the country needed to make cuts in government expenditures. However, in 2002, the national debt had reached 330 billion dollars, and Brazil experienced severe stock market and currency fall throughout the year.
Lula formed a new force when it came to strengthen regional cooperation in South America, and he sought closer cooperation with the EU - as part of a strategy for more equality in the relationship with the United States.
This time it was the global “tango crisis” in neighboring Argentina that caused problems to accelerate. This and instability in the financial markets were things that led to victory for the left socialist Luiz Inácio ”Lula” da Silva in the presidential election in 2002. IMF agreed to give the country a new loan, the largest to that point, to prevent that Brazil went towards an economic collapse. But new and serious cases of corruption were revealed, and a general distrust of the elite sparked mass demonstrations in the country.
SOCIAL AND ECOLOGICAL CRISIS The seemingly unsolvable economic problems had major social side effects. Social programs and assistance to underprivileged were all affected by the country’s poor economy, and the slums in urban areas grew explosively leaving thousands of children living on the streets. In 2002 almost one third of Brazil’s population lived below the poverty line. Lula tried to do something about this in 2003 with his “Zero Hunger Program”. Political initiatives also contributed to a steady and strong growth in exports, and the trade surplus increased to 150 billion in Lula’s first year as president. But Brazil was still high on the international statistics of skewed distribution of land and property, and 47% of all arable land was at this time owned by 1% of the population. Successive governments before had tried to implement land reforms, but this was proven to be difficult.
Lula was the first socialist to ever win a democratic election in Brazil, and he was the first president with a working class background with no formal education. Election promises involved an effort to bring balance to the economy – and a down payment on the huge foreign loans – as the basis to improve areas such as unemployment, education, health and poverty. At the start of his presidency, Lula succeeded in gathering a broad majority in parliament behind his policies, and he soon became a role model in neighboring countries. 26 INTERNATIONAL BUSINESS BRAZIL 2013
The crisis also reinforced ecological problems. Special international attention was devoted to the state of the Amazon. In the mid-1990s, more than
10%, or 426 000 km2 of the Brazilian rainforest were cut down. This process was and is still about to destroy the world’s richest ecological area. A SUPERPOWER IN THE MAKING Brazil soon took place as the world’s third biggest exporter of agricultural products, which contributed significantly to the country’s economic growth during the global food crisis that pushed prices up towards the end of the first decade of the 2000s. New, huge oil and gas discoveries off the coast also pointed towards a future as the world’s sixth largest oil nation, and the state owned oil and gas company Petrobras emerged now as the fourth largest in the world. With its strong focus on hydropower Brazil takes aim at becoming a great power also in renewable energy. In Lula’s last period as president many economic indicators pointed in the right direction. The former so burdensome foreign debt was repaid at the end of 2008, when Brazil became a net creditor in the international financial market. Unemployment had dropped significantly, and more and more people took the step from poverty to lower middle class, which now amounted to nearly half the population. Low inflation and stable currency meant that the main objective of his political program was reached. The money transfer scheme Bolsa Familia
increased the purchasing power also for the poorest of the population, and the proportion living in extreme poverty had been halved, from 16% to 8%, since the mid-1990s. Tax revenues rose steeply, and before the financial crisis hit, foreign companies doubled their investments in Brazil in one year. But economic crime, corruption, mafia, violence and a murder rate which was one of the highest ones in the world, still represented a barrier for development. THE PRESENT POLITICAL SITUATION In 2011, Dilma Rousseff was elected as president, and she claims to be starting to tackle some of the abovementioned problems. Her main goal is to eliminate the fiscal deficit, and in order to achieve this she has started to cut taxes for favored industries, has invited private investors to modernize four airports and is rushing a banking oligopoly that has helped to keep interest rates up. But there are still major challenges: her effort to drive down costs is according to many too limited. She was responsible for the new protectionist oil regime, which has received criticism from many sides, and the impression is that she is prepared to settle for growth of under 4%. This could hurt Brazil, and many fear that investors soon will start looking for higher growth markets in Latin America, such as Peru, Colombia or Mexico. INTERNATIONAL BUSINESS BRAZIL 2013
27