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How Brazil's Lula Sees the Emerging World Order


As President, Luiz Inácio Lula da Silva has brought to Brazil a blend of capitalism and populism that is taking Latin America's largest economy to new heights. I talked with Lula, as he is popularly known, after the gathering of the U.N. General Assembly and right before the meeting of the G-20 in Pittsburgh.

Maria BartiromoWhat are you looking to achieve at these meetings?

President Luiz Inácio Lula da SilvaWe have an opportunity to do things we haven't done in the past. There was a time when the world started to believe that the markets didn't need any kind of regulation. Anyone could invest money as they wished. The banks could do whatever they wished. I don't want the president [of a country] or the state managing the economy. But I want government to drive economies and be a regulator at the same time. One of the reasons for the global economic crisis was the [behavior of] the banks, especially in the U.S. They had no parameters on leveraging their loans. When a bank leverages an amount of money that is many more times its net worth, I say this bank is lending money that it doesn't have. Thank God, in Brazil we have a financial system that is highly regulated. You can only leverage 10% of your net worth. So when the crisis came, Brazil had sound and strong institutions to confront it. Now the G-20 has the opportunity to rethink the role of the government. It's very easy to govern when everything is going smoothly. But leaders exist to govern in the face of difficulties.

In Brazil, we had no credit to finance used cars. And I told the Bank of Brazil, the state-owned bank, to buy a private bank that had expertise in financing used cars. For what reason? We wanted credit to continue flowing. This is the sort of time you need the state. My concern with the G-20 is that the leaders are now becoming [complacent] because the crisis is passing and they won't change anything. We have to change. We have to change the role of the IMF and the World Bank. And we have to control the international financial system so [financial institutions] cannot leverage many times more than their net worth. It's difficult because each [leader] has [his or her] own domestic public. But if you're a leader, you have to think what will help solve the world's problems.

But do you worry that we could have too much regulation and too much government ownership of business?
I don't want too much government or minimum government either. Brazil has found a middle path. When a major company wants to make an investment in Brazil, [we have discussions] about what region would be [appropriate for] the investment. Why? So we can encourage regional development. That's the role of the government. I think we learned a lesson from the global crisis. Remember when oil went to $150 a barrel. Soy beans also went up. There was a commodity bubble. That was investors getting out of the subprime market and rushing to the futures markets for food and oil. Otherwise, there is no explanation for oil going from $30 up to $150 in such a short time. We cannot allow this kind of speculation because this harms the poorest people in the world. It brings damage to job creation. We want the welfare of society to grow together with the economy. Otherwise, the economy grows for only half a dozen people.

Can you talk about Brazil's strengths, such as agriculture and oil?
Brazil has extraordinary possibilities because we have one of the largest land [masses] in the world available for agriculture. Just to give you an idea, the sugarcane that produces ethanol takes up less than 2% of all land in Brazil. But we have to be careful that prices [of agricultural commodities] don't go beyond the purchasing power of the people that need food.

Now, on the oil issue, I believe the price should be stabilized. [The cost of] oil should not strangle countries. Brazil already is self-reliant on oil. We just discovered great deposits of deep-sea oil fields—huge reserves at 7,000 meters of depth. [The oil money] will be used to invest in education, science, and technology so we can end poverty and solve chronic problems. We don't want to sell crude oil. We want to sell added-value products. That's why we are building new refineries. We want to sell gasoline.

How is Brazil's economy doing?
We have a lot to do, but Brazil is experiencing a magical economic moment. This global crisis hampered us, and I had to ask the people to buy more because the newspaper headlines almost created panic. But the economy grew 0.9% in the second quarter, and it can grow around 5% in 2010. We are developing a strong policy of income transfer to the poorest of the population. We made a commitment to build 1 million new houses for low-income [families]. We have almost $359 billion in infrastructure projects. From 1950 to 1980, Brazil grew at over 7% a year; one year 14%—more than China today. Nevertheless, what happened? There was no income distribution. The rich became even richer. The poor became very poor. Now we have reversed this game. We want to leverage the poor. The better off the poor are, the more we improve the lives of the business community.
Maria_bartiromo
Maria Bartiromo is the anchor of CNBC's Closing Bell and writes the blog, Maria Bartiromo's Investor Agenda, at http://investoragenda.cnbc.com.

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