Lionel Barber, editor of the Financial Times, and Jonathan Wheatley, Brazil correspondent, interviewed President Luiz Inácio Lula da Silva in London on November 4.
Financial Times: Mr. President, tell me, how is it that Brazil has come out of this global financial and economic crisis so quickly?
President Lula: Well, first of all, I believe that it’s important for you to understand what happened in Brazil before the crisis. We were determined to end the paralysis that Brazil suffered during the ’80s and ’90s. Brazil had to get back on the road to growth, and invest in infrastructure as the precondition for success in the future decades. One important thing is that many of the measures that some countries have undertaken after the crisis, Brazil did in January 2007.
Let me tell you something that will sound like an irony of destiny. I was afraid of running for a second term. I wasn’t pleased with the idea of running again. Why? Because I had the impression that a second term could be just more of the same. You would lack motivation and things would not go well, and everything that you managed to do in the first term would not be enough to sustain you for a second term. And I still had very alive in my mind Cardoso’s [Fernando Henrique Cardoso, his centrist predecessor] failure in his second term. It still was in my mind.
Very well; in 2006, discussing the second term, I said to my colleagues that it was necessary for us to start 2007 with an investment programme that would make us busy for the next four years. And we prepared the PAC, the P-A-C, the accelerated growth program. The PAC was going to be released in 2006. But one of my advisers in communications advised me not to launch it in 2006 because it would be seen as part of the political campaign during the elections, and it could lose credibility with the public.
And my advisors said, you don’t need the accelerated growth programme to win this election, the presidential elections of 2006. So the PAC had to be launched after the elections, and that’s what we did on 22nd January 2007. And the PAC was one of the main reasons the crisis came late to Brazil and is one of the reasons that it ended first in Brazil, because for a developed country, $300bn of investments is nothing, but for a country the size of Brazil that was not accustomed to make such investments, public investments, a government investment program for four years of $300 billion was an extraordinary challenge.
So what happened actually was that when the time came, the crisis came, Brazil was already doing many investments that other countries only started to discuss at that moment. Brazil was already doing these investments. Things were already underway, and in a meeting with my finance minister, with the governor of the central bank, with the planning minister, I said to them, we have now to treat the economy as if we were in wartime.
There’s no time to waste just having meetings and listening to a lot of people talk. The counter-cyclical measures have to be implemented immediately. And we had the participation of Congress. That was very important, because all the measures, all the bills that we sent to Congress to confront the crisis, Congress passed them very quickly. Even the opposition passed our measures very quickly in a clear-cut demonstration that everybody was highly concerned with the effects of the crisis in our country.
It’s important to remember that on 22nd December 2008, I did something that I never imagined I would do. There was a lot of panic going on in the press and the media about the US, what was going on in Great Britain, in Europe, and the global crisis, and everybody saying that consumption will drop. So I went on national TV and I made a statement, a nine minute statement to call on the Brazilian people to buy more, to consume more in a responsible way. There was an idea that the worker was not buying any more because he was afraid to lose his job, and he couldn’t pay his instalments, his bills. So I went on television to say it was understandable that he was afraid of losing his job, but that it was certain he would lose his job if he didn’t buy anything. So it was necessary that within the budget of each one, we should buy everything that we were interested in buying.
At the same time we gave tax breaks for the automobile industry, for white goods, refrigerators, washing machines, ovens, and construction materials. And last but not least, we announced a programme of building one million houses for the low income brackets, of which half were for the very low income bracket which is from zero to three minimum wages. And we put R$100bn, which is equivalent to $50 billion more or less, in the national development bank, a state-owned bank, so it could finance development projects.
We released another R$100bn from the compulsory deposits that the banks have to keep at the central bank, to open credit flows. We made the state-owned banks buy portfolios of small banks that were used to finance purchases of used cars, and we took the initiative to buy two important banks; the savings bank of the State of São Paulo, and 50 per cent of Banco Votorantim. That’s a privately run bank.
Why did we do it? Because the used car market was in paralysis; no more sales. If you don’t sell a used car, you don’t buy a new car, and Banco do Brasil, which is a state-owned bank, had no expertise in this field, in financing used cars, so instead of training their personnel to learn how to finance used cars, we bought a bank that had great expertise in the used car market, we bought 50 per cent of that bank.
And today, thank God, the market is normalised and the automobile industry in Brazil is selling new cars.
And then, we also faced a very serious problem of selling trucks, and I wanted to renew the truck fleet in Brazil. And so now we developed a financing programme to allow people to purchase new trucks under highly advantageous conditions. So the autonomous, freelance driver could buy his own truck.
In July last year, we launched another programme called More and Better Food, and we financed the purchase of 60,000 tractors and 300,000 agricultural machines for family farming.
FT: Mr President, just on the big picture for a moment, you said that you were worried about your second term. Many international financiers and the markets and Wall Street were worried about your first term. Did they mis-read you? What kind of socialist are you?
PL: First of all, they did mis-read me. If people read my biography, followed the very responsible way that I conducted business in the trade union movement in Brazil, and if people took account of the fact that I lost three previous elections, and that I had waited for 12 years, that’s enough time for the party to mature and for a candidate to mature. And I was the only candidate in Brazil who couldn’t fail. I couldn’t afford to make any mistakes. I couldn’t so what [Lech] Wałęsa did in Poland, or no worker would ever have been elected president again. And I was working with the idea that I needed to succeed so that other workers could have the same dreams that I did, and they could also run for the presidency. So I was working obsessively under the conviction that I couldn’t make any mistakes.
So at the international level, I believe they made a sociological analysis that was done in a rush. They prejudged my person, my being, my party, and the possibilities. The best intellectuals in Brazil were supporting me. I had on my side the majority of the social movements. I had support from the majority of the labour movement. I had on my side a big part of the political left in Brazil. I also had on my side what was missing for me to have won elections in the previous years, and that was a great entrepreneur as my vice president; to have someone from the business class to be my vice president, that was a way for me to win over those 20 per cent of votes that I lacked in every election before.
So I brought in to be my vice president a person who I consider to be the best vice president in the world, a man from the business world who today has the largest textile company in the world. He was my vice president and helped me to break the taboos and all the prejudice in the business world. This was one important move that only after the elections some business sectors started to understand, and here I want to say publicly, that Gordon Brown was someone very important, a very important person, because through all that time, he trusted in Brazil and always spoke well of my government. And the managing director of the IMF, I remember a meeting in Paris in 2003 when I was talking to [Horst] Köhler about Brazil, about my life. This was when I’d been just less than a month in office. And suddenly, we were hugging each other and we were crying.
FT: What, you Köhler?
PL: Yes, in Paris 2003; January 2003. So there was a lot of understanding of some international leaders, supporting our policies, differently from in other periods. Everybody that came to visit us knew about the endeavours that we were undertaking, and then they started to speak well of Brazil around the world. So the markets became a little bit less prejudiced, and [Jacques] Chirac was a very important figure who supported me. Look, I’m talking about right-wing people.
FT: Did you persuade [George W] Bush?
PL: Yes. I’m very grateful to President Bush. I remember very well as if it was today. On 10th December 2002, before the inauguration, I went to the White House to talk with President Bush. Bush was talking about the Iraq war, the future Iraq war, in a very obsessive way, and saying it was fighting terrorism… he spoke very frankly. After 40 minutes of this I told President Bush, President Bush, Iraq is 14,000 kilometres away from my country. I have nothing against Iraq, but I have another war to wage in Brazil. That is the war to end hunger in my country. This is my priority. So from there onwards, we established a very good friendship. I became a friend of Bush.
FT: Mr President, I want to ask another question about the economy, but very briefly, you mentioned your formidable coalition which helped you win your first term. Can that coalition hold together when you leave office?
PL: Yes, and we’re building that coalition. First of all, because I know that whoever will be the future president, he will not be able to change all the achievements that Brazilian society has been benefiting from. Secondly, because I have a very good candidate, she is very competent, she knows Brazil very well. Very few people know Brazil as she does, she is the great manager of the success of our government.
FT: But she doesn’t have your charisma, Mr President.
PL: She’s going to have to build it. One thing that I believe is important is that if I manage to elect Dilma, my big contribution will be to allow her to develop her own style, to develop her own way of doing things.
FT: Did you ever think about a third term? And I ask because I’ve just spent an hour and a half with President [Álvaro] Uribe.
PL: I started the interview saying that I was afraid of my second term. I believe that the successor who manages to get through an election doesn’t have the right to think of a third term, because the successor once elected has the right to a second term.
FT: Let’s go back to the economy. Is this growth that you’ve seen sustainable? Is it too dependent on commodities?
PL: No, it’s not dependent on commodities. It’s sustainable growth that involves many different industries. Commodities, yes, they are important. The industrial sector is important. Exports are important. The shipbuilding industry and the construction industry are important. The petrochemicals industry is important. That is to say, we made the decision to make Brazil a great and true economy, and God has helped us in two ways, basically.
First of all, because the world will continue to need more food, and Brazil has all the proper conditions to produce part of that food. Secondly, because we have just discovered a lot of oil, and we do not want to use oil as traditionally the oil countries have used oil, to be just mere exporters of crude oil and not combining oil with domestic development. So we are developing a fund under the new regulatory framework of the oil industry just to take care specifically…
FT: Are you not worried that the state’s hand is too heavy?
PL: No, I’m not. We’re developing a fund with the objective of investing in education, science and technology, healthcare, culture and the environment. These are the priorities. It’s a fund that will be invested in the markets and we will spend all the investments we have in this fund. We’re not going to spend the fund’s money. We want to be exporters of oil derivatives, not exporters of oil, because we want to develop a strong oil industry and a strong shipbuilding industry together. We want to build our own drilling rigs, our own offshore platforms, and our own ships. And we want to develop a strong petrochemicals industry. We’re already working on that.
FT: Petrobras is a world class company. We know that. But you’ll need some foreign technology here.
PL: Yes, and we want that, and we want to share our knowledge with foreigners too, so that’s why we’re making every endeavour to make oil companies around the world develop partnerships with us in building shipyards with dry docks so that we can build things in Brazil.
FT: A lot of people who criticise the government, but also people who aren’t so critical, have said there’s an extension of the hand of the state in this. There’s been pressure on Vale, for example, to invest in steel making. How do you see the relationship between the public and private sectors in a future government?
PL: I believe that if you analyse things properly, I doubt that at any time in Brazil’s history the private sector has had more respect from the state than it has today. I doubt that they ever managed to enjoy such respect or that they ever made more money. What I ask of Vale is that they should turn iron ore into steel in Brazil, and at the same time, it should buy the machinery and ships it needs in Brazil, because that’s how you bring technology to the country.
Now if you don’t do that, what happens? We’re going to sell all our iron ore to China. China will build the big ships. China manufactures 540m tons of steel, and Brazil just manufactures 35m tons of steel. And we need to export a little bit of added value too.
FT: Mr President, you’re an economic patriot then? Or are you an economic nationalist?
PL: I am a patriot, an economic patriot. That is something I like, that term. Yes, I like that. That pleases me. You have to think about the future of the country. Iron ore and oil, these are things that run out, so if you’re not careful, soon you exhaust the supply, and then you’re orphaned. So what do you need to do? We have to take advantage of this moment and build an industrial base that is more solid and sound in Brazil. We’re not committing any sins. We want to be a more industrialised country.
FT: It’s not a sin, but people want to understand what form of state there’s going to be in the future. How big is the role of the state in determining the future of Brazil’s economy?
PL: My vision of the state is that this discussion about the state… in my opinion, the usual discussion about the role of the state has ended as a result of the global crisis. For a long time, around the world, even in Brazil, people said the state had failed and the markets would rule everything. And in Brazil, you know, they even thought the market should regulate even education, which is an absurd idea.
So first of all, and I want to make this clear here, I am against the state being the manager of the economy. I’m against that idea. The state has to be strong but as a catalyst of development, an entity that propels development at the regional level in our country, and the state at the same time should exercise oversight of good practices; economic and political good practices. And we can give you an example. Why didn’t the financial system in Brazil break down in the crisis? Because it is strongly regulated.
FT: Because you don’t have many blondes with blue eyes.
PL: It’s important to clarify this, because when I talked about the blonde hair and the blue eyes, when the crisis surged, I was reacting to comments by people who put the blame for the crisis on migrants and immigrants. Poor people in African and around the world are going to have to pay for the crisis and it wasn’t them who caused it. So that’s why I said, this crisis is not a crisis of the poor; it’s not coming from the poor, or from Latin Americans, or from Africans. This crisis is coming from the rich with blue eyes. And I said that with Gordon Brown at my palace, at the President’s Palace.
You know what I did in Brazil two months ago? I legalised all the people that were undocumented in Brazil; undocumented people in Brazil, all of them, to give a clear-cut demonstration to the rich countries that we don’t have to pursue the poor because of an economic crisis and that they are not the ones to put the blame on.
Now please, pay attention to something. Can you imagine that if all the rich countries spent 10 per cent of the money that they spent in the global crisis to bail out the financial system on a policy of aid for the poorest countries in the world? The rich countries say they can’t afford to fund poverty relief in poor countries. But to save their banks, they found trillions and trillions. If they had paid some of that to poor countries, the world would be a better place. The money that they didn’t have to aid the poor countries suddenly showed up. Trillions and trillions of dollars showed up to bail out a financial system that had been broken in an irresponsible way.
So I believe that this should serve as a warning to us. The state cannot control everything or meddle in all affairs, but you can’t keep the state out of everything either as it was in the ’80s and in the ’90s.
FT: The President should forgive me for my little joke, but I’d like to quote something else that you said, turning to foreign affairs, which I thought was rather wonderful, which is, you said when you started as a trade unionist, if there was a problem in Brazil, you’d blame the government. And then when you became a trade union leader, if there was a problem, you’d blame the government. Then when you were running for president as an opposition candidate, if there was a problem, you’d blame the government. But then, when you became President of Brazil, and there was a problem in your country, you’d blame America.
PL: No, I won’t go to hell for that sin. I never transferred my responsibility to others. When I was a labour leader I put less blame on the government because I was a leader of the metalworkers. This had nothing to do directly with the government, it was directly with the business class. When I was fighting against the government it was because they did not provide information about inflation rates. They concealed that information, or they lied; or when the government forbade workers to rally or to reach an agreement. They would intervene at the bargaining table. But my fight in those days was against the employers, not against the government.
It is true, yes, that everybody that’s in opposition puts the blame on the government. It’s true. I did that too. My party did that too. But please, I never put the blame either on Yankee imperialism, and even less on the other rich countries, because the blame, because Brazil is what it is, the blame is to be put on the Brazilian elite, the economic and political elite. Those are the ones to put the blame on. People who didn’t have a mindset to think about social issues… they didn’t think about the country as a whole and for centuries they were subordinated to other interests, subservient.
And I’ve been saying to many leaders, political leaders in Latin America, stop putting the blame on the others. Look inwards to your country; what happens inside your country. What happens to the political class in your country; look at them. How does the business sector behave in your country? It’s very easy for you to transfer your responsibilities to others, put the blame on others.
FT: And you keep good relations with other countries in Latin America that follow policies different from yours, and have different ideas from yours.
PL: Well, I carry with me a lesson that I learned. I think of when President Nixon in 1973 decided to make China a preferential trade partner. I believe in cohabitation with diversity. We do not have the right to think that other people should think like us. We have to work a lot and democracy allows you to have peaceful relations among different countries.
And look at how extraordinary this is. We have excellent relations with Colombia and Peru, we have excellent relations with Venezuela and Bolivia. Why do I do that? Because for me, the differences between us are often historical. We still have many problems that we inherited from the 19th century in Latin America; borderlines, land borderlines issues, sea issues.
So what is the role of a country that is the largest economy, the largest in population and has much more technology? What is the role that Brazil should play? It’s not to establish a hegemonic policy vis-à-vis the other countries. Either it should establish a democratic relationship so that people can see that we’re not interfering or meddling in the domestic politics in their sovereignty, in their sovereign policy. You can’t push people into corners. It’s very important for you to understand that… I always say that Brazil should not work towards hegemony but just towards building partnerships, because during the 20th century, or at least two thirds of the 20th century, the state policy from the US was in the sense of convincing South American countries that the major empire was Brazil.
So look at this paradox. Bolivian entrepreneurs were afraid of Brazilian entrepreneurs, but they were not afraid of American entrepreneurs. Mexican businessmen were afraid of Brazilian businessmen, but they were not afraid of American businessmen. Chávez was a professor at the military academy, and he says this publicly that in his classes he said the Venezuelan military should be very alert against the Brazilian empire. In politics you only learn Machiavellian theory: divide to conquer. In Brazil, under my government, we started to rebuild confidence in South America, because you can’t develop politics without confidence. And thank God, we are managing to do so.
FT: The Brics are four countries with their own, divergent interests. Do you think it’s a meaningful group?
PL: Yes, it is. The major example I can give you is the European Union. It seemed impossible 30 years ago for us to imagine that the European Union would come out as it has. For how many years was France bombarded by Germany? Then suddenly, all these countries are together, and now they even decided to elect a President of the European Union and a foreign affairs minister. This is something fantastic. Whoever could have imagined that Germany would elect a woman from East Germany to become the chancellor of Germany?
So it’s for these positive things that we have to work. It’s like when you meet a new girlfriend. If you only look at her defects and flaws, you’ll get nowhere. But if you look on the bright side you might end up getting married. And in politics, we have to know divergences exist among the Brics, and put them aside. Put the divergence aside and start working on the points that we can build together, and that’s how we will build a strong alliance among the Brics.
It’s not demanding that someone should make concessions on the things that they believe in. We want to develop new things that could be pursued by everybody. Let me give you an example.
I suggested at the last Brics meeting, which was the first one in Yekaterinburg, that we should begin trading in our own currencies. We don’t need the dollar. We can trade with our own domestic currencies. This would help above all small and medium sized enterprise to have access to our domestic currencies, and the central banks would provide the collateral. What’s the issue? There is no issue. It’s just a cultural issue because we’re accustomed to the dollar, but it can change. And this is an extraordinary change for those countries that have to buy dollars. Now in this crisis, we had to put money from our reserves to guarantee our exporters because of the credit crunch.
FT: Nobody would have imagined … you were even lending money to the IMF. There’s a historical irony.
PL: The irony was when I called de Rato at the IMF and said I don’t want the IMF’s money. He said, no, we need to lend the money to Brazil. Brazil needs to borrow. Brazil should keep its loans with the IMF. It’s very important for me to show that Brazil … I said, no, I don’t want your money. And he was really upset when he got back the $16bn that we borrowed. And I still work with the idea that we’re going to reach the end of my term with a 4 per cent inflation rate. Not long ago I used to dream of accumulating $100bn in foreign reserves. Soon we will have $300bn.
FT: Let’s talk about Copenhagen. Brazil is in an unusual position. It has a clean energy matrix and it can cut its CO2 emissions by reducing deforestation. But this is very difficult for other emerging countries? What can Brazil offer in terms of leadership?
PL: Brazil will go very carefully and with great responsibility to Copenhagen. First, I have already made the commitment, in September last year at the UN, that we would establish a goal, a target, to reduce deforestation by 80 per cent by the year 2020. And Brazil has other things that it intends to do. First, because 85 per cent of our electrical power is clean. And of our total energy matrix, 47 per cent is clean. No other country has such clean energy. The UK has only 2 per cent clean energy.
Now Brazil understands the reality of each country, and Brazil is not going to make an easy speech just to make demands on others. No, we’re going to show at Copenhagen what is the target for Brazil and we do not want to subordinate the other countries to adopt the Brazilian target or the Brazilian goal.
Brazil’s goals are Brazil’s goals, but we will work so that we can build an agreement that could be feasible for other countries.
I believe that there’s something important going on already. Everybody perceives that all of us have to do something. And I believe that with everybody doing a little bit of their share, we can avoid the death of the planet. We have a warming process of 2 degrees in the past 30 years. We’re trying to work with the idea, together with other countries, and certainly, my conversation with Prime Minister Gordon Brown tonight will be on environmental issue. We have already talked with the US and with France, with Germany. On 26th November, I’m going to have a meeting with the Amazon countries in Manaus, the capital of the Amazon. We already have agri-ecological sugarcane zoning mapping for the rainforest, and now we’re making a survey of how we reclaim the degraded land in Brazil, and we’re strengthening our bio-diesel policy. We have just adopted for 1st January the B5 diesel for next year. We’ll have a 5 per cent blend of bio-diesel in diesel oil.
FT: What will you request of Gordon Brown?
PL: Brazil is not requesting anything.
FT: It’s what Gordon Brown is going to be requesting of Brazil.
PL: The UK always was, and will continue to be, an international player. I believe the UK should work with the idea of Europe to advance a little bit more, in terms of including bio-diesel in diesel oil and also in terms of reducing global warming. There should be a fund, to finance the poorest countries. That will develop an extraordinary work of sequestration, carbon sequestration.
FT: Would that be like Brazil’s Amazon Fund?
PL: It could be something similar to the Amazon fund. We’re going to go to the meeting with our minds open, so there could be other good proposals coming forward. I think that now is not the time to radicalise. Common sense should prevail. If we want to just make an ideological speech, an easy speech, we could get some applause, but we will not get any results. And now is not the time to put the blame on whomever. Now is the time to find a way out.
FT: Mr President, thank you very much.