November 17, 2003>
Brazil and the IMF announced they would renew a financial arrangement at the end of the year, sparking new doubts about the methods and motives of Lula's government. The Fund and the Brazilian government seemed equally delighted and officials on both sides made the whole operation sound like a honeymoon.
The announcement, which followed the visit of the IMF's number two Anne Krueger to Brazil, is likely to result in continuing austerity in the coming year and to contribute to growing unease among Lula's supporters, fuelled by a recent decree that would allow planting of genetically modified crops. The principle of a $14 billion arrangement was negotiated without the broad public debate it deserved, and despite widespread opposition from civil society organisations. Brazil posted bullish figures after the agreement was signed, with industrial production jumping 4.2% in September compared with a year earlier.
Paradoxically there had seemed to be a consensus that Brazil did not need a financial agreement - as repeatedly underlined by Lula in recent weeks. Finance Minister Antonio Palocci proudly said that "for the first time we have a deal and Brazil is not facing an economic crisis", apparently failing to grasp the irony. Attempts to present the new loan as a sign that Brazil was ending its dependence on IMF resources were not very convincing. Officials said they would draw on the resources committed only if necessary, the IMF loan was 'insurance' against possible turbulence and would place the country in a better position to graduate from IMF lending in coming years.
News of the agreement came shortly after Rede Brasil, a network of Brazilian NGOs and social movements, urged the government not to sign. In a recent paper Rede Brasil questioned the legality of the previous IMF agreement. Analysis of the confidential 'stand-by arrangement' argued that loan conditions infringed upon the sovereignty of the Brazilian state and violated the Constitution, as well as several norms and principles of international law. The paper advocated involving other representative bodies, not just the executive, in negotiations with the IMF.
In an October statement, Rede Brasil said that since the main argument in favour of a new agreement is 'market confidence' it will not be in the interest of the Brazilian people or the country's economy. Rede Brasil questioned the soundness of economic measures and targets in the current IMF agreement and said pursuing them will only lead to further recession. It pointed at worsening unemployment figures to argue that policies aiming at boosting investor confidence can be harmful and go against the movement that brought Lula into power. In the election Brazilian people 'clearly expressed a desire for reorientation of economic policy from the financial sector towards the productive sector that generates jobs and income'. This was debated at a public meeting with 46 MPs, some of them signing a manifesto against the agreement.
It seems Brazil has now taken the same path as Argentina - secure a financial arrangement while at the same time negotiating marginal flexibility on social aspects. Rede Brasil advocates alternative policies and urges Lula to embark on a more ambitious development programme that looks beyond isolated macro indicators and encourages demand, credit access and productive investment, as well as considering capital controls. A national development project should be devised through broad democratic debate to ensure that hopes raised by Lula's election are not squashed. Rede Brasil says Lula has sufficient political and popular support to break from the current model, and domestic policies should reflect strong signals sent by Lula in various international fora. Until now the actual policies seem hard to differentiate from those of previous president Fernando Cardoso.
Details of the arrangement are still to be made public. Only the specific conditions attached to the new package will tell if Brazil's bargaining position has improved since last year and if the government is playing a clever game or simply surrendering the interest of its people. Financial markets greeted news of the agreement with renewed optimism and Brazil's credit ratings were upgraded almost instantly. Rede Brasil, however, thinks it will tie the government's hands. It also asks for more clarity on whether it is an extension of the previous loan or a new loan - in which case it says the parliament's approval is necessary.
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