Brazil: The politics of the 'Plano Real'

Third World Quarterly

Volumn 17, Issue 3, 1996, Pages 401-426

  Flynn, Peter ^a  

^a UNIVERSITY OF GLASGOW   (United Kingdom)

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EID: 0345210207     PISSN: 01436597     EISSN: None     Source Type: Journal    
DOI: 10.1080/01436599615434     Document Type: Article

References (97)

1. Brazil Watch 18 March-5 April 1996, p 2. It is interesting to see how sceptism has given way to cautious optimism over the last 22 months. This was particularly evident in a conference in London on 23 April 1996. Despite its perhaps less than felicitous title, 'Brazil: The Re-Awakening Giant', the conference brought together many people of long experience of working on and in Brazil and other countries, including investors, bankers and businessmen. One senior businessman said that he had never seen a country turned round so quickly and speculated on what might be achieved if that momentum could be sustained.
2. An excellent paper at the London conference mentioned above was that by Dr Eliana Cardoso, Secretary for International Affairs and Senior Economic Advisor to Brazil's Ministry of Finance: 'Brazil: an assessment of recent macroeconomic developments'. Her message was made clear from its opening sentence: 'Hyperinflation is over. The Real Plan has surpassed expectations and allowed Brazil during the last 20 months to enjoy its best combination of growth and low inflation in decades.' Her subsequent argument largely justified this bullish start, but also found some devil's advocates.
3. The Cruzado Plan was the first sharp, unorthodox shock, which largely came to grief as a result of Sarney's electoral timetable. See P Flynn, 'Brazil: the politics of the Cruzado Plan', Third World Quarterly, 8 (4), 1986, pp 1151-1194. For discussion of later programmes, including the Summer Plan of 15 January 1989, and its accompanying 'New Cruzado', see by the same author, 'Brazil and inflation: a threat to democracy', Third World Quarterly, 11 (3), 1989, pp 50-77. On the politics of the 'New Brazil' or 'Collor Plan', see Flynn, 'Brazil' in P Calvert (ed), Political and Economic Encyclopaedia of South America and the Caribbean, London, 1991, pp 49-100; and 'Collor, corruption and crisis: time for reflection', Journal of Latin American Studies, 25 (2), 1993, pp 351-371.
4. The Cruzado Plan was the first sharp, unorthodox shock, which largely came to grief as a result of Sarney's electoral timetable. See P Flynn, 'Brazil: the politics of the Cruzado Plan', Third World Quarterly, 8 (4), 1986, pp 1151-1194. For discussion of later programmes, including the Summer Plan of 15 January 1989, and its accompanying 'New Cruzado', see by the same author, 'Brazil and inflation: a threat to democracy', Third World Quarterly, 11 (3), 1989, pp 50-77. On the politics of the 'New Brazil' or 'Collor Plan', see Flynn, 'Brazil' in P Calvert (ed), Political and Economic Encyclopaedia of South America and the Caribbean, London, 1991, pp 49-100; and 'Collor, corruption and crisis: time for reflection', Journal of Latin American Studies, 25 (2), 1993, pp 351-371.
5. The Cruzado Plan was the first sharp, unorthodox shock, which largely came to grief as a result of Sarney's electoral timetable. See P Flynn, 'Brazil: the politics of the Cruzado Plan', Third World Quarterly, 8 (4), 1986, pp 1151-1194. For discussion of later programmes, including the Summer Plan of 15 January 1989, and its accompanying 'New Cruzado', see by the same author, 'Brazil and inflation: a threat to democracy', Third World Quarterly, 11 (3), 1989, pp 50-77. On the politics of the 'New Brazil' or 'Collor Plan', see Flynn, 'Brazil' in P Calvert (ed), Political and Economic Encyclopaedia of South America and the Caribbean, London, 1991, pp 49-100; and 'Collor, corruption and crisis: time for reflection', Journal of Latin American Studies, 25 (2), 1993, pp 351-371.
6. The Cruzado Plan was the first sharp, unorthodox shock, which largely came to grief as a result of Sarney's electoral timetable. See P Flynn, 'Brazil: the politics of the Cruzado Plan', Third World Quarterly, 8 (4), 1986, pp 1151-1194. For discussion of later programmes, including the Summer Plan of 15 January 1989, and its accompanying 'New Cruzado', see by the same author, 'Brazil and inflation: a threat to democracy', Third World Quarterly, 11 (3), 1989, pp 50-77. On the politics of the 'New Brazil' or 'Collor Plan', see Flynn, 'Brazil' in P Calvert (ed), Political and Economic Encyclopaedia of South America and the Caribbean, London, 1991, pp 49-100; and 'Collor, corruption and crisis: time for reflection', Journal of Latin American Studies, 25 (2), 1993, pp 351-371.
7. On January 1989 the cruzado, introduced in February 1986, was replaced by the new cruzado (Ncz) at the rate of 1 = 1000. On 6 March 1990 the currency became the cruzeiro (Cr). On 2 August 1993 this was replaced by the cruzeiro real (Cr) at the rate of CR1 = Cr 1000. More recently, on 1 July 1994, the real replaced the cruzeiro real at the rate of R1 = CR275 000. One can well understand the bewilderment of most Brazilians.
8. There is a useful discussion of Resende's plans in Economist Intelligence Unit (EIU) Country Report, Brazil, 2nd Quarter 1993, June 1993, pp. 9-14. This publication assessment will now be cited as EIV. (Cardoso).
9. EIU, Country Report, Brazil, 4th Quarter 1993, December 1993, p 7.
10. Cardoso, 'Brazil: an assessment of recent macroeconomic developments', p 2.
11. 'The sheer technical difficulty of the introduction of the URV is ...a major obstacle to success ... The EIU expects the stabilisation plan to unravel by mid-year, leaving the government to fight hyperinflation through the application of high interest rates. Economic growth is likely to be close to zero ... Inflation will be very high indeed, at over 4000%'. EIU, Country Report, Brazil, 1st Quarter 1994, 1 March 1994, p 5.
12. By late July, by which time inflation had dropped from 44.6% in June to 5.5%, Lula's lead had been cut to only three percentage points - 32% for Lula to 29% for Cardoso. After that, it was Cardoso all the way.
13. Dutra won with 3 251 507 votes (56%) against Eduardo Gomes, with 2 039 341 (34.7%), a reminder of how the electorate had grown in 50 years. By 1994 the electorate numbered 94.7 million, with 63 331 845 valid votes cast on 3 October, far more than the whole national population in 1945. For discussion of the nature and composition of the electorate by the time of the 1989 election see, Flynn, 'Collor, corruption and crisis', pp 354-357.
14. One feature of the election, suggesting a large measure of general dissatisfaction and disillusion among voters, was the extraordinary vote for Enéas Ferreira Carneiro, the independent, nationalist and right-wing candidate with no political record. He came third, with 4 671 991 votes (7.38%), only marginally less than those cast for Quercia and Brizola together (4 790 119). In this context one has to remember that, in a much earlier election in the 1950s, a derisory vote gave substantial support to a hippopotamus in São Paulo zoo. But in 1994 a further reflection of disillusion, possibly reflecting the Collor debacle, was an abstention rate of 17.7%, in a system in which voting is legally obligatory, and blank and spoiled ballots of 18.8%.
15. See P Flynn, 'Party of Brazilian Social Democracy', in P Calvert (ed), Political and Economic Encyclopaedia, pp 277-278, and for fuller background, pp 70-88.
16. See Latin America Regional Reports - Brazil, 1 December 1994, p 3.
17. Also Latin American Monitor, Brazil, December 1994, p 2. The PT won two states, the Federal District, with Cristovão Buarque, and Espirito Santo (Vitor Buaiz). In Congress the party was substantially strengthened with five Senators and 50 Deputies, all set to oppose Cardoso and his government or, at least, to make sure that he lived up to his electoral promises concerning social reforms.
18. São Paulo, for example, has 23% of the national population and is represented by 60 deputies, or 12% of the Chamber. Eleven states with less than 1.6% of the population keep a minimum representation of eight deputies. A paulista deputy represents 534 850 people, while one from Roraima represents only 14 500. For all this discussion, see Flynn, 'Collor, corruption and crisis', especially for the path-breaking work by Brazilian colleagues cited in the footnotes.
19. This was a central point made to the author by the then Senator José Sarney, in an interview in Brasília, September 1984. Sarney had just broken with the regime's party, the PDS, which, previously, he had led, and was negotiating his position in the Democratic Alliance, which subsequently led to his being Tancredo Neves' running mate and, eventually, in March 1985, President. He clearly understood the strengths and weaknesses of the electoral system and its implications for Congress, which he continues to exploit in 1996.
20. Flynn, 'Collor, corruption and crisis', p 352,
21. drawing on an excellent paper by David Fleischer: A Reforma Política no Brasil, mimeo, Brasília, November 1992. Fleischer continues to make a seminally important contribution to this and other debates on Brazil's political system.
22. In an interview in Brasília, September 1984, immediately after the interview with Sarney, already quoted. Both these interviews, and others, qualified the euphoria and heightened expectations surrounding the return to formal political democracy.
23. Interview in Rome, January 1986, shortly before Sarney announced the Cruzado Plan. Cardoso had just lost the election for mayor in São Paulo, by a very narrow margin, to Paulo Maluf. He and others who later formed the PDSB were already disillusioned with Sarney and moving to form a new party. This was made politically inopportune by the Cruzado Plan on 28 February 1986, but came about in 1988, with Cardoso and others seeking to build a different kind of party.
24. It was largely the old adage of knowing what could be changed, what could not, and having the wisdom to know the difference, a point which some of Cardoso's recent too vocal critics appear to have forgotten.
25. The document was largely the work of Paulo Renato de Souza, former rector of the University of Campinas. There is detailed discussion of it in Brazil Watch, 11 (20), 3-17 October 1994, pp 1-9.
26. See Francis Lambert: 'Trends in administrative reforms in Brazil', Journal of Latin American Studies, 1967, pp 167-188.
27. David Fleischer, 'Continuity and change in presidential performance: F H Cardoso and the reform of the state', paper presented at the conference on 'The Economic Social and Political Consequences of the Stabilisation Plan in Brazil', London, 22-23 February 1996, p 13.
28. Ibid, p 14, gives examples of a military police officer from Espírito Santo who retired on a basic salary of RS730 but whose 'special legal perks elevated this to R$79 511.00 per month' and 'the widow of a fiscal auditor in Minas Gerais receives a pension of R$50 200, although her husband's basic retirement salary was RS524'.
29. Fleischer quotes the example of Franco Montoro, former governor of São Paulo and one of the founder members of Cardoso's party, the PSDB, who, in addition to his current salary as deputy, accumulates six other sources of public sector income - retirement pensions as ex-federal deputy, ex-senator, ex-governor, ex-prosecutor, ex-professor at the University of São Paulo and ex-professor at the University of Brasília'.
30. Brazil Watch, 3-17 October 1994, p 8.
31. Fleischer, 'Continuity and change in presidential performance', p 7.
32. Latin American Regional Reports: Brazil, 16 February 1995, p 3.
33. Inteview with national and foreign journalists in Brasília's National Theatre, 6 October 1994. The speech is discussed in more detail in P Flynn 'Latin America, 1994: the political risk', paper given to the 'Global Fixed Income Investment Forum', Paris, 17-18 October 1994, seeking to set Cardoso's election in comparative context.
34. This point is very well made in the new book by Cardoso's Minister for Public Administration, Luiz Carlos Bresser Pereira: Economic Crisis and State Reform in Brazil: Toward a New Interpretation of Latin America, Lynne Rienner London, 1996. Fiscal adjustment and structural reforms, he argues 'should not be seen as attempts to minimise state intervention, but instead as reforms of the state, with the ultimate goal of rebuilding it'. By comparison with other countries of Latin America 'in Brazil economic reforms were undertaken more slowly because they were consistently not only market-oriented but also Brazil-oriented. They were particularly concerned not with building confidence in Washington and New York but with protecting the national interest and the macroeconomic fundamentals, and they has as their basic objective reforming the state'. (p 1).
35. Most ministers came from São Paulo or Minas Gerais, with a due number from the PFL, Cardoso's electoral ally. The former president of the PTB, José Andrade Vieira, became Minister of Agriculture . There is a good analysis of the new government team in EIU, Country Report: Brazil, 1st Quarter 1995, March 1995, pp 7-8. This includes discussion of the new Political Council and Government Council, now created by Cardoso, to bring together leaders of the main pro-government parties and to coordinate the work of different ministries. Vice President Marco Maciel, PFL from Pernambuco, was to coordinate the work of the Political Council.
36. Brazil Watch, 23 January-6 February 1995.
37. This was the message persistently coming from José Serra as Minister of Planning, causing some tension between him and the Minister of Finance, Pedro Malan; but there was growing conviction on this point. See, for example, EIU, Country Report, Brazil, 1st Quarter 1995, March 1995, p 5: 'An increasingly overvalued exchange rate is not an adequate weapon with which to combat inflation'.
38. See Fleischer, 'Continuity and change', p 19. He notes that, by comparison, a US president has 'some 3000 political confidence appointments to make outside of the civil service, and some 300 of these must be approved by the US Senate'.
39. The strike was largely political in motivation and the public had little sympathy with relatively well paid Petrobras workers, preventing, for example, the supply of bottled gas for cooking to homes in favelas and other poor areas.
40. Financial Times, 17 May 1995.
41. EIU, Country Report, Brazil, 2nd Quarter 1995, p 12. The EIU had always been cautious to the point of pessimism about the Plano Real. In November 1994 it reflected on the fact that high interest rates and the strong exchange rate had attracted speculative capital inflows: 'But the short-term speculative flows ... are certain to drop away once it is sensed that the Real will fail ... The Real Plan as currently constituted, that is with a real that cannot trade for more than $1, will not last long into 1995 and may even be over ... before Mr Cardoso takes office" In March 1995 it warned that the stabilisation plan was 'delicately poised ... [it] relies too much on the exchange rate'.
42. 'The large capital inflows contributed to an increase in foreign reserves that amounted to fourteen months of imports by the end of 1994'. Cardoso, 'Brazil', p 5.
43. EIU Brazil, 2nd Quarter, 1995, p 13.
44. EIU Brazil, 1st Quarter, 1996, February 1996, p 6 ... 'Moreover, if the reform process has gone well, a veritable tide of foreign investment is likely to flow into the country.'
45. 'This is the main obstacle to the stabilisation programme's success. Without a vigorous fiscal adjustment ... ' Ibid, p 10. See the discussion in Cardoso, 'Brazil', pp 3-4.
46. Latin American Regional Reports: Brazil Report, 21 March 1996, p 1.
47. See the severe strictures in Brazil Watch, 4-18 March, 1996, pp 1-4, quoting the March issue of Conjuntura Economica.
48. Alvaor António Zini Júnior, 'Brazil: a look on the recent past and a look ahead', paper presented at the London conference, p 9.
49. Ibid, p 12. The paper has a very useful appendix of tables and figures.
50. See Cardoso, 'Brazil'.
51. The Central Bank eventually reported to the Public Prosecutor's department 125 fraudulent operations by the Banco Econômico, involving US$740 million, A major cause of its problems was bad loans to companies controlled by the bank. These included Angelo de Sá's petrochemical interests, allowed to accumulate debts of US$419 million. Latin American Regional Reports LARR: Brazil, 21 March 1996, p 3. The bank had been kept afloat for political reasons since 1985 and 'some US$3 billion had been siphoned off through off-shore fiscal havens'. Fleischer, 'Continuity and change', p 8.
52. The Central Bank eventually reported to the Public Prosecutor's department 125 fraudulent operations by the Banco Econômico, involving US$740 million, A major cause of its problems was bad loans to companies controlled by the bank. These included Angelo de Sá's petrochemical interests, allowed to accumulate debts of US$419 million. Latin American Regional Reports LARR: Brazil, 21 March 1996, p 3. The bank had been kept afloat for political reasons since 1985 and 'some US$3 billion had been siphoned off through off-shore fiscal havens'. Fleischer, 'Continuity and change', p 8.
53. Banerji's deficit was US$716 million. See LARR. Brazil, 16 February 1995, p 2.
54. See the two articles by Angus Foster, Financial Times, 12 and 15 January 1996, and the stricture in The Economist, 20 January 1996, p 17: 'Brazil's missed opportunity'. The controversy still rumbles, as shown by a Senate committee's enquiry as to why the federal government should refinance the state of São Paulo's US$15 billion debt to Banespa. Brazil Watch, 1-15 April, 1996, p 2.
55. See the two articles by Angus Foster, Financial Times, 12 and 15 January 1996, and the stricture in The Economist, 20 January 1996, p 17: 'Brazil's missed opportunity'. The controversy still rumbles, as shown by a Senate committee's enquiry as to why the federal government should refinance the state of São Paulo's US$15 billion debt to Banespa. Brazil Watch, 1-15 April, 1996, p 2.
56. See the two articles by Angus Foster, Financial Times, 12 and 15 January 1996, and the stricture in The Economist, 20 January 1996, p 17: 'Brazil's missed opportunity'. The controversy still rumbles, as shown by a Senate committee's enquiry as to why the federal government should refinance the state of São Paulo's US$15 billion debt to Banespa. Brazil Watch, 1-15 April, 1996, p 2.
57. It included Magalhães leading a march of Bahian politicians to the Planalto palace in Brasília to try to impose a deal on Cardoso, declaring that, in a choice between the federal government and Bahia, 'I am Bahia' Correio Braziliense, 19 August 1995.
58. For months there have been negotiations to sell it to Banco Excel and a Swiss partner, Union Banquaire Privé, See Brazil Watch, 1-15 April, 1996, p 2.
59. The details are in Veja, 13 December 1995, pp 32-35 and 20 December 1995, pp 32-37.
60. See LARR, Brazil Report, 7 December and 14 December 1995 and 11 January 1996. See also The Guardian, 29 December 1995. There is a report in Veja, 27 December 1995, pp 20-23 and, in the same issue, a trenchant interview with a leading Brazilian scientist, pp 7-9.
61. See LARR, Brazil Report, 7 December and 14 December 1995 and 11 January 1996. See also The Guardian, 29 December 1995. There is a report in Veja, 27 December 1995, pp 20-23 and, in the same issue, a trenchant interview with a leading Brazilian scientist, pp 7-9.
62. See Flynn, 'Collor, corruption and crisis', 356-366.
63. Latin American Monitor: Brazil, 11 (10), October 1994, p 7.
64. LARR, Brazil, 27 October 1994, p 5.
65. Financial Times, 17 May 1995. See also, EIU, Country Report: Brazil, 4th Quarter 1994, p 19, for details of the use of the presidential veto by Itamar Franco.
66. Financial Times, 17 May 1995. See also, EIU, Country Report: Brazil, 4th Quarter 1994, p 19, for details of the use of the presidential veto by Itamar Franco.
67. See John Kolodziejski, 'Slaying of mammoth monopoly, Petroleum Economist, April 1995, pp 9-10.
68. LARR, Brazil, 17 August 1995.
69. EIU, Country Report: Brazil, 1st Quarter 1996, February 1996, pp 23-24.
70. Cardoso, 'Brazil', p 10.
71. See the clear discussion in Istoé, 6 September 1995, pp 20-23. See also Veja, 13 Septemer 1995, pp 30-34.
72. Fleischer, 'Continuity and change', pp 11-12.
73. It took 40 days of discussion to decide, for example, that it was unconstitutional to allow authorities access to the bank acounts of debtors of the social security system without proper judicial process. Other issues were equally tangled. See EIU, Brazil, 2nd Quarter, June 1995, p 8.
74. For details of these trade-offs, see Brazil Watch, 1-15 April 1996.
75. The details of the agreement between the government and the main trade unions, CUT and Força Sindical are given in EIU Brazil, 1st Quarter, 1996, pp 7-8.
76. Financial Times, 10 May 1996.
77. Financial Times, 24 May 1996.
78. EIU, Brazil, 1st Quarter 1996, p 8.
79. For the fine details see Fleischer 'Continuity and change', p 7 and, especially, pp 14-17. See also EIU, Brazil, 4th Quarter, November 1995, p 8.
80. For the fine details see Fleischer 'Continuity and change', p 7 and, especially, pp 14-17. See also EIU, Brazil, 4th Quarter, November 1995, p 8.
81. Ibid, pp 17-18.
82. Ibid, p 20. Also LARR: Brazil, 2 November 1995 and O Globo, 8 August 1995.
83. Ibid, p 20. Also LARR: Brazil, 2 November 1995 and O Globo, 8 August 1995.
84. See LARK: Country Report, Brazil, 7 September and 21 September 1995, pp 2-3, which gives a clear summary of the tax reforms.
85. Financial Times, 7 March 1996; and LARR: Brazil, 21 March 1996, p 3.
86. Financial Times, 7 March 1996; and LARR: Brazil, 21 March 1996, p 3.
87. There is a particularly hard-hitting article in Brazil Watch, 18 March-5 April 1996, which points out that the sum involved is five times what was lost by the Baring's employee and roughly the amount spent by the Japanese treasury in dealing with its current bank crisis.
88. Financial Times, 21 March 1996; Brazil Watch 1-15 April 1996, p 2.
89. Financial Times, 21 March 1996; Brazil Watch 1-15 April 1996, p 2.
90. See also Robert Taylor, 'Brazil: feet on fire', The Banker, April 1996, and the article by Angus Foster, Financial Times, 19 April 1996, 'The pain after the profits'.
91. See also Robert Taylor, 'Brazil: feet on fire', The Banker, April 1996, and the article by Angus Foster, Financial Times, 19 April 1996, 'The pain after the profits'.
92. See, for example, P. Flynn: 'Amazonia: conflict and violence. A threat to sustainable development', paper prepared for a conference in Brasilia, November 1995. It especially considers the killing of rural workers and the urgent need for land reform.
93. See LARR, Brazil, 27 October 1994, where Cardoso emphasises that Brazil is not underdeveloped, but unjust.
94. Comunidade Solidária: Proposta Avanças e Novas Iniciativas, Brasília, 24 June 1995. See also Beatriz Azeredo, 'Brazilian social policy within the stabilisation process framework, paper presented at the London conference, February 1996.
95. Comunidade Solidária: Proposta Avanças e Novas Iniciativas, Brasília, 24 June 1995. See also Beatriz Azeredo, 'Brazilian social policy within the stabilisation process framework, paper presented at the London conference, February 1996.
96. Fleischer, 'Continuity and change', pp 9-10.
97. Document delivered to President Cardoso, from a meeting of over 2000 business leaders in Brasília, 22 May 1996. Financial Times, 23 May 1996.