Brazil’s Lula Said Likely to Win Reform Battle

By Axel Bugge

BRASILIA, Brazil (Reuters) - President Luiz Inacio Lula da Silva has
offended allies in his drive for economic reforms but his agenda may
pass as he quickly learns to work with Brazil’s fractious Congress,
political observers say.

Overhauling the debt-ridden public pensions and cumbersome tax systems
would be major achievements for Brazil’s first elected center-left
government and enable Lula to concentrate on his campaign promises of
creating millions of jobs and to help the poor.

With data suggesting that Latin America’s largest economy entered into
recession in the second quarter, passing the reforms becomes more urgent
as it would send a powerful signal to wary investors.

Lula earned the wrath of civil servants, once his most faithful
supporters, when he prepared to cut their generous pensions. Even so,
analysts are confident the former union boss will convince Congress to
pass the measures.

"Probably during the first week in September the social security reform
will be passed, and (then) tax reform at the end of September," David
Fleischer, a political scientist at the University of Brasilia, said.
"That is quicker than expected by a lot of people."

Lula, in power since January, has become adept at using the tools at his
disposal, Fleischer said, referring to "tools" such as the 25 percent of
the annual budget that Brazil’s executive can earmark for specific projects.

Lula’s predecessor, Fernando Henrique Cardoso, was a master at
earmarking funds for projects to curry favor with lawmakers and win
support for ambitious reforms.

And Lula has learned quickly in dealing with the notoriously slow-moving
Congress, where lawmakers represent a vast number of regions and groups.
He guaranteed, for instance, that pro-reform legislators were placed on
the special commission that passed the pension bill last week.

THREAT OF STRIKE BY JUDGES

As the reform moves to a floor vote in the lower chamber in the next
couple of weeks, Lula must face down a strike threat by judges and guard
against proposals by opposition lawmakers and radicals in his own
Workers’ Party that would water it down.

Observers say the bulk of the reform, including raising the retirement
age and imposing a levy on the pensions of retired civil servants, is
likely to remain in place.

Political analyst Luciano Dias said he was confident the judges’ strike
could be averted and that the government would reach a deal to change a
ceiling for state judges’ wages.

"There won’t be a strike," Dias said.

A tougher fight may come as Lula negotiates the tax reform with state
governors, who see it as an opportunity to gain revenue and fix their
hobbled local finances. But analysts agree he will be helped by ’reform
momentum’ in Congress.

Lula also likely will benefit from his popularity. Brazilians gave him a
77 percent approval rating in a poll this month.

Still, other challenges lie ahead such as a wave of invasions of farms
by peasants who want land to eke out a living. They have enraged farmers
and sparked fears of violent confrontations.