Rubens Barbosa is a senior business adviser based in Sao Paulo, and a popular speaker and writer on global business and trade issues. He served as Brazil’s Ambassador in Washington and London. He has extensive international economic, trade and commercial experience.
After a very tough first week in January, in view of the troubling actions against the democratic institutions in Brazil by former President Bolsonaro’s supporters, Lula started his new Presidential term in a deeply divided and polarized country, and with political difficulties given a Congress dominated by conservative forces.
Without a solid majority in Congress, the Executive has had difficulties in approving legislation to allow easy and rapid progress in several areas, especially in the environment given the opposition of the representatives of agribusiness - for political and ideological reasons - to Lula’s Administration.
Two areas were given priority by the new Administration, and concrete actions were taken: the economy and foreign policy.
The Government proposed and approved two important initiatives in the economy: a new fiscal policy architecture to balance fiscal and social responsibilities, and a much-awaited tax reform. The central idea is to reduce the fiscal deficit to zero in 2024, with rigid measures to control expenditure and to increase revenue without increasing the level of taxation on one side, and, on the other, to modernize and make more efficient the cumbersome and inefficient tax system with the creation of a VAT in place of 5 federal, local state and municipal taxes. The House of Representatives has approved the tax reform and the Senate is in the process of discussing the reform.
In the first six months, economic behaviour has shown resilience to domestic and international difficulties and the results are good: foreign trade is booming with a projected US$ 70 billion surplus at the end of the year, growth of above 2%, inflation down to around 4,5% (still above core inflation), interest rates very high around 13%, and foreign exchange reserves near US$ 400 billion. The inflation target has been kept at 3% up to 2026. The exchange rate is stable and the currency, the Real, is strong.
Perhaps the more important change brought about by Lula’s Government relative to the previous Government was in foreign policy. After four years of a damaging foreign policy contrary to the traditional and stable Brazilian tradition, Lula quickly started a renewed and active attitude toward external relations.
In accordance with the national interest, Lula defined three priority areas: bringing back Brazil’s voice to the world scene, with special emphasis on South America, and the search for peace in the Russian-Ukrainian war. Environment, climate change, and renewable energy became central to foreign and economic policies.
In a more active foreign policy, the emphasis on multilateralism and multipolarity, the restoration of credibility abroad, and the improvement of external perception of Brazil were at the centre of Lula’s Government’s concerns. The reform of multilateral institutions such as the United Nations Security Council and the World Trade Organization is actively defended by Itamaraty, Brazilian Foreign Ministry. Lula’s Government has declared active neutrality in both the USA and China’s growing dispute for hegemony in the XXI century and in the war between Russia and Ukraine - in this case, with a proposal of a peace group to try to convince both parties to suspend hostilities. However, it is still missing a clear policy in relation to the BRICS, to Brazil’s accession into the OECD and in relation to the G-20 (Brazil will chair the Group in 2024).
As far as trade negotiations are concerned, Brazil assumed the coordination of Mercosur in the second half of 2023. Its main objectives are to conclude the trade agreement with the European Union and to update the regional subgroup's rules and procedures.
In relation to the environment and climate change, Lula’s government has Amazonia as a top priority - to drastically reduce deforestation and illegal mining, and increase Indian communities’ protection. Brazil’s Amazon deforestation dropped 34% in the first six months of 2023, after four years of rising destruction of the forest. For the first time in more than 15 years, a Presidential meeting of the Amazon Cooperation Treaty Organization has been convened for August next year, and Brazil’s offer to host COP 30 in 2025 has been accepted. Regional integration has gained new priority and, after more than 20 years, a Summit Meeting of South American Heads of State took place last May.
The diplomatic activism shown in the peace proposal in relation to the war in Ukraine and in South America Heads of State meetings has been frustrated by Lula’s controversial public statements. His ambiguous remarks question Brazil’s neutrality in the war in Ukraine and tarnished Lula’s image when he defended Venezuela’s regime and said that democracy is a relative concept.
It is yet to be seen if Lula’s Government will take up the opportunity to assume the leadership in the region where, instead of integration, disintegration is what is happening. New initiatives proposed by Lula, such as a regional currency unit to allow trade growth and infrastructure integration, need new policies and political determination. With the Mercosur coordination, Lula may have the political support to change the inactive course of the bloc and assert regional integration.
In the first half of the year, Lula visited 12 countries, held the Presidential Summit with 11 South American countries, and received several Heads of State, among them from Argentina, Germany, Finland, and Romania. In the second half of 2023, Lula will take part in meetings in Brussels between European Unions and Latin American and Caribbean countries, in South Africa with BRICS countries, and at the General Assembly of the UN in September. On top of that Brazil will chair three multilateral institutions (Mercosur, the G-20, and the UN Security Council) and Lula will receive several heads of State in Brasilia, and is scheduled to visit Africa (South Africa, Angola, and Mozambique).
However, in view of the domestic political, economic and social issues, the heavy foreign agenda may generate growing opposition to Brazil’s international activism.