'Reason With Him'

It's a long way from Brazil's starving northeast to the United Nations General Assembly hall, but Brazilian president Luiz Inácio Lula da Silva knows every step of the way. The peasant's son, who fled the dustbowl and hoisted himself up by his own overalls through the São Paulo industrial belt to head Latin America's largest nation, is now the heralded leader of a regional powerhouse and a self-designated spokesman for emerging nations across the world. On the eve of the U.N. general assembly, where Lula will kick of the debate, the 64-year-old Brazilian leader talked to NEWSWEEK's Mac Margolis about Brazil's rise to the world stage, the new deep-sea oil deposits, the international economic crisis, and what poor countries can teach the superpowers about responsible economic development.

MARGOLIS: When you took office, Brazil was regarded as an underachiever, and the last among the BRIC nations. Now Brazil is considered a star among emerging markets. What's happened?
Lula: No one respects anyone who doesn't respect themselves. And Brazil always behaved liked a second-class country. We always told ourselves we were the country of the future, the world's breadbasket. But we never transformed these qualities into anything concrete. In a globalized world you cannot sit still. You have to hit the road and sell your country. So we decided to make strengthening Mercosul (the South American trading bloc) a priority, and deepened our relations with Latin America in general. We prioritized trade with Africa and went into the Middle East aggressively. Our trade balance today is highly diversified. This helped us cushion the blow of the economic crisis. We suffered far less than all those countries that concentrated all their trade in one economic bloc or another. All of this created a bond between Brazil and other countries and today we are on equal footing in international relations. At the same time I believe developed nations began to realize that the world situation was so serious that they would not be able to solve all the problems by themselves. Brazil was first invited to the G8 summit (of rich nations) in 2003. Now these are established relations. We are calling for reform of the U.N. Security Council. We haven't achieved that yet, but we will.

Has Brazil's success in navigating the economic crisis changed investors' views?
I'll give you an example. At the beginning of the crisis, the head offices of the car industry ordered everyone to lower production, lower inventory, and remit their reserves. Later they called on the Brazilians to explain to them what miracle they had performed to revive their markets so quickly. There was no miracle. We had a strong domestic market. We had consumers who wanted to buy cars. We reduced part of the sales tax and asked the companies to offer consumers credit on affordable terms. And the result is that we are beating record after record in car sales in Brazil. It's the same case with refrigerators, stoves, washing machines, and with computers and housing construction. If all the countries had done this as quickly as Brazil and China did, certainly the world could emerge from the crisis more rapidly. Already we're beginning to see signs of recovery. If I told you that this year we are going to generate a million jobs you probably wouldn't believe me. But just wait for the numbers in December on how many jobs in the formal sector we will create.

What are the lessons for other countries?
The great lesson or everybody is that the state has an important role to play, and has great responsibility. We don't want the state to manage business. But it can be an inducer of growth and can work in harmony with society. In Brazil, thank God, we had a solid financial system and public banks with an important role in offering credit. And these were the banks that made sure the crisis here was not as bad as it was in other countries.

Wasn't it also because the Brazilian market was strong?
This is the merit of hard work, by the private sector and the government. I don't accept the idea that when things go well, the merit goes to the private sector and that when things go wrong, it's government's fault. No one in this country has taken a more active role than I have in selling Brazilian goods. No one boosts Brazilian companies more than I have. That's how we build a great nation.

You often criticize the privatization process. But thanks to the sale of state companies even the poorest Brazilians have cell phones, and former public companies like Vale have become world-beaters under private ownership.
But the state could have done the same things.