The government of Luis Inácio Lula da Silva, or Lula, leader of the Workers’ Party (PT) is now in its most critical period since taking office in January 2003.

The main reason for the political crisis is the dismal state of the economy after more than 13 months of continuing the same neo-liberal policies as the previous government of Cardoso. On top of this, there are serious accusations of corruption involving a direct assistant of José Dirceu, Lula’s right-hand man in the government, which is affecting the government’s popularity.

The Lula government’s first year has surpassed all expectations from a negative point of view. Instead of the "spectacular growth" that Lula promised, Gross Domestic Product (GDP) fell. The situation is disastrous, from a social point of view, with employment and wages down.

GDP fell 0.2% in 2003. Per capita GDP fell 1.5%. Industrial production fell 1%; the services sector 0.1% and construction went down 8.6%.

The government’s policies also led to contractions in income. Average wages in January 2004 were 6.2% down from the same month in 2003 – with a 2.1% fall for unregistered or informal-sector workers and -8% for the self-employed.

Officially, unemployment remained high at 11.2% in January 2004, unchanged since January 2003 – the real number on other estimates is around 20%.

In 2003, the Lula government allocated 54.61% of its budget to repay debt and interest charges. Not even Cardoso spent so much on this. In 2002, the last year of the dismal “Cardoso period", the federal government spent 41.6% of its budget on debt.

In 2003 alone, total payment of interest and the writing off of public debt (at all levels, not just federal government) reached 145 billion Brazilian reais (US$ 50 bn). The renewal of the IMF accord at the end of 2003 commits the government to continue with a budget surplus (before interest) of 4.25% of GDP to endure debt is paid off.

This astronomical figure is what is needed for the social spending and for investments to create jobs and economic development. According to official data, 78% of public works projects and social programs planned for 2003 actually got less than half the funds allocated in the budget. Of these projects, 38% got nothing at all and so just failed to materialize - this was the case for public works to prevent floods, and for programmes to expand and improve secondary schools, for STD/AIDS research, etc. The federal job and income creation programme was actually given only 4.54% of the funds initially allocated. Basic sanitation got only 2.3% and housing a miserable 1.82% of the amount allocated.

In 2003, under Lula, federal investment was only 0.24% of the budget (1.8 billion reais - US$ 0.6 bn). Even under Cardoso, the level of investments, in 2002, for instance, was higher, at 1.5% of the budget (11.6 billion reais - US$ 4 bn).

Land reform was almost completely ignored by Lula, who preferred to put his efforts into passing neo-liberal counter-reforms, such as the new pensions’ arrangements. He has plans to implement more of these ’reforms’ this year - university, employment and unions. All involve taking away or diminishing workers’ rights, indirect privatization and backsliding on conquests obtained in the past with the help of the PT.

All this underlines the fact that in capitalist society, previous reforms won by the working class can be taken away.

The Lula government’s first year was not just an economic and social disaster. It was also one of record profits for the banks, both local and foreign owned. Diminishing workers’ income and cuts in social spending meant fabulous gains for the big capitalists and particularly the banks. Former state-owned companies privatised under the Cardoso government - such as electricity - were given public money and higher tariffs to see them ‘through difficulties’ - and some major media conglomerates, such as TV Globo, are also in line for public money.

Corruption in government circles

Feeling the effects of cuts, broader sections of the population are beginning to be more sensitive to accusations of corruption involving government circles.

A video was made public at the beginning of the year that featured Waldomiro Diniz, who was a close aide to Lula’s chief-of-staff José Dirceu (who is a kind of informal prime minister for the Lula government). Diniz was shown with a racketeer boss of the "animal game" - an illegal gaming operation carried under cover of legal gambling in bingo halls. They were negotiating financial assistance for the PT’s 2002 election campaign. Along with this, Diniz was seen asking for a 1% commission, or kickback, on the total amount to be spent on equipping and running the government’s own lottery operation.

When Lula’s came to power in 2003, Diniz became José Dirceu’s right hand man and was put in charge of negotiations between the Executive and congressmen. An inquiry has already shown that he used his position during the Lula government to repeat corrupt practices.

More details now emerging connect Waldomiro Diniz to Rogério Buratti, formerly an assistant/advisor to Antonio Palocci, the current Finance Minister. Allegations concerning scandals involving millions are made against Buratti when he was mayor of Ribeirão Preto. There are clearly many ramifications for the PT government concerning these allegations of a far-reaching network of corruption.

Diniz was dismissed as soon as the allegations came out but the government did all it could to avoid a Parliamentary Commission of Inquiry (CPI) being set up to investigate the full extent of the network of corruption. Lula and the PT leaders in Congress used the same methods as the previous government to avoid a PCI and applied extreme pressure, promised jobs, and bought off congressional representatives etc, etc.

Revolutionary Socialism (SR - the CWI section in Brazil), while not opposing the establishment of a CPI, had no illusions that this Congress controlled by pro-government political forces, on one side, and a right-wing opposition, on the other, would make a thorough investigation. We said that a People’s Commission of Inquiry, composed of representatives of workers’ organisations, and bodies connected to the struggle for democracy, should be set up to conduct a fair and honest inquiry.

A left alternative

To recapture popularity waning due to the dismal economy, and the smell of corruption in the air, the Lula government is promising to implement an "affirmative agenda" aimed at growth. But the agenda contains almost no actual concrete measures. Even interest rates will not be reduced significantly. The last government monetary committee meeting decided to lower the basic annual rate by 0.25% - from 16.5 to 16.25%! It is still one of the highest in the world.

Lula had promised to ask the IMF to renegotiate certain points in the accord signed last year with the Brazilian government. Lula met with the Argentinean President, Kirchner, to co-ordinate some type of joint approach. But neither the primary surplus target nor the re-negotiation of the terms of payment of debt is on the agenda.

To guarantee investments in infrastructure, the government intends to establish a Private Public Partnership Scheme (PPP) on the same lines as those in Britain. In other words, public money will be used to guarantee risk-free profits for private business. The government that promised “no more privatizations” has already privatized the Bank of the State of Maranhão. Now the PPP scheme will introduce the "PT way of privatising”.

But the government’s main investment in its attempt to recover popularity is a new TV advertising campaign trying to convince everybody that "integrity gets results”. Lula still has popular support but it is based on the hope that things will change not on his concrete accomplishments. But this mood will not last forever.

The right opposition, led by part of the PSDB (Brazilian Social Democratic Party) and the PFL (Federal Liberal Party), is working to wear down Lula, but not to defeat the government. After all, they are in full agreement with the essence of his economic policies.

At this point in time, some workers, particularly in the public sector, are beginning to move into struggle over their specific demands. Even the federal police are on strike demanding inflation adjustment. MST, the landless rural workers’ movement, is threatening to end its truce and resume mass occupations.

The perspective of an employment reform taking away workers’ rights is also sure to prompt resistance from private-sector workers, although this process may not work though in the short-term. The proposal for university reform, now under discussion, may also provoke a reaction in the universities against the government’s privatization plans. All these struggles, however, have to be unified to be able to take on the government and to win reforms.

It is time to rebuild a powerful left force, which will intervene in the struggles of the working class, the youth and all the oppressed sections, to be able to defeat the economic policies and neo-liberal reforms of the Lula government, to make gains, and to pose as an anti-capitalist and socialist alternative.

Committee for a workers' International publications

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