Lula brings retro playbook to a modern Brazil

Receive free Brazil updates

At a meeting with top business leaders this month, Luiz Inácio Lula da Silva focused firmly on the future. “I didn’t come back to do the same thing I already did,” said the 77-year old, who is six months into a third non-consecutive term as Brazil president. “We came back to do things differently.”

It was a sorely needed message. Despite pledges to overhaul Latin America’s largest economy — and high expectations for a big green transition package next month — Lula’s leftwing administration has so far had a decidedly retro feel.

From an industrial strategy focused on subsidies and propping up manufacturing to a foreign policy that has loudly reasserted Brazil’s non-aligned credentials, many of the government’s signature policies echo a bygone era, say critics, who are urging a more modern approach.

“Our president wants to impose an outdated leftwing agenda from the 1970s,” said Sérgio Werlang, a former central bank director now a professor at the Getulio Vargas Foundation. “Nowadays it just does not make sense.”

Most prominent are the government’s attempts to prop up industry, which as a sector has shrunk from 48 per cent of economic output in 1985 to less than 24 per cent today. But rather than tackle the root causes of industrial decline — poor education levels, costly logistics and burdensome bureaucracy — Brasília has focused on handouts.

Between June and July, the government spent R$650mn ($135mn) subsidising the sale of 125,000 so-called “people’s cars” to less well-off citizens. The package was an effort to boost car manufacturing, which has haemorrhaged jobs in recent years. But its impact was fleeting.

As if to highlight the futility of the strategy, the package was rolled out at the same time as Volkswagen was announcing that it was suspending production in Brazil, citing market stagnation. That followed stoppages by General Motors, Stellantis and Hyundai and others already this year.

Brasília said it intended to spend $20bn over the next four years to bolster industry, with a focus on supporting “socio-economic inclusion [and] promoting decent work and improved salaries”. But for some their focus is misguided.

“They think it will preserve more jobs and these jobs are important for growth. But this is the mindset of the 1970s when industry was important in generating jobs. Not now. The world has been changing towards services,” said Werlang.

Lula’s political beliefs can often be traced back to his formative years as a trade union activist in the 1970s and 1980s — a time when manufacturing was a bulwark of growth.

Many of those who surrounded Lula during those years remain influential today, notably Aloízio Mercadante, who founded the Workers’ party with Lula in 1980. He is now spearheading Brazil’s “neo-industrialisation” push as head of the national development bank.

“I see the government as running short of new ideas. We are seeing the old-minded Workers’ party [with] ideas from an old world when the state had more power,” said Bruno Carazza, a professor at the Dom Cabral Foundation.

Carazza said the government’s retro mentality was most evident in its foreign policy, particularly its cold war-era outlook on Russia’s invasion of Ukraine.

While emphasising Brazil’s non-aligned status, Lula has claimed Ukraine bears as much responsibility as Russia for the conflict and criticised leader Volodymyr Zelenskyy for “wanting the war”.

“This [is] Lula paying tribute to an obsolete cold war view that Ukraine was a satellite of Russia, and so the Russians were legitimated to invade,” said Carazza.

One notable exception to the administration’s retro bent is Fernando Haddad, who has surprised the business community since his appointment as finance minister. Despite longstanding loyalty to Lula, Haddad has walked a fine line to balance Workers’ party interests with market demands for reform and fiscal discipline.

Most notably, he has helped shepherd a long-awaited and widely demanded tax reform, which could be passed by Congress as soon as next month.

The overhaul, which is expected to boost long-term growth by up to 2.4 per cent, comes amid an increasingly optimistic outlook for the economy, with gross domestic product forecasts for this year being revised up to 2.2 per cent.

Much of this is being driven by the booming agribusiness sector rather than any kind of industrial or governmental policy. But if life starts to improve for Brazilians, Lula will take the credit, retro style.

Source link