Year Two: Deepening and Extending Neo-Liberalism

Year Two: Deepening and Extending Neo-Liberalism

James Petras

Rebelión

June 25, 2004

Despite the disastrous socio-economic results of the first year of DaSilva's implementation of his neo-liberal agenda, he resolved to continue, extend and deepen these policies, both in domestic and foreign affairs. Da Silva's foreign policy is an extension of his domestic policy, and his domestic policy is an extension of his foreign policy. At the beginning of 2004 Da Silva announced plans to privatize Brazil's infrastructure, deepen Brazil's role as a commodity exporter, to increase Brazil's dependence on overseas markets, to continue domestic austerity and high interest rates to accommodate foreign and domestic bankers and speculators, to approve a modified version of ALCA and to deepen Brazil's role as a raw material exporter to China. In pursuit of these neo-colonial policies, the Da Silva regime embarked on a foreign policy which included sending 1500 Brazilian military forces to Haiti to protect the US puppet regime put in power by the US marines; the mobilization of 15,000 troops to the Colombian border in coordination with the terrorist Uribe regime, minimal diplomatic and political relation with the Chavez government in Venezuela and Castro in Cuba, and an Òopen doorÓ investment policy to financial speculator in the US and Europe. In addition Da Silva increased ties with China based on imports of manufactured goods and exports of minerals and agricultural commodities.

Lula's Economic Policies:2004

Lula reaffirmed the continuation of his neo-liberal policies, support for the IMF, and his unconditional backing for his neo-liberal economic team throughout 2004. He clearly and loudly rejected Joao Pedro Stedile's and the so-called "Left" PT's call for a "turn" to the left or change in his cabinet. In the first four months of 2004 industrial production fell by 1.2% compared to the last quarter of 2003 despite more working days (January-March, 2004) than (October-December, 2003). Despite record low international interests rates, Brazil retains the world's highest rates, over 16% -- and threatens to go higher to attract speculative capital and cut off any possible recovery. While year-to-year industrial growth was positive, the sectors, which showed the greatest increase, were the foreign-owned utilities (electricity, telecommunications), which successfully pressured the Lula government to raise rates increasing profits to the multinationals and raising the costs to consumers. Electricity saw a huge rise in net income of 94% and telecommunications of 53.2% during the first trimester of 2004 over the same period in 2003, despite the decline in the number of telephone lines in service because of growing unemployment. Other sectors such as steel, chemicals and papers and pulp showed significant declines in net income even as raw material exports such as iron ore and soya continued to grow - until the sharp decline in exports from April (Financial Times, May 12, 2004, pp.6 and 21).

In large part Brazil's continued stagnation, despite the boom in agro-mineral exports, was in large part a result of the freeze in public investments as Celso Furtado noted in a speech delivered on May 4, 2004. At the same time, the Da Silva regime earned the praise of the IMF as they renewed their agreement to continue following the restrictive monetary policies and open markets which allowed overseas speculators and bond holders "to receive the highest returns of any emerging markets in 2003" (Financial Times, March 29, 2004, p. 11). The prognoses for the rest of 2004 are not favorable: export earnings which rose 12% in 2003 may fall as the price of Brazil's most important exports (Soya, orange juice and iron ore declines due to the slow-down in China's economy and a 30% decline in prices. Global interest rates are rising in the US, Asia and Europe, putting pressure on the inflow of capital and the volatility of the oil markets and the energy crises are likely to lower world demand and result in Brazil tightening even more the austerity programs in order to achieve the budget surplus targets of the IMF. As Cesar Benjamin pointed out 2003 was not (as Lula apologists argue) a "crisis" year -- it was an optimal year, for growth, and because of Lula's neo-colonial-neo-liberal policies Brazil failed to take advantage. Given the decline of opportunities for export growth, and the continued weakness of the internal market, Da Silva can be expected to deepen the concessions to capital, cheapen the cost of labor, provide more tax concessions to investors, further de-regulate the exploitation of the environment, and negotiate an agreement with the US on ALCA.

The "lessons" that Lula draws from the economic disasters of 2003, is to move further to the right to offer Brazil to the highest bidder not only in the US, but Europe, China and whoever is interested. In March, even the PMDB, Lula's right wing coalition partner, attacked the government's extreme neo-liberal restrictive monetary policy, lack of public investment and concentration of credit to big business exporters at the expense of local small business people. In order to pay for Da Silva's mass media electoral and publicity campaigns, Jose Dirceu, key adviser to the government was exposed as heavily involved in accepting bribes from criminal syndicates. In attempting to put a "moral varnish" on his regime, Da Silva outlawed bingo throughout the country _ thus putting thousands of workers out of work and prohibiting one of the few recreational outlets for low-income workers.

Despite opposition from the entire spectrum of political parties from the Liberal Party, PSDB, PMDB, PTB, PCB, PS, the neo-liberals running the regime's economic policy have Da Silva's unconditional support: Paolocci, Dirceu, Meirelles (the head of the Central Bank) are a united team, united in present and future orthodox neo-liberal policy. This "government class unity" faced with continued opposition calls by the "left" PT ("Left Articulation") and some leaders of the MST to replace Paolocci-Meirilles. These "appeals" have fallen on deaf ears because Lula is the self-proclaimed and forceful defender of neo-liberalism and that is why he backs Paolucci and Meirilles. Even the rightwing Sao Paolo State Federation of Industrialists criticized the regime's pro-IMF extremist "tight money policy" and high interest rates pointing out that investors prefer to bank their funds rather than invest or spend it, at a time of high unemployment and low levels of consumption (Latin American Economy and Business, March 2004, p.11).

While inflation is declining, unemployment continues to grow: from 10.9% in December 2003 to 12% in February 2004. Throughout 2004 Da Silva traveled overseas with a huge entourage of big business executives looking for export opportunities and potential foreign investors to take over Brazilian assets. Data from 2003 demonstrate that the seven biggest privatized firms made record profits of more than R$14 billion (or little less than $5 billion USD in profits), much of which was remitted overseas instead of being re-invested in the country. High interest rates have been lucrative source of super profits for the foreign and domestic banking elites; high utility rates have increased profits for the gas, electrical and telecommunication industries. The rate of profit for the banking sector was 21% while the non-financial sector's rate was 15.6%.

It is clear that the privatized banks and their new owners are the main beneficiaries of the Da Silva regime. Moreover, they provide the "class base" for Lula's single-minded pursuit in 2004 for new foreign investors, more privatizations and persistent lowering of trade barriers. The results are an increase in overseas remittances, more dependence on volatile primary commodities and greater vulnerability to speculative investments. The problem is that as commodity prices declined in mid-2004, and US interest rates rose, speculative capital was disinclined to invest and the Brazilian "recovery" will not take place. Moreover with high debt payments there are few domestic and state resources to "ignite" a recovery. Brazil under the neo-liberal policies practiced by Lula and his predecessor (Cardoso) has declined sharply in comparative terms over the past 6 years: from the eighth to the fifteenth biggest economy in the world. Between 1998-2004 the height of Cardoso-Lula neo-liberal policy, Brazil's average annual Gross Domestic Product was 1.4%, ranking 164 among 178 countries (Global Invest, May 2004).

In April the Da Silva regime announced a $5.1 billion (USD) investment and financing plan for big business. The plan _ all supply side policies _ calls for tax exonerations for industrialists who purchase new machinery, new state subsidies for research and development by private companies, state financed international marketing campaigns, greater deregulation for business including sharp cuts in government health and safety programs, environmental deregulation and control over imports. The regime also proposed additional funding for some pay increases for civil servants and land settlements for landless peasants _ largely as a result of a massive land occupation movement. Nevertheless the implementation of this minimum program is highly unlikely to make much of an impact, since the Finance Minister Paolocci assured bankers that the government would maintain its primary budget surplus of 4.25% of Gross Domestic Product and maintain neo-liberal orthodoxy for the remainder of Lula's presidency (Financial Times, April 1, 2004, p.2).

Brazil - China Relation: Expanding Subordination

The Da Silva Regime, its supporters and not a few "leftist"critics have hailed the deepening relations with China as a progressive step. Since 1998 bilateral commerce between the two countries has more than doubled. In 2003 Brazilian exports to China rose by 80% to $4.5 billion dollars. China is now Brazil's third biggest trading partner (total bilateral trade in 2003 was $7.9 billion USD). Brazil had a trade surplus of $2.385 billion dollars in 2003. Yet the pattern of Brazil-China trade locks Brazil into a new cycle of dependence on raw material production further distorting development patterns. Iron, soya and meat account for nearly half of Brazil's exports. The "new investments" that Lula seeks from China are mainly to finance roads, ports and railways to secure supplies of raw materials. The biggest beneficiary of the trade is the recently privatized iron ore company - Compania Vale do Rio Doce.

However the limitations of Lula's agro-mineral strategy became evident in the first half of 2004. Between March and April, the price of soya and iron ores dropped nearly 20% as Chinese leaders slowed the overheated economy. Chinese importers reportedly are vastly oversupplied and are cancelling or renegotiating prices, even as soya shipments from Brazil sit offshore. In addition China suspended soya imports from four of Brazil's biggest supplier (Noble Grain, Cargill Agricola, Irmaos Trevisan and Bianchini). Chinese authorities have refused to accept 59,000 tons of "red" soya for "health reasons on the grounds that it contains high levels of antibiotics, pesticides and other chemicals which may be harmful to the consumer". Lula is a big promoter of chemical agriculture. It is estimated that Brazil will suffer a loss of $1 billion dollars or more in trade due to China's slowing economy.

While Lula plans a joint investment venture of $40 billion dollars with China to improve transport of raw materials to China, nothing comparable is planned to finance small farmers, cooperatives and agrarian reform in the domestic economy. It is ironic that when he was in China, Lula spoke of "food security" and "fighting hunger" while his own agricultural policies focused on agro-exports and his neglect of agrarian reform was creating food insecurity and inducing hunger among millions of peasants and rural laborers. The reality is that Lula traveled to China with 400 of Brazil's richest capitalists - his visit is designed to serve their interests. Both agro-business and mining use little labor, and there is virtually no value added to the products exported. Lula's strategy toward China typifies his entire economic strategy - and the internal stagnation and greater inequalities that it generates.

Brazilian workers are not likely to benefit from the sale of manufactured goods to China, as Brazilian industrial firms relocate production to China. EMBRAER, the fourth largest aircraft manufacturer in the world has joined with a Chinese firm to produce in China where wages are less than a third of those paid to Brazilian workers. Marcopolo, Petrobras and other firms are also looking to establish enterprises in China. The benefits of the China market will not "trickle down" to the Brazilian workers and peasants. On the contrary, the "soya craze" promoted by Lula, has led to the over-expansion of big agro-export production, deeper into the rain-forest, the expulsion of small producers and absorption of uncultivated land available for land reform which would otherwise benefit the landless rural workers.

Social Crisis Deepens

In the first quarter of 2004 Brazil had a trade surplus of $6.170 USD according to the Secretary of Foreign Commerce. This surplus largely went into the pockets of the agro-mineral elite and the overseas and local financial holders of Brazilian debt.

In contrast to the generous payments ($30 billion USD) to the foreign creditors during the first half of 2004, and the record super profits for the agro-mineral exporters, Lula proposed a 1% real increase in the minimum monthly wage from 240 to 260 Reales (3 Reales = $1USD), approximately $86 USD a month, one of the lowest in South America. Lula's argument that the government could not "afford" a higher raise, was ridiculed by all the opposition parties and even by some members of his own party. Even the conservative parties proposed an increase to 275 Reales per month. Lula's minimum wage policy makes a mockery of his promise to "double the minimum wage in four years." In fact even with low-level inflation, the minimum wage will at best remain unchanged throughout Da Silva's presidency, condemning over 4.5 million workers to near indigency.

Lula's promotion of the highly mechanized, capital intensive "agro-mineral export strategy", the low level of public investment, the decline in living standards have weakened the domestic market and exacerbated unemployment. May 2004 registered the highest recorded unemployment figures - 13.1% according to data from the Brazilian Institute of Statistics and Geography (Instituto Brasile-–o de Geografia y Estadistica -IBGE). Worse still the rate of unemployment is worsening between 2003 and 2004. The IBGE also indicated that real average income in April 2004 was 868.50 Reales ($280 USD) a fall of 3.5% with respect to April 2003. The unemployment rate in metropolitan Sao Paolo has remained in the 20% range. An indication of the gravity of the unemployment crisis in Sao Paolo is found in the subway systems announcement of 30 job openings, to which 126,000 applied, more than 4,000 applicants for each position.

In a major speech during his visit to China, Lula called on the United Nations, the G-7 and countries to join in a crusade against hunger. Lula's speech was typical of his "public relations" rhetoric to bolster his international image as a spokesman for the poor of the Third World. The Brazilian reality of growing hunger and food insecurity under his regime belies his speeches in the international forums. The lowering of living standards, the concentration of land ownership, the decrease in pensions, the high unemployment levels, the increase of the low paid "informal" employment, the rising food costs increasingly based on food imports have all lowered food consumption and reduced food security. Even if we accept the very questionable government estimates of 53 million Brazilian suffering "food insecurity" - malnutrition - Lula's Plan Zero had not even provided food to one sixth of the population over the past 1 years. The Plan is a total failure from the structural point of view, as it has not changed land tenure or the productive and distributive systems that create hunger. Da Silva's Zero Hunger continue to be at best a "charity program" to control potential poor voters. Rather than eliminate poverty, the program Zero Hunger, has enriched its administrators, fostered corruption and reinforced traditional clientelistic patron-client relations.

Given the large trade surplus of R$20 billion and the surplus of R$41 in the social security fund for the first quarter of 2004, it is clear that there are ample funds available to substantially increase the minimum wage, to expand public investment to create jobs and to finance land distribution. The real problem is not "lack of funds" as Lula argues, but the political -economic strategy, the class interests which the Da Silva regime has embraced. Under Da Silva, the surplus is distributed to different sectors of the ruling class: the foreign and local financial interests, agro-mineral exporters and the giant foreign owned manufacturing and petro-chemical companies.

In 2002 labor received 50% of national income, in 2003 this declined to 36% as over two-thirds of income was further concentrated in profits, interest and rents reaped by the capitalist class.