Conservative free-market policies espoused by Brazil’s outgoing President Fernando Henrique Cardosa failed to bring Brazil out of its spiraling economic dive, even though many of those policies reflected the wishes of the hard-nosed bankers at the IMF. Unemployment almost doubled to 8.2 percent under Cardosa’s administration. Industry, which had expected to benefit from free-market policies, found itself caught by soaring interest rates making even medium-term investment an economic impossibility. Short-termism was no cure for an economy needing stability and long-term commitment from entrepreneurs confident in the future.

Lula’s convincing second-round victory was based on populist promises which hardly chime with the strict economic diet prescribed by the IMF. At various times, Lula has said that he is going to create jobs, appropriate land for the poor, support ailing industries, pour money into welfare and health and education and cut taxes. On the face of it, all of this will cost money that Brazil simply does not have. Much of the August $30-billion bail out has yet to be disbursed and is conditional upon Brazil running a budget surplus, less debt repayments, for the next year at least. Lula seems doomed very early in his administration, either to crush the hopes of his supporters or run foul of the IMF and international investors.

At the root of Brazil’s economic problems lies a substantial inequity in wealth distribution. Brazil’s small rich elite are very rich indeed and the vast majority of Brazilians is very poor. If Lula can find a way to break the power of Brazil’s traditional masters while maintaining the support of the educated middle classes and honoring some, at least, of his campaign promises to his millions of poor supporters, he could find that he could still deal with the IMF and outside investors. The strongest argument that he has is that the all the policies of the old guard, both of protectionism and its free-market successor, have failed to turn Brazil’s economy around.

Lula’s biggest danger lies in the Bush White House, which is unlikely to take kindly to socialist re-engineering from a former firebrand trade union leader. However, if he is able to portray a reform package as being both economically as well as socially desirable, Washington might just be wrong-footed. The problem will be if the new Brazilian administration uses targeted freezing of funds and expropriation of property. Not only will that cause foreign investors to recoil but may well produce the grounds under the Brazilian Constitution for impeachment.

Yet even if Lula’s presidency does turn out to be doomed and short-lived, the hard fact remains that Brazil simply has to change and its ultrarich must cede their economic dominance. A succession of establishment presidents has failed to carry the argument. Maybe only a left-wing firebrand like Lula can. But time is not on his side. He must move fast and cleverly.

The siege of the Moscow theater, which ended so tragically early on Saturday, is the latest chapter in the blood-drenched history of relations between Russia and the peoples of the northern Caucasus. With most of the estimated 50 terrorists killed and more than 100 hostages dead, Russian President Vladimir Putin faces the most wrenching dilemma of his presidency: Does he continue to try to subjugate Chechnya by force, or does he move toward talks that would grant the Chechens the autonomy they so crave — and have so recently squandered?

One of the chain of small mountainous regions on Russia’s southern border, Chechnya has been fought over for more than 150 years. It has suffered decades of war and oppression, with a few fleeting and rarely successful years of independence in between.

Russia conquered Chechnya in 1858 after wars that live in Russian literature and folk memory for the ferocity of the fighting, the romantic desperation of the Chechen warriors and the dramatic grandeur of the scenery. The Chechens next tasted independence in the turmoil that followed the Russian Revolution. They hoped for it again when Moscow’s attention was focused on the German invasion — earning themselves demonization as a "traitor-nation" and enforced deportation to the wastes of Siberia and Central Asia. Along with other exiled peoples, they were allowed to return to their homeland in the mid-fifties — beneficiaries of Khrushchev’s political "thaw".

The collapse of the Soviet Union in 1991 prompted their most recent dash for independence. Again, though, the Chechens were to be disappointed. Russia’s leader, Boris Yeltsin, decided that enough break-up was enough. The border of the Russian Federation was set at the former border of Soviet Russia. The "autonomous republics" of the north Caucasus retained this dubious status and were expected to resume their 19th-century role as Russia’s protector against the presumed threat from instability and Islam. Their strategic position and oil resources were deemed indispensable to post-Soviet Russia. Let one domino fall, so the argument went in Moscow, and they will all fall.

Of the six autonomous republics bordering Russia, Chechnya was the most committed to independence and the most determined to fight for it. The last eight years of conflict between the Russians and the Chechens have been dominated by war and horrifying atrocities, but there was one brief glimmer of hope and opportunity. At the end of 1996, after a series of startling Chechen victories, the Russians withdrew their troops and a peace deal was brokered, giving the shattered republic considerable autonomy.

Chechen Chief of Staff Gen. Aslan Maskhadov was elected president. It seemed that a particularly horrific war was at last at an end. The optimism did not last long, and nor did the peace.

At that stage — although the major powers stood firmly behind Boris Yeltsin — the Chechens enjoyed a degree of international sympathy, not least because of the sheer brutality of the Russian Army, who flattened the city of Grozny, set up "filtration" camps for young Chechens, ransacked towns and raped women.

But the new Chechen leadership had no sooner gained the moral high ground than they began to lose it. Working in extremely difficult conditions, including a devastated economy and infrastructure, Maskhadov proved incapable either of building a functioning government or of exercising stable control over his republic. Kidnapping and banditry became big business, destroying any prospect of significant foreign investment.

In less than three years, more than 1,100 Russian citizens were abducted by Chechen-led gangs. The details that emerged of the kidnappings and killings were often horrific. In December 1996 — in a repellent foretaste of what was to come — six Red Cross workers, including five women nurses, were murdered in a rural hospital.

The several dozen Westerners who were abducted during this period included three Britons and a New Zealander, who had gone to Chechnya on a Telecoms contract. They were beheaded, and their heads dumped in a sack by a roadside. That particular crime is believed to have been carried out by Arbi Barayev, a leading warlord and uncle of the leader of the gang who stormed into the theater in Moscow last week.

Maskhadov tried to stem the tide by setting up an anti-terrorism unit; its leader was killed by a car bomb. The Chechen prosecutor general was also abducted.

The contours of the conflict had clearly changed. Many of the Chechens who fought the first war against Russia — and certainly, Maskhadov himself — had portrayed themselves primarily as freedom fighters. But now, militants, keen to wage a jihad against Moscow, started to come to the fore. In August 1999, they made their presence felt. A group of militants with ties to the Taleban crossed the eastern border from Chechnya and invaded Dagestan, a Muslim republic which, like Chechnya, is part of Russia, but unlike Chechnya has an outlet to the sea, with a long coastline on the Caspian. Their declared aim was to establish an Islamic state uniting the two Muslim republics.

There were several large bombing attacks — one killed 51 in North Ossetia and another killed 64 in Dagestan — which attracted only fleeting attention worldwide. Then, in September 1999, came the mysterious apartment bombings in Moscow and elsewhere, in which 300 people were killed. Some, in Chechnya and abroad, saw the hand of the Russian security services behind the Moscow bombings. Most, though, including the Russian authorities, had no hesitation in blaming Chechen rebels. The unrest in the northern Caucasus was suddenly felt in the Russian capital, just as it was last week, and the response from Moscow was uncompromising: Invasion. The scale of the assault in 1999 soon became apparent. Russia’s second Chechen war of the 1990s was another horrific episode of rape, killings, torture and destruction, in which the Russian Army played a dismal role. The terrorist attacks on the United States of Sept. 11 served indirectly to strengthen Moscow’s hand and silence what Western criticism there was. Russia added the Chechens to the ranks of global terrorists and lumped their quest for independence together with the anti-Western jihad of Al-Qaeda.

Moscow has milked the association for all it is worth after the seizure of the theater last week. One Russian state-run television channel mixed its coverage from the scene last week with lengthy reports about the spread of Islamic militancy, bunching together Palestinian groups, Al-Qaeda, the World Trade Center and assorted bombings carried out by Islamists in Central, South and Southeast Asia. In one of these, a map was produced purporting to show a plan to establish an Islamic empire stretching around the globe. It was almost as if it was preparing the audience for the worst. (The Independent)