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A message for Lula

October 03, 2006

FINANCIAL MARKETS CHEERED the failure of Brazilian President Luiz Inacio Lula da Silva to win a majority of the vote in Sunday's election, and the U.S. State Department made some positive noises to the effect that the results demonstrated "the strength of democracy in the hemisphere." But Lula's sudden and surprising fall from grace isn't necessarily good news.

Though polls had long predicted Lula as the clear winner, he instead attracted only 48.6% of the vote, forcing an Oct. 29 runoff with rival Geraldo Alckmin, the former governor of Sao Paulo. Brazilian stock traders were pleased because Alckmin is more business-friendly than Lula and promises to lower the country's crushing tax burden, though he hasn't given many specifics on how to go about it. The benchmark Ibovespa index rose 2% Monday.

Lula's collapse can be traced to a scandal that emerged Sept. 15, when two men tied to his Workers' Party were arrested in what appeared to be a dirty-tricks campaign against political rivals. This followed years of vote-buying scandals, kickbacks and other corrupt dealings by party members and their associates. And though Lula has never been directly tied to any of them, he has also failed to clean house. He didn't help his own case by refusing to participate in a final televised debate among the presidential candidates.

Despite the setback, Lula is heavily favored to win the runoff, not least because Alckmin is nearly devoid of charisma; in a country fond of single names and nicknames, Alckmin is often called "xuxu," which is a flavorless Latin American squash. Yet with his political capital at an all-time low and with the number of friendly seats declining in Congress, Lula may find it very difficult to get much done in his second term.

Some might call that a bonus. Lula's embrace of orthodox economic policies has come as a relief to many investors in Brazil and beyond, but there's little evidence that he ever had any appetite for the reforms Brazil needs if it is to boost its relatively anemic 3% annual growth rate. Latin America's most populous nation suffers from a bloated state that gets in the way of private enterprise. Perhaps a chastened second-term Lula might be more amenable to working with the opposition to improve business conditions in the country.

On the global stage, Lula has been an authoritative voice for social justice, though at times he has been too quick to defer leadership of the Latin American left -- oddly, given Brazil's size -- to the buffoonish Venezuelan president, Hugo Chavez.

Judging from Sunday's results, that deference may have diminished Lula's standing at home as well as abroad.

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