Brazil's Lula on How Big Countries Should Act

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?
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.

Except that it didn't.
It didn't because the Brazilian elite used public companies for their own ends. When you do that , any company will go broke, anywhere in the world. I think the privatizations were a mistake. Before I came to office, Petrobras was investing R$250 million ($139 million) in prospection. Today we are investing nearly $560 billion in R&D a year. The discovery of oil in the pre-salt layers deep below the ocean floor was not blind luck. It was the result of investment. All that was needed was to have invested correctly. But I am not one to keep rehashing the past. You've never heard me talk about renationalizing a company. What's done is done and let's move on.

Can Brazil maintain its commitment to clean energy with all the heavy investments required to recover the pre-salt oil?
We are going to use money from oil to help exploit clean energy. The two (oil and renewables) are not incompatible. Brazil is one of the few countries with a huge potential for clean, renewable energy. Petrobras created a biofuel company last year. We are working on developing hydroelectric platforms that will simply use the flow of the river to create energy. Workers will helicopter into the power station as they would to an offshore drilling platform. The platforms will be surrounded by forest to reduce environmental impact. Brazil has a responsibility to show the world that it is increasingly viable to use energy that doesn't pollute the world. Our energy matrix will become steadily cleaner.

Will Brazil agree to emissions reductions for greenhouse gases in the next round of climate-change talks in Copenhagen?
We want to build with other countries a proposal that is compatible with our respective capacity to meet commitments appropriate to each country. Brazil will support the creation of a fund for encourage carbon sequestration in the poorest nations, but Brazil will also demand that the rich world lowers its emissions of greenhouse gases. We need to take measure of each nation's historic emissions so that each of us pays according to its own responsibility.

But will Brazil commit to reduction targets?
Brazil will commit to reaching a broad agreement, and if this agreement contains emission targets, Brazil is willing to comply. But I want to see if the other nations will also meet their reduction targets.

Why do you want to increase state control of the oil industry when the current system of farming out concessions to the private sector has worked?
This new production-sharing model we are proposing to Congress is the dominant system in the world today. The only reason to maintain a concessionary system, which is kind of a risky contract, is if a country is not certain it will find petroleum and wants to share the risk [of prospecting]. But when we know that the oil is there, and that oil is a state resource, why should we grant [foreign companies] concessions? But you can bet that the world's biggest oil companies will be interested in investing in Brazil's pre-salt projects under the new rules.

The Mercosul trading bloc, which Brazil leads, only allows full democracies that respect human rights as members. Does Venezuela qualify?
Give me one example of how Venezuela is undemocratic.

Thirty-four radio stations closed by the government in one weekend. Repression of independent trade unions and government persecution of political rivals. Gangs linked to the government of Hugo Chávez vandalizing the only independent television broadcaster.
That's not the government's version.

Is there any doubt?
Let's be frank on one thing. First, each country establishes the democratic regime that suits its people. It's a sovereign decision of every nation. I never questioned the fact that, in a parliamentary system, the prime minister can stay in power for 15 or 18 years. Now [Alvaro] Uribe is backing [a constitutional amendment to allow] a third mandate. I haven't heard anyone criticize Colombia for that. Why don't I want a third mandate? Because, what's valid for me is also valid for my opponents. Today I want three terms, tomorrow they'll want four. That's why I say you can't toy with democracy. Two terms and eight years in office is a reasonable time to govern a country. And let's be honest. The Venezuelan elite wasn't exactly a rose garden. Remember that Chávez was the victim of a coup. You can't expect him to forget that so soon. They kidnapped the man just like they kidnapped [Honduran president Manuel] Zelaya. We can't allow this to continue happening in Latin America. Chávez will have to abide by the rules of Mercosul. Mercosul has defined rules.

Yes but Mercosul's rules say that for a country to join the common market it must already respect the rules of democracy and human rights.
Chávez was tested in four elections in the last 10 years, and the Venezuelan people are learning. We are a colonized continent. Most countries in the region spent the 20th century in poverty. Venezuelan oil enriched half a dozen people while the rest of the people remained poor. This is the first time this oil [money] is being used to increase the participation for the people. Right or wrong, the Venezuelan people will judge.

Is democracy only elections?
Elections are a great indicator of democracy. Democracy in fact means institutions that work properly, and I am working to strengthen Brazilian democracy. Each country has to build the democracy it wants. I have no doubt that Latin Americans are living one of the richest moment of democratic management in our history.

As Brazil takes on a larger international role, many people are wondering why the country remains so silent about countries whose regimes are not democratic?
If we look at human rights literally, then all nations commit errors, including the U.S. Where are the human rights at Guantánamo [prison]? All countries have problems. Only peace and democracy will be capable of guaranteeing the economic growth needed to better the lives of the poor majority. Once in a while, people ask me: Lula, are you a leader in Latin America? I say, no. No one chose me to be leader. But I am absolutely certain that Brazil's relations with Latin America never has never been so clear, transparent and honest as it is today. When Paraguay gets nervous over Brazil, I have to understand Paraguay. I cannot be aggressive if Paraguay yells at me. Brazil has far more power and wealth. It's like the relationship of a father and son. A father doesn't hit his child every time his child yells at him. He tries to reason with him. That's how big countries have to act.