Brazilians are going to the polls on October 3 to elect a new president. Judging by voter surveys, Dilma Rousseff, candidate of President Luiz Inácio Lula da Silva’s center-left Workers’ Party (Partido dos Trabalhadores, or PT), is heavily favored to defeat the other major candidate, José Serra of the center-right PSDB, the Brazilian Social Democracy Party. Soon, Brazil’s political scene will enter a new phase, without Lula’s direct presence. However, the charismatic president, still enormously popular after two terms, is casting a long shadow over the election – and beyond. How will Lula’s legacy, particularly in the economic sphere, shape the new president’s agenda and the country’s future?

Just how long Lula’s shadow is can be judged by the fact that both the PT and PSDB parties are using his image in their ad campaigns. In the case of Rousseff, who was Lula’s chief of staff, the ads are trying to position her as the best option for continuing Lula’s policies, but with “the heart and soul of a woman.” In the case of Serra, who ran against Lula for the presidency in 2002 and is now governor of the state of São Paulo, the candidate and the president are being linked as “true leaders,” a comparison intended to highlight the supposed political inexperience of Rousseff, who is running for elected office for the first time.

The continuing high popularity of Lula, both inside and outside the country, has meant that ideological and practical differences among the parties have gone largely unnoticed during the campaign, since all candidates have been trying to win over the electorate with promises of “continuity.’’ This is the same formula that was used by Lula himself in 2003, when he succeeded Social Democrat Fernando Henrique Cardoso (1995-2002) as president.

The Champion of Popularity

As Lula’s presidency nears its end, his success in maintaining Cardoso’s economic policies promises to be one of his strongest legacies, in the view of some analysts. Although there were some differences in approach during Lula’s eight years in office, the results were even more positive than those achieved by Cardoso, these analysts say– and no economist has dared to suggest that there has been a major break with the previous model.

“The great legacy of this government has been to maintain its economic policies for controlling inflation, mainly by putting people who were committed to this approach at the head of the Central Bank,” says Vander Lucas, professor of economics at the University of Brasilia. “Today, we have a mature economy, and inflation is under control. This continuity is a legacy of Lula.” During Lula’s administration, the inflation rate dropped from 13% to less than 5%.

Some commentators are less enthusiastic about Lula’s overall achievements on the economic front – pointing out, for example, that he distanced himself from the impact of the financial crisis of 2008 on the country’s industrial sector. But even these critics give him credit for maintaining continuity. According to Fabio Kanczuk, economics professor at the University of São Paulo (USP), Lula’s greatest legacy is that the government did not make major changes in macroeconomic policy. “He maintained the rules the way they were before — preserving the primary surplus, keeping public debt under control, imposing a regime with goals for inflation, and maintaining the independence of the Central Bank,” Kanczuk says.

The average Brazilian seems to be quite happy with the results. According to a number of recent surveys, Rousseff appears to have enough support to win a majority of the votes on October 3 and thus avoid a runoff vote later in the month. In a poll conducted on September 8 and 9 by Datafolha, a research institution tied to the newspaper Folha de São Paulo, 50% of those surveyed said that they intended to vote for Rousseff, compared with only 27% for Serra. A survey conducted in late August by IBOPE, a research institution with national coverage, came up with similar numbers: 51% for Rousseff and 27% for Serra.

When it comes to Lula’s approval rating, 77% of those surveyed by Datafolha on September 10 gave him a rating of either “good” or “excellent,” while another 18% said he was “satisfactory.” Only 4% rated his performance as “bad.” By comparison, when Cardoso left office in January 2003, just 26% of the public approved of his performance, according to Datafolha.

If there was no change in the economic model that was initially so severely criticized by Lula’s party, how did Lula become so popular? Was it simply his charisma and his personal story (he grew up in poverty and has little formal education) that proved so captivating at home and led to so much recognition abroad? In 2009, for example, Lula was chosen Man of the Year by the French newspaper Le Monde. That same year, he was named person of the year by the Spanish newspaper El Pais.  And this year, he was on Time magazine’s list of the 100 most influential leaders in the world.

Some analysts point instead to his economic achievements and his role in enabling Brazil to confront the biggest global economic crisis since the Great Depression. “Lula’s management promoted an improvement in the external situation of the Brazilian economy,” says Adalmir Marquetti, professor of economics in the graduate program of PUCRS, the Catholic Pontifical University of Rio Grande do Sul. “The country began to export more, the commercial account increased, the foreign debt diminished, and international reserves improved.” In fact, the country’s leadership regularly trumpets its successes, including the repayment of dollar-denominated domestic debt and the increase in foreign reserves, which rose from US$37.6 billion in January 2003 to US$262.1 billion in September 2010.

The Luck Factor

Although Marquetti doesn’t talk about any “break” in policy, he believes that a major turn in direction started with the Mensalão corruption scandal, which erupted during Lula’s first term and threatened to bring down his government. Roughly translated, mensalão means “big monthly payment.” The scandal revolved around the payment of monthly bribes by the governing PT party to several members of parliament in return for their votes on key legislation.

“The Mensalão crisis led to important changes within the government,” Marquetti says. “It meant a loss of power for figures such as [Antonio] Palocci, [then the Interior Minister], and [José] Dirceu, the president’s chief of staff. It also meant the arrival of Dilma Rousseff,” who succeeded Dirceu. Marquetti adds that the government began pursuing economic development policies again, a far cry from the “liberal” policy under which “the government acted as an agent of economic growth.”

Marquetti says that Lula’s formula for success includes his policy for income distribution and the favorable external situation. “In the past, Brazil did not know how to take advantage of international booms, but the Lula government has figured out how to do that,” he notes.

He argues that the president also benefited from a considerable amount of luck during the course of his personal journey as an emigrant who left Brazil’s poor northeast region to make his life in the richest state in the country, São Paulo, and then to go on to become a labor leader and finally president.

Some commentators credit Lula with incomparable personal skills that have shielded him from the worst storms facing his government. USP’s Kanczuk cites Lula’s ability to protect his image during the Mensalão crisis. He notes that Lula showed the same skill during the financial crisis of 2008. “Industrial production fell a great deal during the crisis but he [Lula] isolated himself from all that,” according to Kanczuk. “The people who were affected by his social programs may not have sensed it so much, but those in the industrial sector suffered a great deal during the crisis. It is not true that Brazil has not suffered.” According to IBGE, the Brazilian Institute of Geography and Statistics, the country’s gross domestic product fell 3.5% during the fourth quarter of 2008, compared with the previous quarter. During the first quarter of 2009, it fell again, at a rate of 0.9%.

Lula’s success in the economic arena seems to have a lot to do with “favorable international winds,” says Lucas of the University of Brasilia. “It was not the result of domestic moves but of the international situation,” he notes. Lucas criticizes the high volume of government spending in social programs that do not provide an obvious economic return for Brazil, such as Bolsa Família [Family Stipend]. “The nominal deficit is getting bigger and bigger, even as tax collections grew — and [continue to] grow,” he says. “The government spends a lot because of its interests and it also has a high volume of spending in investments that don’t provide any return. If they spent [more] on health care, education and infrastructure, the returns would be larger from an economic viewpoint, not a social one. Perhaps not in an immediate way, but certainly over the long term.”

When it comes to Lula’s priorities for the poorest stratum of the population, “this is a government with strong social awareness,” Lucas says. “It has done a lot for the lowest social classes. They need to provide food, and also always provide opportunities for work and specialization. If the Bolsa Família [Family Stipend] program disappears, all of the people who are affected by the program would fall a notch.” The program provides financial aid to poor families on condition that their children attend school and are vaccinated.  

An Unclear Political Future

On January 1, 2011, Lula will leave the presidency, at age 65, to face an uncertain political future. Unlike some other presidents in Latin America, he rejected the idea of changing the federal constitution to permit a run for a third consecutive term, despite the fact that his reelection was almost a certainty. His decision to accept the two-term limit is “an extremely important legacy for the political culture,” according to L.Felipe Monteiro, a professor of management at Wharton. Nevertheless, he adds, Lula has been fined for campaigning on behalf of Rousseff. “This is something negative that makes his political legacy incomplete,” says Monteiro. “He has taken two steps forward and one step back.”

As for his future political plans, Lula has not been at all clear about the possibility of coming back to run for the presidency in 2014.

For example, in February, in an interview with the newspaper El Estado de São Paulo, Lula said that he was not thinking about returning to the electoral scene. Months later, however, Lula said that he wasn’t sure of his decision. In an interview with the Bandeirantes TV network during the World Cup in South Africa, Lula was asked whether he was ruling out the idea of becoming a candidate in 2014. “I am not ruling that out,” he said, adding that “the only thing that I am sure of is that I am going to be outside the government” during the 2014 Cup. The fact is, though, that Lula does not need to be in the government during the 2014 World Cup in order to run in that year’s election. If he ran and he won, he would return to the presidency on January 1, 2015.

Another option that Lula is considering is the post of secretary general of the United Nations or serving as the head of another international organization. Several countries have said they would support such an appointment.

Infrastructure and Other Needs

While it is hard to draw a picture of Lula’s political future, some of the tasks facing the next president seem clear. Has Lula prepared the way for the programs and investments that the new government will have to undertake?

The country will have to consider a massive infrastructure effort to reduce the so-called Brazil cost, a term that refers to the structural deficiencies that lower the competitiveness of the industrial sector.  It will also need to invest in infrastructure to mount the World Cup of 2014, hosted by 12 cities in the country, and the Olympics of 2016, to be held in Rio de Janeiro. Beyond that, the country has discovered enormous offshore reserves of oil and gas, which will require massive amounts of money to harvest.

When it comes to making investments in infrastructure, the Lula government launched the Program for Accelerating Growth (PAC in Portuguese), under the management of Dilma Rousseff. If the electoral predictions come true, Rousseff, the “mother” of the program, will have the chance to make it materialize. “The PAC is a good idea, but it needs to be carried out – this is a problem for the next government,” says Marquetti. There are other problems that the Lula government also didn’t deal with, Marquetti says, that together become a different kind of legacy. “This government has not made a series of reforms that it needed to make, such as social security reform, labor reforms, and reforms that would make things easier for the manufacturing sector,” Marquetti says. “Another important problem is to resolve the question of violence, which is associated with the distribution of wealth, and the way in which our cities are organized.”

As for getting the funding required for developing the oil and gas deposits, Kanczuk believes that the government will be able to meet that challenge. This month, state-owned Petrobras is preparing a public share offering. But some observers, including Marquetti, question how much priority to give to this sort of investment. “Now that the entire world is looking for alternatives to oil, we are going to invest in it?” he asks. “I don’t know whether we are gambling too much on it.”

Brazil will also have to deal with other issues over the medium term, some economists say. One is the growing proportion of natural resources in the country’s mix of exports — raw materials have almost doubled during the last decade as a percentage of the export pie. That means Brazil will have to make policy changes to help its industrial sector become more competitive in the global arena.

“Brazil has a very strong ego, and there are still a lot of things left to do,” says Wharton’s Monteiro. “We could use a metaphor from football to describe the situation: they have won the game but not the championship. There are still a lot of subjects that have been left undecided.”

“Understanding the legacy of Lula,” he adds, “is going to help us understand what is going to happen from now on for Brazil.”