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Foreign investors feel more comfortable with mainstream liberal policies instead of socialist ones. And foreign investment was extremely critical to the survival of Brazils economy. It had been a major source of debt servicing and Brazil couldnt afford to turn foreign investors out. This heavy dependence on foreign investment also meant that Lula and his government had to allow investors considerable control over domestic economic policies. Amaral et al explain the effect of foreign investor sentiment on Brazilian economy: if the capital markets had decided Brazil was insolvent, the resulting pressure on the Real and domestic interest rates would guarantee that Brazil would in fact be insolvent. If capital markets had decided Brazil was solvent, Brazil would in fact have been solvent. The investor community was entirely aware of this role, noting that Lula needed to strongly signal a fiscally conservative orientation, so that he could win the game of investor sentiment.

To send a message to foreign investors that Lulas government was still commitment to some features of neoliberal measures, the President ensured continuity in some areas of macroeconomic policy. One such area was the pension plan. The government went against its original plan and raised effective minimumretirement

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