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Economy & Business - December 2003

BRAZIL: Interest rates cut again and key reforms approved

Lula has had to make adroit deals and compromises to get the pension and tax reforms through congress. The relatively trouble-free passage of the two reform bills was largely due to support from centrist parties, notably the Partido do Movimento Democrático Brasileiro (PMDB), in both chambers of congress. Lula now has to reward the PMDB, and possibly other parties, by giving them ministries. This, and the defection of some of Lula's leftwing allies, such as the Partido Democrático Trabalhista, is likely to move the weight of the government more to the centre. Lula still sees himself as a leftwinger, as do some of his key allies.

The economic spadework the government has done, rather than the economic fireworks it promised, led to a dip in Lula's opinion poll ratings. Even so, in December, 51% of Brazilians still thought his government was doing a good job, according to a poll by the Instituto Brasileiro de Opinião Pública e Estatí­stica (Ibope). His government's disapproval rating is 14%, unchanged since September. Lula's personal popularity is running at 69%, down from 80% when he took office but still impressive, given that this year there will have been no economic growth and unemployment has risen.

What Brazilians seem to be doing is giving Lula the benefit of the doubt. Next year will be decisive for him. He and his ministers have argued that they had to sort out the economic mess bequeathed them by President Fernando Henrique Cardoso. Now that the crucial reforms have been approved by congress and inflation is beaten, the government can try to move the economy up a gear or two. Another poll, by Datafolha, which gathered responses from 12,000 people in 386 municipalities across the country, franked the Ibope findings. The Datafolha poll found that over half of the respondents thought that Lula's government was better than FHC's.

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