Brazil's Cardoso Seen Taking Tough Action After Election
September 28, 1998
Dow Jones Newswires
By WILLIAM VANVOLSEM
Dow Jones Newswires
BRASILIA -- A landslide victory in a re-election bid would normally merit a
period of rest and reflection.
Brazilian President Fernando Henrique Cardoso heads into general elections
this Sunday with the most recent opinion poll giving him a 48% to 25% lead
over second-place Luiz Inagcio Lula da Silva, enough to give him a victory in
the first round.
But financial markets aren't going to allow Cardoso to let down his guard for
even a moment, analysts say.
That's because voters go to the polls in the wake of a market meltdown that
has sent foreign investors fleeing and eroded Brazil's reserves by $25 billion in
just weeks.
While Cardoso is widely considered the one person capable of maneuvering
the country through the storm, analysts said that concrete and decisive action is
needed immediately to restore confidence in the country's fragile markets.
Analysts reckon that the first days after the election will be crucial for Brazil to
overcome the current crisis and to redress what they see as the biggest flaw in
Cardoso's four-year-old stabilization plan, known as the Real Plan: the massive
public deficit, which stands at 7.3% of gross domestic product.
"The market will give Cardoso one week, but then will expect some measures
with impact," said Carl Weaver, head of research at BBA/Paribas in Sao
Paulo.
Weaver said he expects Cardoso to dish out "a very bitter pill" to Brazilian
society and that the sooner he does so, the better.
The president, for his part, earlier this week pledged his commitment to a
three-year fiscal austerity plan.
"Cardoso will have to show to be far more aggressive and decisive once the
polls are over and done with," said Joe Petry, Latin America strategist for
Citicorp Securities in New York. "Without the constraints of having to worry
about the 2002 elections, he will be free to take some very tough action. And
market pressure will make sure that he does."
Those measures should include deeper spending cuts tacked on to the 4 billion
reals (BRL) ($1=BRL1.18) announced two weeks ago, fine-tuning of budget
management at all levels of government and maybe even some tax increases.
A firmer domestic commitment would complement support from the
International Monetary Fund and the Group of Seven leading industrial nations,
which are reportedly drawing up a special credit line for Brazil - which,
including private sector funds, could total up to $50 billion.
Analysts said, however, that the burden of resolving financial problems rests
squarely on Brazil's shoulders.
"There's no international package that will resolve the situation if the
government and Congress don't take up their responsibilities," said Citicorp's
Petry. "All will depend on the action Brazil will take in the very short term."
However, Petry also sees a danger of quick, short-term measures. According
to the banking strategist, what Brazil needs is to resolve long-term fiscal issues.
First and foremost in analysts' minds is the grossly inefficient social security
system. In the first eight months alone, the system has racked up a deficit of
BRL3.01 billion and highlighted the need for final approval of a landmark
social security reform bill.
"Here Congress will have to take up its responsibility and one can expect
Cardoso to exert the greatest possible pressure on legislators, including using
the crisis as a strong argument for speedy approval of outstanding reform
legislation," said Brasilia-based political analyst Ricardo Pedreira of the Santa
Fe Ideias consulting firm.
But, Pedreira warns, this won't mean automatic support for Cardoso, who will
be faced with a real challenge to get his way with Brazil's traditionally
undisciplined and often unreliable legislators.
Apart from a president, voters will also elect 513 federal deputies and 27
senators, 27 state governors and 1,045 state deputies.
However, the newly elected Congress will only be sworn in early next year.
"For the rest of this year Cardoso will have to deal with the same House which
made life so difficult for him during his first term, delaying key reforms for so
long," said political analyst Amaury de Souza of Rio de Janeiro's TECHNE
Consultoria.
The new Congress is not expected to be that different from the outgoing one.
Pedreira expects 70% of all legislators to be re-elected while the parties'
representation will remain almost the same.
"Cardoso's life in Congress won't be easier than during his first term," said
Pedreira, pointing out that most reforms depend on constitutional amendments
which require a three-fifths majority, or 308 votes from the 513 deputies in the
Chamber of Deputies, Brazil's lower house.
Although expected to technically have a majority of some 400 members in the
Chamber, adding all government-allied parties, the past four years have shown
that mustering three-fifths support is not always guaranteed.
De Souza, however, pointed to the possibility of a restricted constituent
assembly, proposed by former planning minister Antonio Kandir.
If approved - which de Souza thinks is quite likely - constitutional changes
needed to pass reform bills will depend on a simple majority vote by both
houses jointly, which would speed up proceedings.
Meanwhile, Cardoso is already preparing for the legislative battle ahead. Last
week he held an emergency meeting with Senate chairman Antonio Carlos
Magalhaes and Chamber chairman Michel Temer to map out strategies for the
coming weeks immediately after the elections.
Ronaldo Cesar Coelho, government leader in the Chamber, said that the final
outstanding points of the social security reform bill, supplementary legislation to
implement the administrative reform bill, the approval of the 1999 budget and
the new tax reform bill all have priority status on the agenda for the rest of this
year.
He did admit, though, that the tax reform bill will be the most problematic and
that it could well spill over into 1999.
"There is great urgency," Coelho said. "The international crisis has shortened
the time frame. We have little maneuvering space. But we need to recognize
political realities of a democracy."
De Souza said Congress isn't entirely to blame for Brazil's fiscal shortcomings.
"Many actions Cardoso needs to take to fight off the crisis don't need any
constitutional changes at all," he said. He mentions spending cuts as the most
glaring example.
"This government is spending far more than it should. Also the tax reform is
delayed, simply because the government still hasn't yet officially proposed the
bill to Congress," he said.
-By William Vanvolsem; (5561) 244 3095; wvanvolsem@ap.org |
