Brazil: The politics of crisis

Third World Quarterly

Volumn 20, Issue 2, 1999, Pages 287-317

  Flynn, Peter ^a  

^a UNIVERSITY OF GLASGOW   (United Kingdom)

Author keywords

[No Author keywords available]

Indexed keywords

ELECTION; FINANCIAL CRISIS; POLITICAL ECONOMY;

BRAZIL;

EID: 0032804007     PISSN: 01436597     EISSN: None     Source Type: Journal    
DOI: 10.1080/01436599913776     Document Type: Article

References (160)

1. Before Kubitschek, President Dutra left office at the end of an elected term in 1950 and, before him, Artur Bernardes did so in 1926.
2. Financial Times, 30-31 January 1999; Veja, 20 January 1999, pp 42-43.
3. As of 7 February 1999.
4. This paper is largely based on interviews and research in Brazil, September-November 1998. This was the
5. period of both rounds of elections and when the Programme of Fiscal Stability and the IMF package were being put in place.
6. See M Wolf, 'Supporting a house of cards'. Financial Times, 16 September 1998 on the choices to be faced by the G7 confronted with the attack on Brazil. Sec also Financial Times, 18 September 1998 on the continuing outflow in September, and Veja, 21 October 1998, pp 28-31.
7. Jornal do Brasil, 29 October 1998, commenting on the fact that US$830 million had left the country the previous day. To be fair, not all this outflow was because of lack of confidence. Some of it reflected a fall in the price of Brazilian debt, which led companies to buy back their outstanding foreign currency funds and Brazilians to invest in sovereign Brady bonds. Sec Economist Intelligence Unit, (EIU), Country Report Brazil, fourth quarter 1998, p 15.
8. Financial Times, 18 November 1998.
9. Veja, 7 October 1998, pp 30-31. See also Elizabeth Alien, 'Human impacts on Brazilian Amazonia: the Roraima fires of 1997-8', paper presented to the international conference on 'Human impacts on the environments of Brazilian Amazonia: does traditional ecological knowledge have a role in the future of the region?, at the Centre for Brazilian Studies, Oxford University, 5-6 June 1998.
10. The phrase is used in an illuminating report in Veja, 7 October 1998, pp 28-33. The notion of barons of the political elite is not new. It came up in interviews in late 1984 during the indirect election of Tancrcdo Neves. Sec Peter Flynn, 'Brazil: the politics of the Cruzado Plan', Third World Quarterly, 8(4), October 1996, pp 1151-1194, csp 1160-1165, notes 36-40. For broader reflection, sec the classic study by Raymundo Faoro, Os Donos do Podcr: formaçâo do patronato politico brasileiro, Porto Alcgre, 1958.
11. Jornal do Brasil, 4 October 1998. " Folha de Sâo Paulo, 4 October 1998.
12. Veja, 7 October 1998, p 33.
13. Public attention given to the speech was striking, as was informed comment on it, partly because many of the details were already known, in keeping with Cardoso's pledge not to spring surprises on the people, as had been done by President Sarncy in the Cruzado Plan of 1986 and by President Collor in his 'New Brazil' or 'Collor Plan1 of March 1990. On these first two interventions, sec The politics of the Cruzado Plan'; Flynn, and 'Brazil and inflation: a threat to democracy' Third World Quarterly, 11(3), 1989, pp 50-70.
14. The press of 28 October reported the speech in full. See, for example, Diûro de Natal, 28 October 1998, p 6; and Folha de Sâo Paulo, p 6. The Folha also provides excellent reporting on the immediate reaction to the measures announced.
15. Jornal do Brasil, 29 October 1998, p 15; and Diärio de Natal, p 4, which gives a full account.
16. There is a good account of the measures, but without detail, in EIU, Country Report, 4th October 1998, pp 17-21.
17. Jornal do Brasil, 29 October 1998.
18. On the notion of 'gradualism', sec the article by Cristiano Romcro, Jornal do Brasil, 29 October 1998, p 17. This is linked to earlier, half-hearted measures to tackle underlying problems, as in November 1997, when tax-raising measures produced results, but expenditure cuts were cither rejected by Congress or not carried through. Sec niu. Country Report, p 15. The failure to carry through these earlier measures was part of the political cost accepted by the government in anticipation of the elections of 1998, a point not made in EIU and other reports.
19. Diärio de Natal, 29 October 1998.
20. Jornal do Brasil, 29 October 1998, p 16. Sec also the generally sceptical article by Cclso Pinto in the same newspaper.
21. Diärio de Natal, 29 October 1998, p 4. See also the interview with him in Istoé, 21 October 1998, pp 36-37, expressing concern over the amount of attention paid to stabilisation in the Piano Real at the expense of growth, which should be of the order of 5%, and of employment, especially since the country docs not have social policies to case unemployment. [Lafcr Piva] wants a Ministry of Production.
22. See Exame, 21 October 1998, pp 24-31 and the well argued articles in the accompanying issue Brasil en Exame: Segunda Chance, with its detailed statistical tables. The main point is that President Cardoso now has a second chance to do the job required.
23. Veja, 4 November 1998, pp 46-47.
24. See the scathing article by Villas-Boas Corrca: 'A crise éda reclciçâo', Jornal do Brasil, 28 October 1998, p 9.
25. Itamar's criticism is set out in ibid, p 5.
26. See three sharply critical articles by Clovis Rossi, Eliane Cantanhede & Carlos Hcitor Cony, Folha de Sâo Paulo, 4 October 1998, p 2. See also the doubts raised by William Perry, ibid, p 4; and Jeffrey Sachs, the
27. Harvard economist, criticising Cardoso's policies and urging the need for devaluation to avoid recession, Jornal do Brasil, 21 October 1998, p 19. He argues that Brazil's currency is overvalued by 35%-45%, much higher than most estimates. Sachs had already warned Brazil of falling into the same trap as the Asian economies, whereby introducing austerity measures to boost credibility leads to deep recession and a further erosion of confidence, Financial Times, 18 September 1998, p 4.
28. Financial Times, 16 September 1998, p 23. This was seen as one of three immediate tasks: to sustain growth and demand in the US and western Europe, to halt the spread of the emerging market contagion and to help restore damaged economies to renewed health. Brazil, with 45% of Latin American CDP was seen as a keystone, but perhaps a crumbling one, with its capital flight, its deficit of 7.8% and interest rates of over 50%.
29. Pedro Malan emphasised this in his comments on the IMF and international packages. Financial Times, 14 November 1998.
30. 18 November 1998, p 23; 'Last tango [should it not have been samba?] in Rio'. Also 'Grcenspan's bubble', p 24.
31. There is an overwhelming consensus on this political factor in both the Brazilian and foreign press, as there was in interviews, at all levels, in Brazil as these measures and debates unfolded. There was also the keen sense that time was not on the government's side, that it was short and running out fast. Typical comment along these lines can be found in Veja, 4 November 1998, pp 40-51. Sec, for example, p 47: 'O Relögio do Real', (The Real Clock); 'The government is racing against time to make its fiscal package work'.
32. Época, 12 October 1998, p 27.
33. For fuller discussion of these and other issues faced by the Piano Real, sec Peter Flynn, 'Brazil: the politics of the Piano Real', Third World Quarterly, 17, 1996, pp 401-426.
34. On these questions of the need for political reform and on political corruption, see Peter Flynn: 'Collor, corruption and crisis', Journal of Latin American Studies, 25, 1995, pp 351-371.
35. For a recent, detailed account of Brazil's political parties and party system, see David Fleischer, Brazilian Political Parties and Party System, 1945-1997, George Washington University, Working Paper Series, January 1998. Sec also the acute comment from Vice-Président Marco Macicl, in a rare interview, Istoe, 21 October 1998, pp 5-9. He says the financial crisis is international but, within Brazil, the main problem is political, that economic stability needs reform of the political system. Istoe, 11 November 1998, p 39, examines current efforts to strengthen party loyalty, in contrast to 1995-98, when no fewer than 202 Federal Deputies and 22 Senators changed parties.
36. There is a succinct listing of these constitutional reforms in Eiu, Brazil Country Profile 1998-99, 20 October 1998, p 8. It describes those amendments already passed, including the 1998 administrative reform, and those still pending, namely, reform of the tax, social security and judicial systems.
37. See Pcdro Malan, quoted in Financial Times, 14 November 1998, on the end of 'gradualism'.
38. Sec D Fleischer, Re-election Brazilian Style: The General Elections in 1998, George Washington University, Working Paper Series, Institute of Brazilian Issues, November 1998. See also the valuable material in Flcischcr's weekly reports, Brazil Focus; and Weekly Report, Brasilia. Sec, too, Época, 12, October 1998, p 27, which produces graphics showing the composition of Congress, in the Chamber and in Senate, in October 1998 and as it would be in 1999.
39. The geographical and regional distribution of votes was interesting. In 1998 Cardoso had relatively poor support in Brazil's biggest cities and in state capitals. His best performance, in terms of regions, was in the centre-west and his worst in the north cast. He lost to Lula in Rio Grande do Sul and, very narrowly, in Rio do Janeiro. His most decisive victory was in Sâo Paulo, his home state, where he won 9.7 million votes. This was more than 25% of the state electorate, which in turn represented 21.99% of the national vote in 1998. Época, 12 October 1998.
40. The pro-government bloc in Senate should be 66, and the opposition, 13.
41. See the judicious analysis of Wälder de Goes, Jornal do Brasil, 27 October 1998. He says that the party composition in Congress is much as before, and that Cardoso knows how to work it. While about half the Chamber is composed of new members, about 80% of the president's supporters were returned. Research by de Goes' Brazilian Institute for Political Studies (IBEP), in Brasilia, also showed unexpectedly that, of deputies returned to the Chamber in 1998, 60% were those who had voted for reforms in 1997 and 1998, as distinct from only 34% of those who had voted against.
42. IBEP, Os Formadores de Opiniäo do Pais e a Reforma do Estado: Rclatorio de Pcsquisa, Brasfiia: IBEP, January 1997; and O Congresso Nacional e a Reforma Tribulâria, Brasilia: Relatön'o de Pcsquisa, May 1998.
43. See the interview in Jornal do Brasil, 4 October 1998, p 14, with Fernando Lattman-Wcltman, a researcher in the Centre for Research and Documentation on Contemporary History (CPDOC), Fundaçâo Getûlio Vargas, author of a study of the press and President Fernando Collor. See also 'Brazil. Why the left isn't winning', The Economist, 19 November 1998, pp 4-46.
44. For scathing comment on the role of the media, see Boletim do DIAP (Departament Intersindical de Assessoria Parlamentär), Ano VIII, No 97, September 1998. It describes media support for Cardoso as a
45. scandai. The media present him as the only candidate able to save Brazil from catastrophe, when, in four years, he had tripled the internal debt, abandoned health policies, damaged industry, favoured imports over development, increased unemployment, preserved an artificial exchange rate, produced the highest interest rates on the planet and suffocated the productive sector with a tax burden of over 30% of CDP. This issue also contains good material on the need for political reform.
46. These arc some of the arguments in an article by Mario Sabino, 'E agora, companhciro?', Veja, 7 October 1998, pp 34-36, just three days after the presidential elections. It is accompanied, check by jowl, (pp 36-37) by an interview with Tony Dlair, praising the Piano Real and explaining the 'third way' of 'modernised social democracy' called the third way: 'because it deliberately goes beyond ["ultrapassa dccididamente"J the old left, preoccupied with state control, high taxes and corporativist interests' and the new right. Earlier in the year, during a visit to Rrazil, then Labour Minister Peter Mandelson criticised Brazil's traditional left, to the anger of IT leaders, to whom, they claimed. Mandelson had not even spoken.
47. Ibid, p 36, On the demise of the 'last icons of the nationalist left', such as Brizola and Arracs, see Época, 12 October 1998 pp 36-37, which also bids farewell to some old caciques or political bosses, including Robcrto Campos, now of the PPB, the former Minister of Planning (1964-67), distinguished ambassador and formidable intellectual on the political right.
48. Época, 12 October 1998, pp 28-29. He says in this interview that his mistake and that of the IT was to believe that Cardoso, after election as president, would turn to the centre-left: 'He did exactly the opposite and remained on the far right ... I do not bear a grudge, but he betrayed the principles of those who for so long struggcd for democracy.
49. Bom in 1944 in the interior of Pcmambuco, Lula moved with his family to Sâo Paulo in 1952. He sold peanuts and tapioca in the streets, became a metalworker, joining the union in 1969, becoming first secretary in 1972 and president in 1975. He led strikes during the military regime in 1978 and 1979, was imprisoned and in 1980 helped to found the IT, together with trade unionists, politicians and intellectuals. Jornal do Brasil, 4 October 1998, p 6.
50. Fleischer, Re-election Brazilian Style, p 5.
51. See, for example, Jornal do Brasil, 4 October 1998, p 6.
52. In the last hours of Saturday 3 October, the rapidly changing polls soundings, as monitored in IBEP, suggested that a second round was possible.
53. Fleischer, Re-election Brazilian Style, p 6.
54. They included former President, José Samey, whose political stronghold was in Maranhâo in the northeast, but who now represented Amapâ in northern Brazil, and Eduardo Suplicy, the IT Senator from Sâo Paulo and Pcdro Simon, of the PMDB, in Brazil's most southern state of Rio Grande do Sul. The other two were Ncy Suassuna (PMDIî, Pemambuco) and Fernando Bczcrra (PMDB, Rio Grande do None).
55. Fleischer, Re-election Brazilian Style, pp 9-10.
56. There is good analysis of governors in the supplement of the Folha de Sâo Paulo, 9 October 1998.
57. Época, 12 October 1998, pp 32-35.
58. The others were Amapâ, Mato Grosso do Sul, Piauf, Rondônia, Roraima, Goias, Para and Scrgipc.
59. Several Ministers and senior officials made this point in interviews in Brasilia between the two rounds of voting, evidence of the sense of urgency with which Cardoso and his government viewed their reform and fiscal programmes.
60. Covas beat Maria Suplicy into second place by only 74 436 votes. Fleischer, Re-election Brazilian Style, p 10.
61. Maluf's defeat was said to have left him with a debt of R$20 million. He also lost what may be his final presidential springboard for 2002, Época 2 November 1998, p 33.
62. There is a good article on Dutra in Epoca, 2 November 1998, pp 36-37. He was a bank employee, the son of a rural worker from the Missocs region of Rio Grande do Sul, the fourth biggest state of the federation, with a diversified industrial and agrarian base, a population of 9 866 928 and a CD? of RS46.04 billion. This is the most important state the PT has governed. In 1994 the party %von in the Federal Disrict and Espi'rito Santo and, in 1998, in Rio Grande do Sul, Mato Grosso do Sul and Acre. This issue of Época also provides an excellent summary of the make-up of the new Chamber, the new Senate and the newly elected governors, and the party distribution across states, pp 34-35.
63. Folha de Sâo Paulo, 9 October 1998. Itamar was reported to have voted for Giro Gomes in the presidential election (Istoc, 21 October 1998, p 61), just as former President Collor de Mello was reported to have voted for his old rival Lula, (Folha de Sâo Paulo, 4 October 1998). He became candidate for governor of Minas Gerais only after the PMHB decided not to put up a presidential candidate in opposition to Cardoso.
64. He was commonly presented, at home and abroad, as provincial and narrow-minded, speaking only Portuguese, intellectually at home in the Minas Gerais city of Juiz da Fora, looking inward in that land-locked state, rather than sensitive to a wider, still less a globalised, world. In so far as he was
65. known abroad, it was for a much publicised incident in a box during Rio's carnival, where, as president, he was shown cavorting with a young women, wearing, very evidently, less than the dancers. Itamar's political opponents deliberately cultivated this image which, too often unfortunately, was accepted uncritically by foreign journalists. There is an article explaining his political position in Veja, 4 November 1998, p 51.
66. Jornal do Brasil, 30 January 1999, p 3. The six opposition governors met in Brasilia within two days of the government's announcement of its fiscal programme. They demanded that their debts to the federal government should be negotiated en bloc and wanted to curb the application of the Lei Camata, which limited to 60% of state revenues what could be spent on salaries. They objected to an increase in the Fiscal Stabilization Fund (FEF), by which the federal government wanted to hold back not 20% but 40% of money owed to states under the constitution of 1988. They offered, even at this early stage, rational criticism and alternative proposals. See also Veja, 4 November 1998, p 49.
67. Jornal do Brasil, 30 October 1998.
68. Villas-Boas Corrca 'A pressa anda devagar' ('Haste is made slowly'), ibid, p 9. See also the criticism of a leading left wing economist, Maria da Conceiçâo Tavares, that it is wrong to single out social welfare as the main cause of the deficit. Ibid.
69. See, for example, Jornal do Brasil, A October 1998, the day of the elections. A long article analyses the problems facing Cardoso. They include economic issues such as the deficit of 8% and others already noted, but the article emphasises problems of poverty and social issues still to be tackled. See also Folha de Sâo Paulo, 4 October 1998, noting that the exchange rates will be the biggest challenge now, linked to the deficit, interest rates, unemployment, recession and capital flight.
70. Veja, 4 November 1998.
71. Época, 2 November 1998, pp 22-23, provides clear diagrams, showing the relation between state incomes and expenditure and their relation to numbers of state employees.
72. Veja, 4 November 1998, pp 44-45. This report includes a clear summary of the new income to be generated by the Programme of Fiscal Stability, namely R$15.8 billion, under four main headings, and from spending cuts of R$12.2 billion, again set out under four main headings. It also reports on complaints from the private sector, demanding changes in the exchange rate and cuts in interest rates, ibid, p 26.
73. Sec Wanderlcy Guilhcrme dos Santos: 'As licôes das umas', Época, 19 October 1998, pp 29-30. He provides close analysis of the electorate and election results, noting that Cardoso did less well in 1998 than in 1994. In terms of the percentage of votes from the total electorate (not of valid votes), Cardoso, with 33.8%, performed less well than former presidents (Collor, 42.7%, Quadros, 36.3 and Dutra, 43.5). The electorate, he says, was mean with Cardoso, although the opposition deserves only 'modest congratulations'.
74. See Flynn, 'Collor, corruption and crisis', pp 353-355. Dos Santos gives the relevant breakdown of the 1998 electorate, 'As licôes das urnas', p 28.
75. These points are very well made by Walder de Goes, president of IBEP in Brasilia, in 'O novo contexto poh'tico', Jornal tfo Brasil, 27 October 1998, p 9. On governors likely to cause trouble for Cardoso, see Franklin Martins, Época, 19 October 1998, p 33.
76. Fleischer, Re-election Brazilian Style, p 14. Another source of possible delay was the fact that Congressmen received twice their usual daily expenses allowance for attending special sessions.
77. Sec Franklin Martins, Época, 2 November 1998, p 29. See also Villas-Boas Corrca, Jornal do Brasil, 30 October 1998, p 68: 'It is a safe bet that Congress will not vote the package in November. Much will remain for the new Congress to be installed on 1 February."
78. Fleischer, Brazil Focus, 4 December 1998, pp 4-5. The CPMF in 1997 brought in RS4.27 billion. In 1998, up to 31 August, it brought in RS5.27 billion. The government now wanted Congress to extend it beyond its cut-off date of 22 January 1999, expecting that in 1999 it would bring in R$8.7 billion for a further three years. Brazil Focus, 19 September 1997, p 5. The previous report contains more details on the proposed social security reforms (p 4).
79. Brazil Focus, 27 November 1998, p 3. The original reform plans were put to Congress in 1995 and a report accepted by the then Minister of Planning, José Serra, himself a specialist on fiscal reform. His successor then stifled debate. Fleischer, Brazil Focus, 12 September 1998, p 6.
80. These included a measure, already twice defeated, to deduct social security contributions from retired civil servants and their surviving pensioners, mostly widows. Also, measures to exact contributions from some charities and the armed forces, the latter having been excluded from the original proposal because they had their own pension scheme.
81. D Fleischer to Peter Flynn, e mail, 5 December 1998. See also Brazil Focus, 4 December 1998, p 6.
82. Financial Times, 4 December 1998, expressing doubt whether the government has 'the clout to implement austerity measures'. If not, 'capital flight will resume ... force up interest rates, widen the deficit and force the real into 'free fall' See also, Guardian, 4 December 1998. It notes that the defeat came only one hour before the visiting IMF team announced its approval of the first tranche of its US$41.5 billion rescue programme. David Fleischer reports that the IMF meeting was extended by three hours, to decide whether
83. it should go ahead with the agreement or not. Eventually, it decided it would. Brazil Focus, 4 January 99, p 9.
84. Financial Times, 5 December 1998.
85. Ibid, 21 December 1998, FT, Survey on Brazil, p 9. This contains discussion of the political reforms being proposed by Sdrgio Machado, leader of the PSDB in the Senate. These include an end to the 'open list' system, which, apart from Brazil, is only used in Finland, in exchange for a 'closed list system', combining proportional and local representation. Another report noted the division within the government between a development wing, less obsessed with inflation and represented in part by José Serra, former Minister of Finance, now of Health, and the 'economic team' led by Pedro Malan and Gustavo Franco, stoutly defending the stabilisation plan and the fight against inflation.
86. Financial Times, 8 December 1998
87. ibid, 16 December 1998.
88. Ibid, 18 December 1998. It quotes a New York investment banker saying: 'interest rates have to come down, otherwise the fiscal plan is not viable', but also notes that a larger interest rate cut now would threaten the value of the real, 'a cornerstone of the government's free market economic policies'.
89. Ibid, 24 December 1998.
90. Ibid, 5 January 99. Cardoso was also trying, on the political front, to find support on the left for his fiscal measures. On 14 December he had invited Lula to speak to him personally, accompanied by Cristovam Buarque, governor of the Federal District. Despite maintaining his opposition to government policies, including the IMF package, Lula welcomed the opportunity to discuss issues in the national interest on which agreement might be found. The meeting provoked sharp criticism from other members of Lula's left-wing alliance, including Brizola. Eslado de Säo Paulo, 16 December 1998.
91. The FT/World Index showed that in 1998, as in 1997, the losers were mainly in the emerging markets, with the bottom two places for 1998 being held by Mexico, down 37%, followed by Brazil, at the bottom, down 44.26%. This clearly showed that, despite Cardoso's re-election and the IMF rescue package, investors were still concerned about Brazil. Ibid, 4 January 1999.
92. 'Outcast Brazil bites the bullet', Ibid, 6 January 1999, p 42. The article, by John Barham, says that Brazil, 'once the darling of the international investment community, is now a virtual outcast... much depends on intangible factors, principally the willingness of an undisciplined Congress to vote through tax raising and cost-cutting measures that will enable the government to meet IMF targets.' The overriding concern is 'the solidity of... the real. Fears of a devaluation beyond the planned 7.5-8% annual depreciation would spark another sell-off of Brazilian equities.' The article also wisely notes the difficulty of political prediction.
93. Veja, 13 January 1999, p 37, gives details of the large discounts and low interest rates which the federal government had provided, giving examples of 10 states. Rates varied from 6% to 7.5%.
94. Brazil Watch, 23 November 1998, pp 6-7. This succinct discussion of the gubernatorial elections provides a full list of the new governors and a breakdown of parties. It is followed (pp 8-9) by discussion of 'A tilt to the left in 2002?'. See also htoc, 6 January 1999, pp 28-29.
95. 'A default by Minas Gérais would send the wrong signal to world markets. It suggests that Brazil is just not serious about cleaning up its massive national and state debts." Such comment, from The Herald (Glasgow), 8 January 1999, in its Business Comment Leader, was typical of reaction abroad. Ilmar's precipitation of the devaluation crisis, ironically, increased the real value of the debt of Minas Gérais.
96. Financial Times, 12 January 1999. See Wälder de Goes, 'This dispute could potentially have serious repercussions in Congress for the government'. Ibid, 6 November 1999. This partly stemmed from the influence which governors had on congressmen from their states.
97. The Economist, 16 January 1999, p 57. A pungent profile of Itamar Franco says he may yet have left his mark on Brazilian history, much as roosting pigeons leave theirs on the Planalto (the president's palace) in Brasilia. See also Financial Times, 6 January 1999, for a more decorous report.
98. Veja, 13 January 1999, pp 36-39.
99. Veja, 6 January 1999, pp 34-35, showing Cardoso's support from 1995-98, which remained high, from 44% in February 1995 to a high of 56% in March 1997, down to 32% in May 1998, but up again by December 1998 to 40%, from which later it dropped to 30%.
100. Veja, 6 January 1999, p 7, reports on the buying spree leading up to Christmas 1998, but an interview with George Soros discusses the vulnerability of the international financial system. Brazil, says Soros, is in the eye of the hurricane. It is trying to manage the crisis, but may not have the necessary support in Congress to avoid the collapse of its economic programme: 'This, today, is the international financial community's greatest worry' (p 10). See also Brazil Watch, 21 December 1998, p l, on capital flight, especially after 11 December when US$650 million left the country, followed by $337 million the next business day. Banks had expected a net outflow of $3 billion to $5 billion in December to meet debt payments but 'much of the exodus was through the floating rate, a sure sign of capital flight'; and Brazil Watch, 11 January 1999, p 3, reporting that nearly US$5.2 billion left the country in December.
101. Among those urging the need for devaluation were Jeffrey Sachs and, in Brazil, Delfim Netto. Brazil Watch, 21 December 1998, pp 10-11. Government spokespeople were still talking only of widening the band in which the currency might trade, perhaps as a first step towards a floating rate.
102. Jornal do Brazil, 13 January 1998.
103. Ibid. This also has the full text of the Säo Luiz letter. See also Veja, 20 October 1998 pp 45-46, on growing support for Itamar Franco. It also quotes ex-finance Minister Delfim Netto, saying that the governors met in Säo Luiz to condemn Itamar, but all want the same as he does.
104. Press Release, Brazilian Embassy, London, 14 January 1999. See also Jornal do Brasil, 14 January 1999.
105. "The gamble over Brazil has failed', Financial Times, 14 January 1999. The Economist, 16 January 1999, said Brazil was forced to devalue because investors had lost confidence in the government's ability to tackle the country's main problem: fiscal profligacy. 'In the past two months the government has proved politically weak'.
106. 'Tempo de reflexäo' ('Time for reflection') Jornal do Brasil, 14 January 1999.
107. "The miopia which leads to disaster', See Veja, 20 January 1999, p 7, on the persistent refusal of the political class to recognise and accept what needed to be done.
108. Jornal do Brasil, 14 January 1999.
109. Financial Times, 15 January 1999.
110. Ibid, 18 January 1999.
111. Ibid. See the leader 'Urgencia Urgentissima', calling for the most urgent political action to restore international credibility.
112. Guardian, 16 January 1999. 'Brazil was placed in a position almost guaranteed to cause a crisis'. Given the fact that more than a trillion dollars a day sloshes around the global markets, Brazil's line of credit from the IMF was like 'fighting a panzer with a peashooter'. Sec also the severe criticism of Jeffrey Sachs, 'Going for broke', Ibid, p 21; and Financial Times, 18 January 1999.
113. See Financial Times, 19 January 1999, on Argentina's and Chile's declared lack of nerves.
114. 'Who is next in the chain?', Ibid, 18 January 1999, and 'Real pain', Sunday Times, 17 January 1999.
115. Financial Times, 18 January 1999, and 20 January 1999.
116. 'Dollarisc or die'. Financial Times, 19 January 1999. See also Financial Times, 22 January 1999, on Argentina and a leader, 'Dollarisation', 25 January 1999.
117. Jornal do Brasil, 16 January 1999.
118. See Jornal do Brasil, 16 January 1999, 17 January 1999, for the views of governors of smaller states, more dependent on the federal government, and an important interview with a long-experienced politician, José Aparecido de Olivcira.
119. See the powerful leader in Jornal do Brasil, 17 January 1999, 'Geometria variavel'. It is a strong attack on Cardoso and his 'fatal mistake' in his handling of Congress and, again, his failure to carry through urgently needed political reforms by concentrating on re-election. It refers to 'political demobilisation' and is also, yet again, stingingly critical of Congress.
120. Ibid. Sec also. Financial Times, 18 January 1999, 19 January 1999.
121. Financial Times, 22 January 1999; and Guardian, 22 January 1999, which reports George Soros as criticising the rise in interest rates, made, he believed, on the 'not good advice' of the IMF. See also Anatole Kaletsky, 'Brazil is not being offered the correct medicine', The Times, 26 January 1999; and the open letter from the Brazilian Ambassador in London, Rubens Antonio Barboso, reflecting on the British experience of 1992.
122. Jeffrey Sachs, 'Self-inflicted wounds', Financial Times, 21 January 1999. He refers to the IMF'S (and the USA's and Brazil's) 'fatuous $41 billion stabilisation programme, predicated on a continuation of the pegged exchange rate" and offers four reasons for the IMF'S damaging policies. These include that 'as an anti-inflation zealot, the IMF coolly accepts deep recession'. Sachs argues that Cardoso need not have deferred devaluation for electoral reasons: 'Ironically, he would most likely have won with a devaluation in 1996, or in late 1997, or even in late 1998. Now he faces a financial disaster of his own contrivance."
123. The Economist, 23 January 1999, p 18.
124. On capital flight and the wider issue of the international impact of the Brazilian crisis, see Edward Luce, 'Brazil's burning fuse'. Financial Times, 25 January 1999. He argues that the impact of Brazil's devaluation has been less dramatic than might have been expected, in contrast to that of the Russian rouble in August 1998 or the Thai baht in July 1997. But, he argues, this is because Brazil's devaluation had been largely expected, so that the global investment industry had already minimised its exposure to emerging market securities. The huge capital outflow before devaluation was more expatriation of funds by domestic
125. investors than a repatriation of capital by foreign investors, in contrast to Asia and Russia. He then argues that the economic, rather than the financial, impact of Brazil's crisis may be profound.
126. Financial Times and Guardian, 23 January 1999.
127. Financial Times, 21 January 1999. See also the article on Argentina, President Menem and the dollar.
128. Financial Times, 30 and 31 January 1999.
129. Ibid, 26 January 1999.
130. Ibid, 29 January 1999. See also The Economist, 30 January 1999, p 85. It says that, even with the real hovering around 1.80-2.00 to the dollar compared with 1.21 on 12 January, markets are not convinced that it has stopped falling. It notes the loss of US$45 billion since last August, with reserves now at about US$35 billion, including US$9 billion from the IMF-led package. The Central Bank has struggled to sell its bonds in its domestic markets. Confidence in Brazilian policy, it says, has been battered.
131. Financial Times, 28 January 1999.
132. Ibid, 30 and 31 January 1999, which reports that, on the previous day in the Sâo Paulo stock market, 'Speculation was rife that the government could call Monday a bank holiday and release new economic measures'.
133. Sec, for example, the immediate reaction to the programme from Horâcio Lafcr Piva, president of FIESP. Sec p 291 and note 22.
134. Sec note 102.
135. Sec note 125.
136. 'Real's slide halted as panic abates', Financial Times, 2 February 1999.
137. Ibid. A leader argues that Brazil now needs a new plan, and soon. This should include fiscal policy, to 'help rebuild trust'. It suggests, as one target, the 'unwieldy and unfair stale pension system, together with privatisation and a new, credible anti-inflationary policy". Brazil must avoid monétisation to meet its short-term domestic debt obligations and needs a new monetary anchor. This may be a currency board or a transparent inflation target, 'with the Central Bank charged with its delivery ... whichever the government chooses, there is no time to waste'.
138. Jornal do Brasil, 3 February 1999.
139. Urn opcrador que saiba cnfrcntar as feras do mercado", Ibid. Francisco Lopes, aged 52, son of a former Finance Minister, was one of the architects of the Cruzado Plan of 1986 (and of Argentina's Piano Austral). He left the Cruzado Plan group of economists when President Samey refused for electoral reasons to modify the Cruzado Plan. (See the profile here).
140. Ibid, He was said, at one time, to have managed a fund which took bets on macroeconomic changes, such as currency devaluations in emerging markets. Financial Times, 3 February 1999, 'Brazil picks hedge-fund poacher as economic gamekeeper'. See also too The Times, 3 February 1999, which notes how the government is emphasising that Fraga has now severed his links with Soros.
141. Jornal do Brasil, 3 February 1999. Fraga has family connections in Bahia with Magalhâes, who invited him to return to Brazil, then to join the economic team.
142. Flynn, 'Brazil: the politics of the Piano Real'.
143. See p 302 and note 108, also note 122, quoting Jornal do Brasil, 14 January 1999.
144. See p 304 and note 126, quoting Jeffrey Sachs.
145. Sec the sympathetic comment on both Gustavo Franco and Francisco Lopes after their dismissal from the Central Bank and the appointment of Armi'nio Fraga, Jornal do Brasil, 3 February 1999. The article says that men of ability and loyal service are being used as scapegoats. They did make mistakes, perhaps the biggest being that for so long they sustained a stabilisation model which depended on a fiscal adjustment that was never carried through because of the government's own lack of political will. They always knew of the government's negligence on fiscal reform, yet stayed at their posts.
146. Samey cynically dismantled the Cruzado Plan while the votes of the election of 15 November 1986 were still being counted. Flynn, 'Collor, corruption and crisis', p 358. Francisco Lopes, at that time, left Sarney's economic team in protest, Jornal do Brasil, 3 February 1999.
147. Brazil Focus, 23 and 29 January 1999.
148. The proposal for a parliamentary system was debated in the Constituent Assembly of 1987 to 1988. It was rejected, in part because of the pressure and financial inducements exercised on the Centrâo, a broad centre group of deputies, by President Samey. In 1961 a parliamentary system was introduced, but only as part of the political pact to allow Goulart to succeed Quadros and as a device by the right to try to control Goulart. It was ended by a plebiscite vote. See Peter Flynn, Brazil: A Political Analysis London: Benn, 1978, pp 226-230.
149. Magalhâes may form a new right-wing bloc, or even a new party, in collaboration with his former political enemy Paulo Maluf, former governor and mayor of Sâo Paulo. It is also said that he may offer himself as presidential candidate in place of his son, Eduardo, a Congressman who died in 1998. On the influence which Magalhâes has over President Cardoso, see Isloe, 2 December 1998, p 26.
150. The Economist, 23 January 1999, has a short, unsympathetic account of the governors' meeting. Its own rhetoric is not much less elated than theirs.
151. For details, see Brazil Focus, 23 and 29 January 1999, pp 6-7. Some states, such as Pernambuco, are following the example of Bahia in 1998, using part of the proceeds from the sale of state assets, such as their electricity companies, to capitalise a pension fund for state employees, who must make greater personal contributions.
152. Financial Times, 4 February 1999, has an article on Governor Olfvio Dutra and his problems in Rio Grande do Sul with the federal government. It lists 12 states, showing their debt to the federal government and the percentage of revenues spent on payroll. It quotes the president of the Rio Grande do Sul Commercial Association: 'Renegotiation is not a problem. Brazil is renegotiating with the IMF'.
153. On Cardoso's military predecessors, including his father, General Lconidas Fernandes Cardoso, and his grandfather and great-uncle, also generals, see Peter Flynn, 'Cardoso, Fernando Henriquc', in D Kavanagh (cd), Oxford Dictionary of Political Biography, Oxford: Oxford University Press, 1998. See also I Bcloch & A Alves de Abreu, Dicionârio Hislorico Biograftco Brasilciro 1930-1983, Rio de Janeiro, 1984.
154. Brasil Focus, 23 and 29 January 1999.
155. Ibid, 30 January 1999.
156. Ibid Pctrobras was being more insistently linked in the foreign press to the list of conditions which the IMF might require.
157. Veja, 11 September 96 and 18 December 96.
158. Betinho founded the Brazilian Institute of Social and Economic Analysis, a research centre and a motor for social change. (He cleverly coined the name, before the formal return to democracy, to incorporate the idea of 'base groups', one of the key units derived from Liberation Theology.) In a Third World Quarterly special issue on 'the Politics of Exile', Vol 9 No 1, January 1987, he ended his contribution with the reflection: '(he political cycle of exile is reaching its end. This ... does not mean that the nation has been reconciled with its people nor that the state has been re-appropriated by civil society. If exile has come to an end, its fundamental causes may still be said to persist' (p 211). For Betinho, many Brazilians were exiles in their country.
159. Interviews in Brasilia, Sâo Paulo, Salvador and elsewhere in the northeast, September-November 1998, found a well structured scries of programmes to tackle poverty and social issues. There was an impressive degree of cooperation and articulation between different levels of government (federal, state and municipal), carried through by well trained personnel. The simple problem was massive underfunding.
160. Folha de Sâo Paulo 26 September 1998.