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Postby mends » 29 Sep 2006, 15:28

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Is Brazil Nuts -- Or Just the System?

September 29, 2006; Page A17

"Corruption is a regular effect of interventionism."

-- Ludwig von Mises
"Human Action," 1949

As Brazilians go to the polls on Sunday to elect a president for the next four years, most pundits are hedging their bets as to whether Luiz Inácio "Lula" da Silva of the Workers' Party (PT) can win re-election in the first round of voting.

A serious allegation of fraud inside the Lula campaign has become the main issue in the race over the past two weeks. Added to a host of other corruption charges implicating PT members close to the president in the past year, this latest scandal has the potential to force a run-off.

Lula may well be innocent, as he claims, of any involvement in the plethora of scandals now swirling around his party. But it is also true that if corruption has blind-sided him, he has only his own politics to blame. It has been the life work of Brazilian socialists -- of which the PT are among the most hardcore -- to empower the state, without limits, as an enforcer of "social justice" through the wholesome work of politicians and bureaucrats. Now they are reaping what they've sowed: a system that breeds corruption by its very nature, as von Mises warned more than a half-century ago.

The odds of a run-off remain slim. On Wednesday polling companies Datafolha and IBOPE released polls that suggest, after statistically adjusting for nullified ballots, that Lula will finish with 53% of the vote versus 35% for his next closest challenger, the two-term governor of São Paulo, Geraldo Alckmin. Yet with mud from scandal splashing higher every day, Alckmin supporters are holding onto the hope that Lula will fall short of the 50% plus one needed to avoid a second round.

Even then, an incumbent victory is fully expected. Lula is a charismatic populist who, in his first term, had enough common sense to avoid messing with the macroeconomic stability he inherited from predecessor Fernando Henrique Cardoso. He has also raised the minimum wage and expanded the welfare rolls to solidify his base. Brazil's majority poor heavily favor him.

Yet real damage may have been done to his second term. Even if he wins in the first round, the hard-left PT is expected to lose seats in the congress; if that happens, Lula will likely have to give up cabinet posts to coalition allies. While the PT is not the only party in Brasilia tarnished by charges of gross dishonesty, in recent years it seems to have elevated to an art form sophisticated practices of vote buying in congress, kickbacks on government procurement and, most recently, a fraudulent plan to commission and purchase a fake report designed to frame a political rival.

Brazilian disgust with the political class is widespread these days, but one wonders whether the more profound lesson is being learned. Long before von Mises wrote his masterpiece "Human Action," Founding Father James Madison warned that governments without limits are bound to become abusive. "All men having power ought to be mistrusted," he wrote. "If angels were to govern men, neither external nor internal controls on government would be necessary."

Brazil's runaway corruption is not due to an unusual collection of greedy politicians in Brasilia. Indeed, it is likely that Brazilian politicians, like their American counterparts, fit well within the bell curve when it comes to human frailty. The trouble is that under the 1988 constitution, mere mortals are trusted to behave like angels.

The constitutional project began in 1987 with good intentions. Fundamentally, it was an attempt to right the wrongs of the military government by securing democracy. But when socialist ideologues piled into a room with an untold number of narrow special interests, the outcome was a roadmap to tyranny, no longer with guns but with the "law." As Mr. Cardoso recalled in his memoir, "Brazil was trying to create a welfare state at the precise moment in history when the welfare states of Europe were collapsing."

Slow economic growth and corruption are but two offspring of the monster government in Brasilia that has badly damaged Lula's legacy. Von Mises predicted it: "The advocates of interventionism pretend to substitute for the -- as they assert, 'socially' detrimental -- effects of private property and vested interests the unlimited discretion of the perfectly wise and disinterested legislator and his conscientious and indefatigable servants, the bureaucrats." In the world of the anticapitalists, he explained, "only those on the government's payroll are rated as unselfish and noble."

Von Mises anticipated the outcome: "Unfortunately the office-holders and their staffs are not angelic. They learn very soon that their decisions mean for the businessmen either considerable losses, or -- sometimes -- considerable gains." In other words, buying influence is normal when influence has a cash value. This is what one Brazilian family did when it allegedly paid kickbacks to politicians who helped it secure contracts for medical equipment.

Such simple observations from classical thinkers have been routinely dismissed as "ideological" by both Latin American socialists and fascists -- that is, by the left and right. Yet the wisdom has proven timeless and universal, and there is no shortage of oppressed citizens who can attest to its veracity. At a World Bank panel to discuss corruption last week, Dele Olojede (an award-winning journalist from Nigeria) had this to say about the problem: "We should recognize that in societies where the bureaucracy is vast, the press is weak, the private sector operates under the yolk of government, these are the clearest indications of corrupt societies, and you cannot begin to fight corruption if you have all powerful government in any society."

Whether or not the equality of outcomes sought by the Brazilian Constitution is morally defensible, experience shows that the power required by the state to achieve it produces highly undesirable consequences. Despite all of socialism's moralizing, when those clamoring for justice make their way to the seat of unchecked power, a portion of them turn out to be no better than their predecessors. Do-gooders too have clay feet. It is a lesson Brazil is learning the hard way.
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Postby mends » 02 Oct 2006, 09:33

In Brazil, da Silva Forced Into Runoff

Economy, Scandal Weaken
Leftist in Presidential Vote
As Centrist Makes Inroads
October 2, 2006; Page A3

RIO DE JANEIRO -- Turned off by government corruption, Brazilian voters denied President Luiz Inácio Lula da Silva the majority of the vote he needed to win re-election in yesterday's first round of balloting, setting the stage for a runoff with centrist Geraldo Alckmin.

With 99.1% of the vote counted, Mr. da Silva had 48.7% of the vote compared with 41.6% for his chief rival, Mr. Alckmin. With Mr. da Silva falling short of the required 50% threshold, the president's aides were acknowledging late last night that there would be a second round of voting Oct. 29.

Mr. da Silva has witnessed an erosion in his once formidable lead in the past couple of weeks following revelations that officials of his Workers Party tried to buy a dossier linking candidates in Mr. Alckmin's Social Democratic Party to an ambulance-procurement scam. Mr. da Silva's failure to convincingly address the scandal -- he skipped a debate with other candidates Thursday -- clearly upset voters, who had seen a host of previous corruption cases in his government.

A runoff would present a win-win situation for investors. Though a leftist, Mr. da Silva has proved in his first term that he is a responsible steward of fiscal policy, and financial markets have enjoyed an extended rally since he took office in 2003. But most investors think Mr. Alckmin, a former governor of the wealthy São Paulo state, has a clearer notion of the overhauls to the pension system and labor law Brazil needs to rev up its slow-growing economy.

Heading into the second round, Mr. da Silva would have the advantages of incumbency. But Mr. Alckmin would have momentum. In pre-election polls tracking a matchup between Mr. da Silva and Mr. Alckmin, Mr. Alckmin had reduced the deficit to just five points from 17 points since Sept. 19, according to the Datafolha agency.

Mr. da Silva would be expected to hammer on the benefits he has brought to poor Brazilians, who are enjoying low food prices and government welfare stipends that go to 11 million families. Mr. Alckmin would continue to challenge Mr. da Silva on corruption.

"Brazilians historically have been indifferent about (corruption), " says political consultant Andre Torretta. "You cannot come to a guy who's making less than the minimum wage and preach to him about ethics."

But the scandals during Mr. da Silva's presidency have been so devastating that Brazilians, especially those in the middle class, seem to be drawing a line. On Saturday, newspapers published photographs of the stacks of cash that police seized from Workers Party operatives alleged to have been involved in the smear campaign against the opposition. That follows a massive scandal last year in which some of Mr. da Silva's closest Workers Party allies are facing indictment for running a slush fund to buy votes in Congress. In a separate incident last year, a Workers Party official was arrested trying to go through airport security with $100,000 stashed in his underwear.

The rhetoric of the runoff is sure to be nasty. To make the point that he was blameless of the scandals involving his party, Mr. da Silva recently compared himself to Jesus Christ betrayed by Judas. In a response, Former President Fernando Henrique Cardoso, a top Social Democratic leader, said that Mr. da Silva "is not Christ, he is the devil, and we have to kick him out."

The campaign styles are also a contrast. The rough-hewn but charismatic Mr. da Silva is viewed with reverence by poor Brazilians; one mayor in the Amazon approached the president on his knees recently.

Mr. Alckmin, a doctor by training, is a much more subdued figure on the stump. Claudio Lembo, the current São Paulo governor, recently likened Mr. Alckmin to "the son-in-law every mother-in-law wanted to have."

Some key trends will work in Brazil's favor when the presidential term starts Jan. 1. Brazil's interest rates, which have been among the highest in the world, are falling and recently hit a 20-year-low. Policy makers hope that prompts consumers to open their wallets. The benchmark interest rate, which has fallen to 14.25% from 19.75% over the past year, is expected to slip further in coming months now that Brazil has succeeded in bringing inflation down to around 4% annually. The government also hopes investors will give the go-ahead to stalled bricks-and-mortar projects once uncertainty over the election ends.

Brazil's leaders also will cross their fingers for continued strength in the global economy. Brazil has been blessed in recent years with low global interest rates and high international prices for the country's agrarian and mining commodities, due largely to demand from China.

But Brazil's economy is beset by structural problems. The country's sprawling public sector is sustained by a highly taxed citizenry, and government bureaucracy stifles entrepreneurial energy. Also, due to higher spending in an election year, the government will struggle to meet its year-end goal of a primary budget surplus of 4.25% of gross domestic product.

In June, Fitch Ratings upgraded Brazil's sovereign debt rating by a single notch to Double B, which is two steps below investment grade. "We think the new government will stick to the macroeconomic policy, but there will be very little action on reform," says Roger Scher, a Fitch managing director. "It's going to be hard for whoever wins to put together a coalition and hold it together."

A Congress that has been historically fragmented would be harder for Mr. da Silva to handle in a second term due to scandals that have weakened his Workers Party and angered the opposition. "At least initially, the atmosphere will remain charged," says Fernando Lattman-Weltman, a political scientist with Rio's Getulio Vargas Foundation. "The opposition will be suffering from a hangover and there will be a runoff in many states."

Most analysts view Mr. Alckmin as more capable of engineering the profound economic changes Brazil needs. There is widespread opposition and sensitivity to changing the public pension system, which costs 12% of GDP, a higher average than wealthy countries with much older populations, says a JP Morgan report. Unions are also protective of Brazil's labor code, which is based on that of Mussolini's fascist government in Italy and results in millions of lawsuits against employers and significant severance charges.

But Antonio Delfim Netto, a congressman who was finance minister during the 1960s and 1970s, has had conversations with Mr. da Silva's aides and says they know what needs to be done to address Brazil's slowing growth. "They have no alternative," Mr. Netto says. "They know Brazilians won't tolerate another tax hike." Brazil's average tax load has climbed to 38% of GDP, comparable with wealthier countries', from 26% over the past 12 years.

Write to Matt Moffett at and Geraldo Samor at
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Postby mends » 09 Oct 2006, 09:01

Debate Ahead of Brazil's Runoff
Is First Test to da Silva's Lead

October 9, 2006; Page A4

RIO DE JANEIRO -- Brazilian presidential hopeful Geraldo Alckmin challenged the ethical record of President Luiz Inácio Lula da Silva's administration, while the incumbent sought to cast Mr. Alckmin's party as one that doesn't care about the poor.

The two men confronted each other last night in the first of two debates ahead of a runoff vote later this month. The debate could prove crucial to Mr. Alckmin, who must work hard to erode his opponent's eight-point lead. A poll released Friday by Datafolha, an independent polling group, shows Mr. da Silva outpolling Mr. Alckmin 54% to 46%.

Mr. Alckmin reminded voters of several corruption scandals that unfolded under Mr. da Silva's watch and asked the president to explain where the "dirty money" had come from in a recent plot in which operatives of Mr. da Silva's Workers Party tried to buy information about Mr. Alckmin's party. When arrested by police, the men were carrying $770,000 in cash.

Mr. da Silva claimed to have punished all the people accused of wrongdoing in his administration, instead of "sweeping the dirt under the rug," which he said was the policy of Mr. Alckmin's Social Democracy Party when it was in power.

Mr. Alckmin said Mr. da Silva wastes taxpayers' money and challenged the president to make the presidential office's corporate-card spending public. Mr. da Silva said Mr. Alckmin's party's priorities are "to privatize, privatize and privatize, while our priority is to invest in social policies."

Even President Bush got dragged into the bitter exchange. Responding to Mr. Alckmin's charge that Brazil has a "weak" foreign policy, Mr. da Silva countered that Brazil has a "daring" foreign policy and added: "If Bush had the common sense I have, the Iraq war wouldn't have happened."

Trying to shift the campaign away from the corruption scandals, Mr. da Silva talked up the economy. "Truth is, Brazil got better," he said. "People are eating more, they are building more, they are living better."

Mr. Alckmin faces a tall order. If both candidates cling to all votes they received in the first round, Mr. Alckmin must win 86% of the votes given to other candidates in the first round if he is to beat Mr. da Silva in the runoff, said Ricardo Noblat, Brazil's top political blogger, after crunching the first-round numbers.

"The wind is clearly blowing in Lula's favor," Mr. Noblat said. "The only thing preventing him from being re-elected is if we see another scandal blow up inside his government or his party, but that cannot be ruled out either because they love getting into trouble."

Despite his lead, Mr. da Silva isn't sparing any effort to guarantee his re-election. Several cabinet members are expected to take a leave of absence to campaign in their home states for the president. In another front, leaders of Mr. da Silva's Workers Party spent the week "warning" voters that, if elected, Mr. Alckmin would cut back on welfare programs, lay off government employees and halt further increases in the minimum wage. One party leader went as far as to suggest that the economy might go into recession as a result of those measures.

Mr. Alckmin's camp denied it was considering the unpopular measures and accused the Workers Party of engaging in political terrorism.

Mr. da Silva "has abandoned his imperial attitude of hovering above the issues and is now on the attack," said Luis Fernando Lopes, chief economist at Patria Banco de Negocios, a merchant bank in São Paulo. "But talking about an 'Alckmin risk' is pathetic. What got Lula elected in 2002 was his very commitment to keep the business-friendly policies of Mr. Alckmin's party."

The week heading into the debate wasn't easy for Mr. Alckmin, whose campaign seemed to struggle to keep the momentum that landed him in the runoff. Seeking to broaden his support base, Mr. Alckmin accepted the public endorsement of a controversial former Rio de Janeiro governor, prompting allies in the state to threaten to jump ship. The uproar was later quelled, but the campaign lost focus amid the friendly fire.

Mr. Alckmin's first campaign week after the election "was thrown away, literally," Rio de Janeiro Mayor Cesar Maia, an ally of Mr. Alckmin, wrote on his Web site Saturday. The day after the election, Mr. Alckmin should be in the downtown areas of major cities of the Northeast, where he is behind, Mr. Maia said.

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Postby mends » 27 Oct 2006, 15:12

In Brazil Campaign,
A Barroom Brawl
And a Class War
Presidential Race Spotlights
A Big Cultural Divide
Between North and South
October 27, 2006; Page A1

RIO DE JANEIRO -- Scenes from the class struggle in Brazil:

One evening last week, Danielle Tristão walked into a bar in a tony neighborhood of this seaside city wearing a T-shirt emblazoned "Lula Yes." She was declaring her support for Brazil's blue-collar president, Luiz Inácio Lula da Silva, who is a heavy favorite to win re-election on Sunday but is despised by Brazil's upper crust. Ms. Tristão, who is 38 years old, said hostile patrons were soon pelting her with fliers for Mr. da Silva's centrist opponent, Geraldo Alckmin, and even scuffling with her. In the melee, one of the customers bit off part of Ms. Tristão's left ring finger.

To leftists she became a martyr, especially since Mr. da Silva as a young man had lost the pinky of his left hand in a metalworking accident. "Some fascists ate the finger of a Workers Party activist so that she would bear on her body Lula's mark," leftist playwright Augusto Boal proclaimed at a political rally for Mr. da Silva and his political party.

Not so, says the woman who did the biting, Ana Cristina Luzardo de Castro. Through her husband, Ms. de Castro, 39, says that Ms. Tristão was drunk and belligerent, calling her an "uninformed preppy." Even though her husband says she was biting in self-defense, Ms. de Castro is now being vilified by Brazilian bloggers as "Hannibal" and the "Pit Bull of Leblon," the neighborhood where the bar fight occurred.

Ms. de Castro's husband says his wife actually votes for Mr. da Silva, but that doesn't seem to matter in Brazil's politically charged environment. In a vast and diverse nation that has long taken pride in its live-and-let-live ethos, this year's presidential campaign has laid bare profound frictions between social classes and regions. Brazil's image of itself as a super tolerant "racial democracy" is getting a rude reality check.

Mr. da Silva is the overwhelming favorite of voters in the sprawling, arid Northeast, where he himself was born and people tend to be poorer, less educated and darker-skinned than those in the South. The South, which encompasses Brazil's most modern and glamorous cities and its media centers, has been considerably cooler to Mr. da Silva.

College-educated Brazilians, like the students in São Paulo who recently dressed up as clowns to satirize Mr. da Silva, often look down on a president who quit school after the fourth grade. But the vast majority of Brazilians with only a basic education embrace him. Overall, a survey by the Datafolha polling group projects Mr. da Silva getting 61% of the vote compared with 39% for Mr. Alckmin.

There have always been social and regional divisions in Brazil, but they have been worsened by the two defining features of Mr. da Silva's administration: aggressive welfare spending and brazen corruption scandals. Mr. da Silva's program of providing cash subsidies to 11 million poor families has fired up fierce loyalty toward the president -- and antagonism toward Mr. Alckmin -- in working-class neighborhoods.

Meanwhile, scandals in Mr. da Silva's administration have turned off many members of the Southern middle class and elite who had voted for the president in 2002. In the latest impropriety last month, Workers Party operatives were caught with $770,000 that they allegedly intended to pay for a dossier damaging to an opposition candidate. That scandal, one of whose alleged masterminds was a favorite barbecue chef of Mr. da Silva's, sapped the president's support in the Oct. 1, first-round balloting and set the stage for Sunday's runoff.

Mr. da Silva has further heightened class tensions by arguing that corruption cases in his government are being blown out of proportion because of his humble background. "There is a reason I'm being persecuted," Mr. da Silva said last week. "It's a matter of skin, of social origin." He rails against "a small minority that has leeched from the country for 500 years." The divisions exposed during the campaign will likely haunt Mr. da Silva throughout his next four-year term, making it harder for Brazilians to unite behind the tough measures the country needs to boost a slow-growing economy.

Both sides have played on negative stereotypes. Earlier this month, the Workers Party Web site ran an item noting that the daughter of Mr. Alckmin, who is an anesthesiologist from the wealthy Southern state of São Paulo, had worked at a boutique that had been raided by tax authorities. His wife had gotten a gift of "400 chic dresses" from a leading fashion designer, the note said. Mr. Alckmin's wife said there were far fewer dresses and she donated them to charity.

A couple of weeks ago in the prosperous Southern city of Porto Alegre, a 69-year-old engineer was handing out stickers bearing the legend, "Out With Lula" and a drawing of a hand with four fingers inside a circle marked with a slash. A 42-year-old woman who is an activist in Mr. da Silva's Workers Party got into a shoving match with the man, who insisted he would "print another 20,000 stickers," according to the police report.

An anonymous email that has been circulating on the Web this month, under the title "The Solution Is Separating," showed a map of Brazil, divided between the North and South. Alongside the North was a photo of Mr. da Silva, and the phrase, "They get him." Alongside the South was a photo of Mr. Alckmin, captioned, "We get him." (The Alckmin campaign has deplored and disavowed responsibility for the email and the stickers, which have been turning up in several states.)

An anonymous email circulating online carries the above image of a divided Brazil, titled "The Solution is Separating." Next to the north half, with a photo of Mr. da Silva, it reads, "They get him." And on the south half, next to Mr. Alckmin's photo, it reads, "We get him."
Though he has exploited class issues in this campaign, Mr. da Silva was often victimized by working-class stereotypes in three unsuccessful races for the presidency in the 1980s and 1990s. Finally, in the 2002 election, Mr. da Silva found a shrewd political consultant who gave him a makeover. Mr. da Silva had his teeth fixed and his beard trimmed and got a better tailor. He won in a landslide.

Then in 2005, prosecutors alleged that the Workers Party had operated a massive slush fund to finance campaigns and buy support in Congress. That has led to the resignation and indictment of many of the president's closest allies, including the consultant. Mr. da Silva, who hasn't been charged, claims a vendetta against his government by "the elites." Last year, Sen. Jorge Bornhausen, a top opposition figure, gleefully said that the scandals meant "we are going to get rid of this race for the next 30 years." Many people took "this race" to mean not only the Workers Party, but also Mr. da Silva's blue-collar supporters.

A few days later, billboards sprang up in the capital of Brasilia showing Mr. Bornhausen wearing a Nazi uniform and a toothbrush mustache, alongside the slogan: "Blacks, poor and blue-collar workers never again."

Mr. Bornhausen has long been known for his fierce opinions, but even mainstream Brazilian culture is becoming more politically polarized, analysts say. Diogo Mainardi, a popular columnist for the huge newsweekly Veja, has emerged as the politically incorrect voice of affluent and educated Brazilians horrified by the prospect of four more years of Mr. da Silva. "Brazil isn't dominated by an evil elite," Mr. Mainardi wrote recently. "Brazil is dominated by a mass of ignorant poor people. They are deciding for us. And they are deciding very badly."

Veja is the Brazilian equivalent of Time magazine, with a circulation of 1.2 million, making it the largest newsweekly in Latin America.

Mr. Mainardi insists his provocative style has a serious purpose. He maintains Mr. da Silva's handlers have shielded the president from criticism by manipulating the guilt of middle-class Brazilians over Mr. da Silva's impoverished roots. To cut through the political packaging, Mr. Mainardi explains, "I almost force myself to say what can't be said." Of Mr. da Silva, he recently wrote, "I wouldn't even choose Lula to open and close the garage door of my apartment building."

The president's supporters say Mr. Mainardi and Veja are mouthpieces of an establishment that has it in for him. "Veja has some journalists who are deserving of the Nobel Prize for irresponsibility," Mr. da Silva said.

Write to Matt Moffett at and Geraldo Samor at
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