The Free-Spending Lula

If he chose to, Lula could use his celebrated charisma to push for deeper budget cuts and an aggressive agenda of political reform that could help jolt the nascent economic recovery into higher gear. Instead, say the critics, the Lula government seems oddly complacent. "There's a feel-good factor, with plenty of credit around and people traveling all over," says Brazilian political scientist Bolívar Lamounier. "But the government has no political agenda. If it weren't for China buying up Brazilian goods, we'd be lost."

Tellingly, instead of cutting public spending, Brasília dedicated much of the last few months to salvaging the financial transactions tax. Though the tax was meant to be for public health, government had come to rely on it for all sorts of contingency spending. Now with the levy set to expire at the end of December, Brasília may be forced to slash its budget anyway.

That may not be a bad thing. For a country long known as the developing world's chronic underachiever, Brazil could be missing a massive opportunity. Thanks to booming prices for commodities like soybeans and steel and a decade of stable prices, the economy is set to expand by nearly 5 percent in 2007, better than double the rate it has averaged over the last two decades. But if the international economy softens, the surge could quickly turn into another slump. Perhaps more than any other Latin American leader, Lula has the political capital to keep Brazil from stumbling. The question is: how will he spend it?

© 2007