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Brazil's Defining Moment

Dec 1, 2002

When President-elect Luiz Inácio Lula da Silva takes office in January, he caniether srenghthen the institutions needed for job growth and poverty reduction, or undermine them and face the effects of collapsing economic activity, higher inflation and imploding financial systems. Mohamed El-Erian believes Lula has the guts and the will to restore financial stability to Brazil.

All eyes are on Brazil as incoming President Luiz Inácio Lula da Silva begins to navigate the country's economy through highly disrupted domestic financial markets, as well as a fragile and volatile global economy. Much is at stake, not only for Brazil but also for the whole of Latin America. Through determined policy implementation and the support of the international financial community, Brazil is in a position to normalize its financial markets and restore the conditions for high and sustained economic growth. There is no doubt that Lula is inheriting a difficult situation with limited room for maneuver and little tolerance for policy slippages. Domestic financial markets have priced in heightened concerns about post-election policy continuity, thereby disrupting growth and debt dynamics. Meanwhile, intense global risk aversion has amplified Brazil's domestic financial instabilities, driven by uncertainties about the pace of world growth and collateral damage from the string...

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