn to make money on light cars, and not just SUVs. Another requirement is that of a fiscal adjustment in the company, which will separate good assets and problematic liabilities difficult to digest, such as the employees’ pension fund.

Over in the U.S. it is entirely different, but it is important to see the attitude of governments, in helping the industry. The Obama administration has asked something in return. The Lula government extended the reduction of the IPI-tax for cars and trucks requiring only keeping employment at the same level. It is worth remembering that the manufacturers of trucks did not meet the requirement, from the beginning of 2009, to manufacture only trucks with clean diesel engines. After seven years of delay, they said they were not prepared and needed three more years to deliver here in Brazil, what they deliver in other countries already for years. This, for example, could have been a consideration, a quid pro quo.

The complete absence of concern of the Lula government for the environment is shocking. Yesterday the government reduced the IPI-tax to zero for electric showers, high consumers of energy, and a product which has been abandoned in other countries. Electric showers have had a reduction of the IPI before and have now been set to zero along with other conventional building materials such as cement and brick. The Ministry of the Environment had asked to equalize the tax for the electric shower (which was 5%) with solar panels (which pay 18%). The decision "has not yet been taken” and is still in consideration by the Treasury.

End of March Banco do Brasil got authorized to extend the credit line of the FAT Giro Rural for two years. The credit line is BRL 4 billion (USD 1,8 billion) and the first trance will be paid from April 1. The agribusiness is getting an aid package for the sugar-alcohol sector and the production of meat, two flagrant champions of slave labour. Livestock breeding is directly related to the deforestation of the Amazon. The BNDES (Development Bank) will make a classic rescue operation, supplying BRL 200 million (USD 87 million) for a bankrupt slaughterhouse, which operates in a deforested area. In none of the aid programmes any change in conduct was negotiated, neither in relation to the workers, nor in regard to the environment. This all happens as if the Brazilian government is not of this world.

The vehicle per capita in Brazil, according to Anfavea (Automobile Manufacturers Association), is one vehicle for every eight inhabitants. This is the overall average, taking into account the population and the fleet of 25.5 million cars. Just to compare, the same density in the US. is one vehicle for every 1.2 inhabitants, in Japan it is one vehicle for every 1.7 inhabitants, in Mexico it is one for 4.7 inhabitants, in Argentina it is a car for every 5.2 inhabitants, all data from Anfavea.

The 2000 census said that 54.4 million Brazilians lived in households that had one or more cars, which then represented 32% of the population. Imagining that this percentage has grown a bit, as the sales of vehicles increased - though most new cars have been bought by the same families who had cars before, but some new entered the market - who owns a car belongs to the middle class and from there upwards. The two figures show that the motorized do not reach 40% of the population. The ones who buy a new car are exactly the ones who have a higher income.

The government did something that will benefit only the middle class and the rich, protected only employees of automakers and support the agribusiness without requiring any change of conduct.

Lula is losing the chance to change opened up by the crisis.

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Polemic: Lula's White Blue-Eyed Bankers

Last Thursday 26 March during a visit of British Prime Minister, Gordon Brown, President Luiz Inácio Lula da Silva blamed the rich countries for the crisis.

"The crisis was caused by irrational behaviour of white people with blue eyes, who in the past seemed to know everything, and now show no knowledge at all", said Lula in reference to foreign speculators in the first world countries.
When asked by a journalist whether his statement would not have an ideological bias, Lula said: "As I do not know any black or indigenous banker [...] I can only say that it is impossible that the part of mankind, which is the worst victim, shall pay for this crisis. This is not possible," he added.
”We can not allow the poor to be the first to pay the bill run up by the rich," he emphasized.

During his statement to the press, at the Alvorada Palace (the Brazilian White House), with the visiting British Prime-Minister at his side, the president compared the financial crisis to a fever and also defended the actions of the government as inducer and articulator of policy.

“It is usually said that the government only is a hindrance, and when the crisis happened, those who seemed to be the “gods of the economy”, seek that same “non-knowledgeable” government, to save them.“

And continued to defend regulations for the international financial system, by saying: "It is not possible to have a society where you enter a shopping mall or an airport without being filmed, always being watched, and the financial system is not monitored and has no regulations."

Lula said that the global economic crisis will worsen if the G-20 meeting in London in April does not submit concrete initiatives to recover the global economy.

"If the G-20 is just a meeting to mark another meeting, we will be discredited and the crisis may worsen".

Lula questions the effectiveness of the economic package presented by the President of the United States, Barack Obama, which provides for USD 1 trillion for the purchase of assets considered "toxic”.
"If Obama made the decision in the best interest to the United States. Great. I hope it works," he said "but I can not use the little money we have left, to buy titles that I call “rotten”," he added.

He stated also that he hopes that Obama, in the G-20 meeting in London, presents a plan as the views of the American president are supreme and must be respected.

Note:
AmericaBlog's “Chris in Paris” writes in his post "Lula and Berlusconi need therapy":
"The last time I checked, disgraced but wealthy Merrill Lynch CEO Stanley O'Neal is African-American....." and contests Lula's words. Clearly he doesn't understand the language and the way-of-thinking in developing countries and doesn't know how the people living in these countries see AND experience daily the Americans living in their countries.
Lula's words had nothing to do with racism or discrimination, but everything with the cold truth as the big speculators (including bankers) of the USA created the mess the US and the world are in, in the first place and the European bankers ran into this pit out of greed too. Have you heard of any 'coloured' bank in Latin America which needed bail-out money? Brazilian banks proved to be sound. So, Lula is right, it were the "white, blue-eyed bankers" and it is of no importance that by any coincidence there was somewhere, sometime a 'black banker'.
Lula's words, blunt as they came from his infamous big mouth, are however correct. The poor, developing and emerging countries are suffering most, thanks to the insatiable greed of the white, blue-eyed bankers of the rich countries.
A sore blogpost. Better read the text in the original language first, before starting to shoot. Incredible that in general you attack the main stream media and now use their words as basis for your blog. A blogpost not worthy the slogan: "A Great Nation Deserves The Truth". It is not Lula who needs therapy, the white, blue-eyed bankers (speculators as Lula said) in the US and Europe need it most and urgently as well, as they don’t seem to be inclined to change their attitude. So don’t blame Lula without knowing what you are talking about.

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The Flying Brazilian - A Busy Bee

It is a public secret that President Lula, from the very beginning of his first term in office, indicated his intention to see the world before his second term in 2010 will end. That’s why he bought, immediately after his inauguration as president, a new plane (an Airbus A319CJ ).


In 2008, the President made 33 international trips, almost the same number as in 2007 (36). It is for sure that in 2009 the ‘AeroLula ', as his plane popularly is called, will make many international flight hours.
In the year before the presidential elections and the penultimate year of his second term, president Luiz Inácio Lula da Silva packs his bags for many an international flight, to activate his strategy for Brazil as an active participant in the discussions on the measures to be taken to get the world economy off the ground. 2009 will be a year of intensive international discussions regarding the global economic crisis and Lula wants to use this situation to try to fortify his international prestige.
We made a photo-reportage of his most important trips in 2008.
......... continue reading and enjoy the photo reportage of Lula's travels

Economic crisis? What economic crisis?

While worldwide governments design and implement financial stimulus packages, President Lula mainly limits himself to stimulate the Brazilians to continue spending money and to buy goods to support the Brazilian industry. In Brazil apparently payment of the 13th month is seen as stimulus package to rescue the economy and beat the financial crisis. In the month of December, the Brazilian economy will be "enriched", with approximately BRL 78 billion (25 billion euros) due to the payment of the 13th month.

This amount represents about 2.7% of the gross domestic product (GDP), and includes workers in the formal sector, including domestic servants, pensioners and beneficiaries with a state pension.

According to calculations of Dieese (Department of Statistics and Socio-Economic Studies), the BRL 78 billion will be paid to about 68 million people. Dieese didn’t take into account the self-employed and informal workers, who may also receive a kind of compensation at the end of the year, but whose details are impossible to obtain.

According to Dieese the national average paid will be BRL 1,105 (€ 354). The 13th month for Previdência (something like a general old age pension scheme) is BRR 753 (€ 241). Workers in the formal market receive BRL 1,331 (€ 427), while household staff is entitled to an average of BRL 495 (€ 158).

Beneficiaries in the capital Brasilia go home with the biggest share (taking into account all categories) i.e. BRL 2,378 (€ 762), while beneficiaries in the federal state of Piauí have to be content with BRL 662 (€ 212).

According to a survey, the vast majority of consumers (60%) plans to use the 13th month to settle debts, an increase of 3,45% compared with the previous year. According to the study conducted by Anefac during the month of October 2008, among 573 consumers from all social classes, the number of consumers that plans to use the 13th month for the purchase of gifts decreased from 20% to 15%.

In 2008, only a small number of consumers (2%) will set that money aside for the expected costs in the first month of next year. However, according to research from Anefac, the number of consumers who drew a loan in anticipation of the release of the 13th month grew with 28,57%. This quota represents 9% of the total national entitlement to the 13th month payment.

Although (thanks to the idle words of President Lula) the Brazilians believe that Brazil will be little affected by the international financial crisis, the majority of the population reviews the outlook for 2009 negative in terms of inflation, unemployment and personal income. According to a poll by Ibope commissioned by the National Confederation of Industry (CNI), the majority of the Brazilian population believes that the inflation will rise, however they think the international financial crisis has reached the country, they do noy expect to be affected personally by the unrest, which started in the US market.

According to the CNI/Ibope survey the number of respondents that expect an increased unemployment rate in 2009 stepped up from 40% to 63%, while the number who expect a job increase in 2009 fell from 55% to 35%.
The expectation of people about their income also declined, albeit with lesser intensity. 38% think they have an increase next year, compared with 41% who believe that their income will not change and 13% who believe in a deterioration.

But despite all the fine words of Lula Christmas dinner became significantly more expensive.

Less than a week before Christmas, the demand for food for the traditional Christmas dinner increased substantially. With the high dollar, which made a leap from BRL 1,60 in October to BRL 2,30 in December, and the rise of inflation in the last three months, everything is more expensive, especially imported products such as fruits and vegetables. And clothing prices rose to unprecedented heights while the Brazilian traditionally needs to wear new ones for Christmas.

An analyzes of Dieese shows that products such as turkey, chester ham and cod, in this time of year very popular products, showed a price increase compared with the same period last year.
One of the most consumed products at a Christmas dinner, the frozen chicken is the only one which remained stable. A kilo costs an average of BRL 3,94 (€ 1,26).

In addition to these increases of traditional products, Christmas dinner this year will also be affected by higher prices of fruit. Some increased with more than 30%, such as the chestnut. The fresh plum increased by 31%. The Argentine apple 36% and imported pear increased by 50%. The largest increase however was for dark seedless raisins, with a peak of 67%.

The Christmas shopping did not provide significant results, although retailers are still optimistic. The expectation in Belém is a higher turnover of 10% over the previous year, although during the first two weeks of December, few shoppers could be found.
Finally on Christmas Eve the total results were not disappointing. Striking was that consumers bought and paid with cash, quite unusual in this time of the year when normally credit card companies celebrate their highest output. But with a current interest rate on your credit card of 175% annually you have to disregard that option.

Merry Christmas

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Cartoon courtesy J. Bosco/O Liberal

Lula and the Financial Crisis

Apart from other things, Lula is famous for his blundering utterances in public.

Since the financial crisis in the U.S. started to worsen, president Luiz Inácio Lula da Silva changed his tone.

March 30, 2008: "Bush, my son, solve your crisis."

September 17, 2008: "What crisis? Ask Bush."

September 22, 2008: "Until now, thank God, the crisis has not crossed the Atlantic."

September 29, 2008: "For Brazil, if it comes close, it will be very minimal."

One day later:
September 30, 2008: "The crisis is very serious and so intense that we do not yet know the magnitude of it."

October 4, 2008: "There [in the USA], the crisis is a tsunami. Here, if it reaches us, it will be a marolinha (high wave), not even good enough for surfing."

cartoon: J. Bosco in O Liberal

October 5, 2008: "We want this issue of the crisis presented to Congress."

November 8, 2008 opening the G20 meeting in São Paulo: ”Nobody is safe and all countries will be affected by the crisis.”

During the São Paulo G20-summit (one week before the summit of heads of state in New York), ministers of finance and presidents of the central banks, discussed measures against the financial crisis that began in the United States. The group intended to rally forces to get more influence over the direction of the global economy. In his openings speech, President Luiz Inácio Lula da Silva said that the crisis is serious, requires coordinated actions, and that no country in the world will be spared.
Lula also said that the G7 countries - the United States, France, Italy, Germany, UK, Canada and Japan - no longer are in a position to lead the direction of the world economy solely. He called for more participation by emerging countries arguing that in 2007 these countries accounted for 75% of the growth of the world economy.

’The crisis is global and requires global solutions also. It is time for a pact between governments for the creation of a new global financial architecture.” he said.

For the world press assembled in São Paulo the G20-summit was a nightmare. Due to a failure of the press service, journalists from around the world could not hear Lula’s speech.
While the president gave his speech at the Hilton Hotel, the journalists were confined in a room of the Hyat Hotel, at a short distance of the Hilton, where the meeting took place. All should be watching the speech by Lula via a tv-screen, but the screen did not work.
According to the Ministry of Finance, the transmission system of the NBR failed and the journalists were unable to follow Lula’s speech.
”It is a shame, it is a shame,” shouted the foreign journalists accompanying the meeting of the G20.
Nevertheless the summit was the perfect moment for all who, often only preaching to empty pews, resisted the "neo-liberal" free market economic model highflying in the past few decades. Politicians, economists and social activists want to take advantage of the current financial crisis to bury this model once and for all, together with all forms of speculation.

Since the beginning of the crisis, President Lula gradually changed the tone regarding the crisis in the global financial system and its consequences in Brazil. Apparently the crisis came unexpected, with a huge foreign capital outflow that took both the government and the private sector by surprise. It generated mistrust between banks which stopped lending money.
In a clear change of behaviour, the government and its economic team finally began to realise the seriousness of the problem, that Brazilian companies had with derivatives - bets on the recovery (over-valorisation) of the real - and the over-optimism of President Lula, who came to say that the crisis of Bush would not reach the country.

Some internal contradictions within governments, especially between Central Banks and Economy Ministries, are becoming more acute. In Brazil, the dominance of the monetary authority (the Central Bank) suffered a blow when emergency measures were needed to avoid a greater economic slowdown.

The G20 summit in São Paulo - Minister of Finance Guido Mantega and President Lula

The disagreement between Brazilian Minister of Finance Guido Mantega over the conservative policies of the Central Bank, which advocates high interest rates and an unrestricted floating exchange rate, was already common knowledge. But the crisis and the recommendations of the G20 strengthened Mantega's position. As chairman and spokesman of the meeting, he emphasised the need for anti-recession measures.
The president of the Central Bank, Henrique Meirelles, tried to soft-pedal this approach, underlining instead the concerns over inflation that were also expressed in the meeting’s final communiqué, and the special characteristics of each country.

The G20 summit in São Paulo - president Lula and the CB president Henrique Meirelles

Walking and talking between two fires Lula said that despite the financial crisis Brazil will maintain all works in progress of the Programa de Aceleração de Crescimento (PAC = Program for Accelerated Growth). The president said that the global financial crisis not caught Brazil unprepared and promised that the government will not allow that the country's economic growth will be hampered. "My government and the people have made sacrifices and are now beginning to reap the rewards ... with our expanded home market, which protects us partly of the international crisis," said Lula. "The government will not allow our growth compromised," added the president.

Former President Fernando Henrique Cardoso criticized the way Lula’s government was facing the economic crisis and was ironic, calling Lula a "great economist", in reference to the statements Lula made by calling the crisis a marolinha when coming to Brazil.

“No need to be aggressive with anyone personally, but we have to say that not everything the master is saying, is right, because it is not. We have to say the king is naked here, there, and yonder. Put your clothes on, Mr. President. Do not talk nonsense, Mr. President. Be more consistent with your history. Don’t be as fast in your judgments as the others. Note that a nation is made in the course of generations. Don’t be so pretentious. Be a little more humble,” completed Fernando Henrique Cardoso.

The former president said that people realize when things are not going well.
”I understand that the president have to animate the country. But the country is not silly. The country understands when things change. Things have changed in the world, changed for the worse. It is cyclical? It is momentary? Yeah, but we have to be able to view the future to leave the ruinous situation we are in and don’t continue saying that it is not ruinous. It is ruinous."

But after all nothing really changes. All governments in the world are implementing stimulus programs, not so in Brazil. Apparently the Lula’s statement that all-works-in-progress of the Programa de Aceleração de Crescimento (PAC = Program for Accelerated Growth) will continue is, in Lula’s opinion, sufficient enough alongside the high level interest rates and (disputable) interventions of the Central Bank in the exchange market, selling its stock of dollars to keep the real over-valorised, in favour of the banks, disgracing the products manufacturing segment.

President Lula planting an aroeira tree

sources: UltimoSegundo, O Globo, IPSNews, J. Bosco/O Liberal

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