Commentary by Mohamed El-Erian
Jan. 7 (Bloomberg) -- Eight years ago, a newly elected
president, Luiz Inacio Lula da Silva, faced the challenge of
saving Brazil from economic and financial collapse.
Last Saturday, Lula passed the presidency to Dilma Rousseff
having done much, much more than that during his two terms. In
the process, he relied on four simple pillars that other leaders
would be well advised to consider.
After winning a hotly contested presidential election in
2002, Lula overcame tremendous domestic and international
skepticism to guide his country to a development breakout phase.
As a result, he left the presidential palace last weekend with
Brazil in a position to sustain high economic growth for many
years, strengthen an already robust financial situation, and
better meet the aspirations of the poorest segments of its
society.
He inherited a country that was on the verge of economic
implosion and default. Growth was languishing, international
reserves evaporating, investors fleeing, and hyperinflation
threatening. Markets for Brazilian sovereign debt were pricing
an imminent and disorderly default.
Lula's domestic challenges were compounded by unfriendly
regional and global conditions. With Argentina having defaulted
a year earlier in the midst of social unrest, a heavy cloud of
doubt and pessimism hung over most of Latin America. Meanwhile,
global growth was sputtering, undermined by the collapse of the
tech bubble and a series of corporate scandals in the U.S.,
including the failures of Enron and WorldCom.
No Rescue
There wasn't much of an international cavalry to ride to
Brazil's rescue. America's focus was dominated by post-9/11
responses to terrorist threats. And no European country felt
eager to fill the void in support of a newly elected president
who for years had embraced extreme left-wing rhetoric.
Despite this, Lula managed to turn his country around. He
did so in a manner that allowed it not only to navigate the
2008-2009 global financial crisis but to emerge from it stronger
in relative and absolute terms. In the process, he demonstrated
the potency of his four pillars.
First, and from his first day in office, Lula recognized
that there were no inherent contradictions among financial
stability, economic growth and improved social conditions. His
approach was to explicitly embrace all three within a well-
defined multiyear framework and maintain appropriate flexibility
with regard to sequencing and mid-course adjustments.
Clear Communication
Second, he understood the imperative of clear and timely
communication. He was open about the serious challenges facing
Brazil and the sacrifices required. And he didn't hesitate to
reiterate his vision for how Brazil would overcome these
challenges.
Third, after clearly setting the strategic economic vision,
he delegated implementation to a carefully chosen set of
technocrats. He intentionally didn't rely on experienced policy
makers, choosing instead new faces that quickly became credible
economic spokesmen both within and outside Brazil.
Finally, he understood the importance of institutional
integrity and clear accountability. This was most evident in his
respect for the operational autonomy of the central bank. It was
also crucial to promoting broad respect for fiscal
responsibility.
As a result of all this, Rousseff has assumed the
presidency amid great domestic optimism. Brazilians no longer
joke that their country is the economy of tomorrow -- as in,
always has been and always will be. Instead, numerous indicators
point to record and once-unthinkable levels of economic self-
confidence.
Better Off
With unemployment almost cut in half during Lula's term,
many Brazilians now believe that they will be much better off
than their parents, and that their children will do even better.
This is noteworthy, given that Brazil's trading partners in the
West face discouraging unemployment trends, particularly for
younger workers.
Both current and future generations of Brazilians will
remember their popular president for far exceeding even the most
optimistic expectations about what Brazil could achieve in terms
of economic, financial and social progress. Thanks to its
domestic strength, today Brazil also plays an increasingly
influential role on the international stage, particularly when
it comes to trade and reform of the multilateral system.
Yet Lula's global legacy may be even larger, coming from
the impact that his successful pillars could -- and should --
have on the thinking of many current and aspiring politicians in
other countries. If this were to materialize, Lula's presidency
will end up benefiting many more hundreds of millions of people
around the world.
(Mohamed A. El-Erian is Pimco's chief executive officer and
co-chief investment officer, and the author of the book "When
Markets Collide." The opinions expressed are his own.)
For Related News and Information:
Top government news: GTOP <GO>
Top Latin America News: TOP LAT <GO>
More Bloomberg commentary: OPED <GO>
--Editors: James Greiff, Laurence Arnold.
Click on "Send Comment" in the sidebar display to send a
letter to the editor.
To contact the author of this column:
Mohamed A. El-Erian at Mohamed.El-Erian@pimco.com
To contact the editor responsible for this column:
James Greiff at +1-212-617-5801 or jgreiff@bloomberg.net
Jan. 7 (Bloomberg) -- Eight years ago, a newly elected
president, Luiz Inacio Lula da Silva, faced the challenge of
saving Brazil from economic and financial collapse.
Last Saturday, Lula passed the presidency to Dilma Rousseff
having done much, much more than that during his two terms. In
the process, he relied on four simple pillars that other leaders
would be well advised to consider.
After winning a hotly contested presidential election in
2002, Lula overcame tremendous domestic and international
skepticism to guide his country to a development breakout phase.
As a result, he left the presidential palace last weekend with
Brazil in a position to sustain high economic growth for many
years, strengthen an already robust financial situation, and
better meet the aspirations of the poorest segments of its
society.
He inherited a country that was on the verge of economic
implosion and default. Growth was languishing, international
reserves evaporating, investors fleeing, and hyperinflation
threatening. Markets for Brazilian sovereign debt were pricing
an imminent and disorderly default.
Lula's domestic challenges were compounded by unfriendly
regional and global conditions. With Argentina having defaulted
a year earlier in the midst of social unrest, a heavy cloud of
doubt and pessimism hung over most of Latin America. Meanwhile,
global growth was sputtering, undermined by the collapse of the
tech bubble and a series of corporate scandals in the U.S.,
including the failures of Enron and WorldCom.
No Rescue
There wasn't much of an international cavalry to ride to
Brazil's rescue. America's focus was dominated by post-9/11
responses to terrorist threats. And no European country felt
eager to fill the void in support of a newly elected president
who for years had embraced extreme left-wing rhetoric.
Despite this, Lula managed to turn his country around. He
did so in a manner that allowed it not only to navigate the
2008-2009 global financial crisis but to emerge from it stronger
in relative and absolute terms. In the process, he demonstrated
the potency of his four pillars.
First, and from his first day in office, Lula recognized
that there were no inherent contradictions among financial
stability, economic growth and improved social conditions. His
approach was to explicitly embrace all three within a well-
defined multiyear framework and maintain appropriate flexibility
with regard to sequencing and mid-course adjustments.
Clear Communication
Second, he understood the imperative of clear and timely
communication. He was open about the serious challenges facing
Brazil and the sacrifices required. And he didn't hesitate to
reiterate his vision for how Brazil would overcome these
challenges.
Third, after clearly setting the strategic economic vision,
he delegated implementation to a carefully chosen set of
technocrats. He intentionally didn't rely on experienced policy
makers, choosing instead new faces that quickly became credible
economic spokesmen both within and outside Brazil.
Finally, he understood the importance of institutional
integrity and clear accountability. This was most evident in his
respect for the operational autonomy of the central bank. It was
also crucial to promoting broad respect for fiscal
responsibility.
As a result of all this, Rousseff has assumed the
presidency amid great domestic optimism. Brazilians no longer
joke that their country is the economy of tomorrow -- as in,
always has been and always will be. Instead, numerous indicators
point to record and once-unthinkable levels of economic self-
confidence.
Better Off
With unemployment almost cut in half during Lula's term,
many Brazilians now believe that they will be much better off
than their parents, and that their children will do even better.
This is noteworthy, given that Brazil's trading partners in the
West face discouraging unemployment trends, particularly for
younger workers.
Both current and future generations of Brazilians will
remember their popular president for far exceeding even the most
optimistic expectations about what Brazil could achieve in terms
of economic, financial and social progress. Thanks to its
domestic strength, today Brazil also plays an increasingly
influential role on the international stage, particularly when
it comes to trade and reform of the multilateral system.
Yet Lula's global legacy may be even larger, coming from
the impact that his successful pillars could -- and should --
have on the thinking of many current and aspiring politicians in
other countries. If this were to materialize, Lula's presidency
will end up benefiting many more hundreds of millions of people
around the world.
(Mohamed A. El-Erian is Pimco's chief executive officer and
co-chief investment officer, and the author of the book "When
Markets Collide." The opinions expressed are his own.)
For Related News and Information:
Top government news: GTOP <GO>
Top Latin America News: TOP LAT <GO>
More Bloomberg commentary: OPED <GO>
--Editors: James Greiff, Laurence Arnold.
Click on "Send Comment" in the sidebar display to send a
letter to the editor.
To contact the author of this column:
Mohamed A. El-Erian at Mohamed.El-Erian@pimco.com
To contact the editor responsible for this column:
James Greiff at +1-212-617-5801 or jgreiff@bloomberg.net
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