Country of Future Owes Much to One Man: Mohamed A.

El-Erian - Bloomberg Page 1 of 3

Country of Future Owes Much to One Man:

Mohamed A. El-Erian
By Mohamed El-Erian - Jan 6, 2011
Bloomberg Opinion

Eight years ago, a newly elected president, Luiz Inacio Lula da Silva, faced the challenge of saving
Brazil from economic and financial collapse.

Last Saturday, Lula passed the presidency to Dilma Rousseff having done much, much more than
that during his two terms. In the process, he relied on four simple pillars that other leaders would
be well advised to consider.

After winning a hotly contested presidential election in 2002, Lula overcame tremendous
domestic and international skepticism to guide his country to a development breakout phase. As a
result, he left the presidential palace last weekend with Brazil in a position to sustain high
economic growth for many years, strengthen an already robust financial situation, and better
meet the aspirations of the poorest segments of its society.

He inherited a country that was on the verge of economic implosion and default. Growth was
languishing, international reserves evaporating, investors fleeing, and hyperinflation threatening.
Markets for Brazilian sovereign debt were pricing an imminent and disorderly default.

Lulas domestic challenges were compounded by unfriendly regional and global conditions. With
Argentina having defaulted a year earlier in the midst of social unrest, a heavy cloud of doubt and
pessimism hung over most of Latin America. Meanwhile, global growth was sputtering,
undermined by the collapse of the tech bubble and a series of corporate scandals in the U.S.,
including the failures of Enron and WorldCom.

No Rescue

There wasnt much of an international cavalry to ride to Brazils rescue. Americas focus was
dominated by post-9/11 responses to terrorist threats. And no European country felt eager to fill
the void in support of a newly elected president who for years had embraced extreme left-wing
rhetoric.

Despite this, Lula managed to turn his country around. He did so in a manner that allowed it not
only to navigate the 2008-2009 global financial crisis but to emerge from it stronger in relative

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and absolute terms. In the process, he demonstrated the potency of his four pillars.

First, and from his first day in office, Lula recognized that there were no inherent contradictions
among financial stability, economic growth and improved social conditions. His approach was to
explicitly embrace all three within a well- defined multiyear framework and maintain appropriate
flexibility with regard to sequencing and mid-course adjustments.

Clear Communication

Second, he understood the imperative of clear and timely communication. He was open about the
serious challenges facing Brazil and the sacrifices required. And he didnt hesitate to reiterate his
vision for how Brazil would overcome these challenges.

Third, after clearly setting the strategic economic vision, he delegated implementation to a
carefully chosen set of technocrats. He intentionally didnt rely on experienced policy makers,
choosing instead new faces that quickly became credible economic spokesmen both within and
outside Brazil.

Finally, he understood the importance of institutional integrity and clear accountability. This was
most evident in his respect for the operational autonomy of the central bank. It was also crucial to
promoting broad respect for fiscal responsibility.

As a result of all this, Rousseff has assumed the presidency amid great domestic optimism.
Brazilians no longer joke that their country is the economy of tomorrow -- as in, always has been
and always will be. Instead, numerous indicators point to record and once-unthinkable levels of
economic self- confidence.

Better Off

With unemployment almost cut in half during Lulas term, many Brazilians now believe that they
will be much better off than their parents, and that their children will do even better. This is
noteworthy, given that Brazils trading partners in the West face discouraging unemployment
trends, particularly for younger workers.

Both current and future generations of Brazilians will remember their popular president for far
exceeding even the most optimistic expectations about what Brazil could achieve in terms of
economic, financial and social progress. Thanks to its domestic strength, today Brazil also plays
an increasingly influential role on the international stage, particularly when it comes to trade and
reform of the multilateral system.

Yet Lulas global legacy may be even larger, coming from the impact that his successful pillars
could -- and should -- have on the thinking of many current and aspiring politicians in other

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countries. If this were to materialize, Lulas presidency will end up benefiting many more
hundreds of millions of people around the world.

(Mohamed A. El-Erian is Pimcos chief executive officer and co-chief investment officer, and the
author of the book When Markets Collide. The opinions expressed are his own.)

To contact the author of this column: Mohamed A. El-Erian at Mohamed.El-Erian@pimco.com

To contact the editor responsible for this column: James Greiff at jgreiff@bloomberg.net

2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.

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