• December 1, 2022

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Brazil’s two time ex-president, and ex-convict, Luiz Inacio Lula da Silva, was declared the winner in a nail-biter last week. President Biden quickly congratulated him. European leaders and the Western press, who despised incumbent Jair Bolsonaro because he reminded them of Donald Trump, did the same. The established Western powers and their wandering minstrels from The Guardian, the Associated Press and NPR wanted Lula to win. He won. Yippee! But Lula will do the U.S., or Europe, no favors.

First, without arguing whether the elections went off without a hitch, Lula needed this win for himself. Arguably the most beloved president in modern times, Lula fell from grace in the mid-2000s because of the Petrobras “Car Wash” scandal. The oil giant was ransacked. Class action lawsuits, of which I was a part, were filed and won. I don’t think Lula was any particular ring leader in all that went wrong, but a court said his involvement and dereliction of duty were enough to put him in prison.

Then, a Supreme Court appointee of his set him free. His prison record was cleared so he could run for office.

Was Lula’s arrest a political witch hunt? Some believe so. Many Americans would believe the same if the Department of Justice and Attorney General of the United States found Trump guilty of some such thing, and jailed him.

In a weird way, despite Bolsonaro being labeled by the foreign press as the “Tropical Trump”, Lula — to his supporters — was persecuted the same way, only he ended up with a prison sentence.

For sure, Lula views the Car Wash scandal as a swipe against his history. He might even believe that U.S. intelligence forces, which were skeptical of Lula, helped the opposition with discovery in the Petrobras cases that led to his undoing. I don’t know if this happened, or if it was at all nefarious — many American retirement funds were heavily invested in Petrobras and lost millions. U.S. official involvement in the case would make sense. Petrobras stock was around $28 at the time the scandal was taking place and ended up around $3.50 at its lowest point in 2016. Today, it struggles to top $15.

But I think it is safe to say that Lula does not trust the U.S. intelligence forces and believes that there were U.S. interest in seeing him fall because of Petrobras. He owes these guys no favors and will give them none.

Like Bolsonaro, Lula is a nationalist, not a neo-globalist like some have tried to make him out to be. While he has been courted by the same European crowd that funneled dark money into political action committees donating to the Biden campaign, and often spoke their language on the campaign trail about racism, and democracy under siege and — Oh, good God, even ESG — Lula does not really care about any of those things. The West is projecting.

The Europeans and the NPR listeners might think that Lula will save the Amazon. Because Bolsonaro apparently destroyed it. But it was Lula who, going against Hollywood’s most famous director at the time, Mr. Avatar himself — James Cameron — and Mr. Titanic — Leo DiCaprio — launched the construction of the world’s second-largest hydroelectric dam in the Amazon, known as Belo Monte. Despite all the whining from Paris and D students who play make-believe in Los Angeles, Lula convinced the Xingu tribe that it was not the end of the world, and that Brazil needed electricity and Brazil was going to build a dam, which they did. Now Brazil is home to two of the world’s largest hydroelectric dams and one of them is generating power in the “lungs of the Earth.” That was Lula who did that, not Bolsonaro.

Bolsonaro was better for the United States, geopolitically. He could at least be counted on to make things harder for China in the Americas.

Lula will do nothing of the sort. He will bring Brazil closer to China, especially if the clown world banks of Europe and the U.S. pester him about greenhouse gasses and cow methane. China will gladly lend to Brazil and invest in Brazil and buy Brazilian commodities. (Though Bolsonaro probably would have done the same if Biden and Co. questioned his win.)

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Bolsonaro was a neutral voice in the war in Ukraine.

Lula will not be. He is not interested in NATO proxy wars with Russia. He worked with Vladimir Putin for eight years, four more than Bolsonaro. And those were good times. The BRICS were all the rage then. Economies were booming. No one hated the Russians.

Lula blamed Volodymyr Zelensky for the war as much as he did Putin in an interview with Time magazine this summer.

I imagine it took all the energy the foreign correspondents in Sao Paulo could muster to not call Lula out on this. Had Bolsonaro said that, it would have been on the cover of every newspaper, not as a matter of fact (Bolsonaro said this) but as a blasphemy to the Western world order (Bolsonaro said this, and he is a dummy).

Lula will not support U.S. rhetoric against Russia unless Russia starts lobbing nuclear bombs into Ukraine. Until then, the U.S. has no ally in Lula on Ukraine. None.

Brazil is the last stand in the Americas.

From Mexico to Argentina, Latin America is becoming a forgotten world. If Brazil collapses, Latin America will be a black hole, with nothing but poverty, disgusting inequality, and crime. The region is already largely ignored as a supply chain solution for the U.S. It will be completely and deeply ignored if Brazil falls apart.

The region has imploded over the years. Mexico is besieged by drug cartels. Venezuela is a failed state. Colombia is run by the FARC again, now a legitimate political party. Argentina is a disaster. Chile is still fine, but too tiny to have a say in global politics.

The other smaller countries in South America are hanging on, some quietly hoping the world will leave them alone.

Lula’s Last Chance

Lula will face a Congress dominated by Bolsonaro conservatives. His vice president, Geraldo Alckmin, has ambitions to be president someday. He failed against Lula before. Now Lula picked him to join forces as the Workers Party becomes just another European-style social democratic party.

Lula is really the last of the old guard of the Workers Party, and when he is gone, the Party might as well just be gobbled up by Alckmin’s party, anyway. Maybe Lula won’t be terrible. Maybe things will settle down sooner rather than later. Lula’s legacy and the future of Alckmin’s Social Democratic Party depend on it.

Still, there is a risk here. Too many question marks hover over Brazil.

Rio could turn into a drug-infested crime pit again. Lula was not known for being tough on crime. The last thing Brazil needs is to copy the streets of San Francisco. When things fall apart in poor countries like Brazil, they fall apart fast and furious.

There is also a risk that some senior officers in the military and the rank and file in the police force, majority pro-Bolsonaro, will not accept the election of a man who was just in jail a few years ago.

These are all unknowns, though, and things political junkies pontificate and investors worry about.

Brazil is the strongest country in the Americas. It is not hard to imagine it avoiding a worst-case scenario. It is not hard to imagine that the checks and balances work and Lula — who must redeem himself — will be okay. Brazil won’t become a failed state like Venezuela and Argentina. Brazilians won’t let it, I am pretty sure.

But what I am certain of is this: Lula is worse for the U.S. geopolitically than Bolsonaro. The odds of Lula bringing Brazil closer to China is and was greater than Bolsonaro doing so. Lula will not support NATO proxy wars in Ukraine like the Europeans. And barring some overtures to saving the planet, Lula will not do what Western climate activists want him to do with the Amazon. To Lula, like Bolsonaro, the bulk of the largely intact Amazon rainforest is sovereign territory. Book it. Bet on it.

In the meantime, Brazil investors should be worried short term and pay attention to who Lula picks for Central Bank and Finance Minister. If Petrobras is led by a Party hack, even oil prices pushing to $100 again won’t be bullish.

Thoughts and prayers.

*The writer of this op-ed is a Petrobras investor.

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