Lula's First Year: A Mixed Bag of Economic Results and Social Disillusionment

Strategic Insights -

Brazilians were high on hope when Luiz Inacio Lula da Silva took office as the country's first working-class president, but a year later, many are disillusioned with his economic policy, which has brought inflation under control and sent financial markets soaring, but triggered a recession and sent unemployment soaring. Tight fiscal and monetary policies have brought inflation under control, and investors have seen a 130 per cent return in dollar terms on the stock exchange this year. However, the working class has paid the highest price, with average purchasing power eroded by roughly 15 per cent this year, and more than half the population believes the president has not begun to fulfill his campaign pledges, above all that of creating jobs.

Key Takeaways:

  • Tight fiscal and monetary policies have brought inflation under control, with investors seeing a 130 per cent return in dollar terms on the stock exchange this year.
  • The working class has paid the highest price, with average purchasing power eroded by roughly 15 per cent this year.
  • More than half the population believes the president has not begun to fulfill his campaign pledges, above all that of creating jobs.
  • Constitutional reforms to streamline an unwieldy tax system and cut unsustainable social security benefits were applauded by investors, but have had little immediate impact on economic performance.
  • Lula's economic policy has created most disillusionment among his own supporters, largely over the constitutional reforms and economic orthodoxy.
  • Despite the dismal economic performance and unpopular austerity measures, Mr. Lula da Silva has maintained an enviable popularity rating of nearly 70 per cent.

Statistics:

  • Inflation caused by the fear of a leftwing government eroded average purchasing power by roughly 15 per cent this year.
  • Investors saw a 130 per cent return in dollar terms on the stock exchange this year.
  • More than half the population believes the president has not begun to fulfill his campaign pledges, according to an opinion survey by Datafolha.
  • Sales this year will have fallen by 1 per cent over an already weak 2002, according to Abram Szajman, head of the Sao Paulo federation of commerce.
  • Mr. Lula da Silva has maintained an enviable popularity rating of nearly 70 per cent, according to Marcos Coimbra, head of Vox Populi.

Sources:

  • "A cyclical recovery ought to provide relief next year and ensure Lula's popularity," says Eduardo Gianetti, a professor of economics at Ibmec, the Sao Paulo business school. (Source: Business Week)
  • According to an opinion survey by Datafolha, more than half the population believes the president has not begun to fulfill his campaign pledges. (Source: Datafolha)
  • Abram Szajman, head of the Sao Paulo federation of commerce, says sales this year will have fallen by 1 per cent over an already weak 2002. (Source: Sao Paulo Federation of Commerce)
  • Marcos Coimbra, head of Vox Populi, says Mr. Lula da Silva has maintained an enviable popularity rating of nearly 70 per cent. (Source: Vox Populi)