Saying No to The 'Illusion'.(Luiz Inacio Lula da Silva)(Brief Article)

Luiz Inacio Lula da Silva doesn't hang out in a sweaty T shirt and flip-flops anymore. The onetime lathe operator, who left the starving northeast for a So Paulo factory job, and then hefted himself by his own blue collar to the center stage of Latin America's largest democracy, is a changed man. The beard and big head of hair are neatly trimmed; his wardrobe is thick with tailored suits, and elegant cigarillos have replaced the sausage-size stinkers he used to smoke. The 55-year-old Brazilian Workers Party (PT) leader--and front runner for the Oct. 6 presidential election--looks more like a banker than an old lefty as he descends from Lear jets to shake hands on the campaign trail.

But the man known to all by his shop-floor nickname--Lula--has altered much more than his appearance. Having lost three previous presidential elections, he's decided to abandon the fiery rhetoric--"savage capitalism," "debt moratorium now!"--for which he's long been known. These days, he sprinkles his speeches with references to "fair trade" and "global markets," and talks of the importance of "fiscal responsibility." What gives? "The world has changed," Lula asserts, "and I've changed too." Over the next couple of months, Brazil's 115 million voters will be weighing whether Lula's makeover seems genuine or not--and more important, whether he seems capable of managing South America's largest economy. He holds a respectable lead over three challengers, but Ciro Gomes, a fast-talking former governor from the center-left Socialist Progressive Party, is closing in fast.

What is most interesting about Lula's political remake is that it runs counter to the current political mood in most of South America. As he moves to the center, many politicians in the region are hustling to conjure up again what Council on Foreign Relations scholar Kenneth Maxwell calls "the populist illusion." It is back in vogue as people watch their economies fall and their jobs disappear. A serious capitalist backlash has flared in Peru, Bolivia and Paraguay. Street protests have turned violent. Even Carlos Menem, the cashiered Peronist whose profligacy damaged Argentina, is enjoying a comeback. "Clearly people are frustrated, and many blame the current economic model," says Princeton University economist Jose Alexandre Scheinkman.

Brazil, too, has its problems. A record 1.8 million people in So Paulo, the country's ailing industrial heart, are out of work. Last week the real fell to a record low, the internal debt ballooned to a record $250 billion and the Big Board at the So Paulo Stock Exchange was drenched in red as investors cashed out of stocks and debt paper. Brazil's sky- high interest rates, needed to refinance its debts, suffocate growth. David Malpass, chief global economist at Bear Stearns, believes that Brazil's current economic program "is pointing towards [debt] default."

In the past, such economic troubles would be low-hanging fruit for presidential aspirants, and Brazil's have been helping themselves. But they also sense that voters have little appetite these days for rank political opportunism. That message has not been lost on Lula or on any of his rivals. True, all three leading presidential contenders--even the government's ...