Brazil's Cardoso Appears On Track for Re-Election
By PETER FRITSCH
Staff Reporter of THE WALL STREET JOURNAL
SAO PAULO, Brazil -- Brazilian President Fernando Henrique Cardoso
appeared to win re-election, according to early returns.
At 10 p.m. EDT Sunday, according to the Dow Jones Newswires, Mr.
Cardoso officially had 51.3% of the votes from the 27% that were
counted. More complete returns from Sunday's voting were expected
Monday.
Polling is an inexact science, but exit polls showed the 67-year-old Mr.
Cardoso easily winning enough votes to avoid a runoff with his closest
rival, Luiz Inacio Lula da Silva of the leftleaning Workers Party. A survey
by respected Brazilian pollster Ibope declared Mr. Cardoso the winner
with 56% of the vote, comfortably ahead of Mr. da Silva's 29%. The
result was widely expected. If when the official tally is in, Mr. Cardoso
hasn't won at least 50% of the vote, then the election will have to go to a
second round.
Mr. da Silva seemed resigned to defeat as Brazil's 106 million voters took
to the ballot box. "This year's elections are ending up being one of the
most manipulated we've ever seen due to a lack of information," he said
after voting in an industrial suburb of Sao Paulo.
If Mr. Cardoso does win, he will find little immediate consolation in a
strong mandate. His legacy as architect of this nation's tenuous economic
renaissance hangs in the balance as he returns to his desk and an in-box
full of pressing challenges. Chief among them: how to throw a rope around
a runaway budget deficit of about $65 billion by raising revenue and
slashing government spending at a time when economists from Jeffrey
Sachs to Paul Krugman wonder whether a brewing recession here will
stretch into the next century.
Budget Issue Is Vital
The importance of the budget issue is hard to exaggerate. If not addressed
quickly and decisively, analysts say, Brazil could find itself prostrate before
a steamroller of negative investor sentiment. "Given market conditions and
expectations, the authorities can not afford delay," according to J.P.
Morgan & Co. economist Marcelo Carvalho. "Fiscal news would best
come out as soon as key officials are back from the International
Monetary Fund meetings in Washington."
Message received, says Antonio Carlos Magalhaes, the powerful leader of
Brazil's Senate. Mr. Magalhaes says in an interview that officials are
looking at cuts of "up to 20%" to the 1999 budget but warns it will be
difficult to deliver such bitter medicine before runoff elections three weeks
from now in such key states as Sao Paulo and Rio de Janeiro, where
gubernatorial candidates allied to Mr. Cardoso face stiff challenges.
Others in the government say Mr. Cardoso could make a general
announcement this week targeting cuts and revenue-enhancing measures at
around $20 billion, or between 2% and 3% of the country's annual
economic output. Mr. Cardoso probably would put off describing where
he will find this money until after second-round voting Oct. 25. The
measures would almost certainly have the tacit approval of the IMF, which
is in talks with Brazil toward an emergency rescue package thought to total
at least $20 billion.
But Brazilian economists believe a fiscal package could combine increases
in taxes on the wealthy, higher taxes on personal checking and other
financial transactions, "sin" taxes on items such as alcohol and tobacco,
and increases in pension contributions from government employees.
Meantime, the government expects to attack a stalled reform to the
pension system immediately. "There are legal instruments whereby a lot of
pension-related steps can be taken by provisional presidential decree,"
Mr. Magalhaes says. Tax increases, on the other hand, would require
congressional approval.
Promises on Spending Aren't New
More complicated are badly needed rewrites of Brazil's tax and labor laws
as well as reform of its cumbersome political system. Currently,
constitutional amendments needed to enact substantive reforms require a
steep 60% of the total number of elected representatives in both houses of
Congress -- not simply a majority of a voting quorum. "It's difficult to be
democratic in Brazil," Mr. Cardoso said in May.
Promises to toe the line on spending aren't new. When financial troubles in
Asia hit Brazilian currency and markets a year ago, the government
announced a bruising package to slash $18 billion from its budget. But Mr.
Cardoso's team failed to deliver on those promises in an election year
where Mr. da Silva was running neck and neck with the president in the
early going.
But there are reasons to believe Brazil can deliver the goods this time
around. First, and most important, elections will be out of the way. It also
appears the depth and breadth of the latest economic crisis is scaring
Congress straight. (Mr. Magalhaes has promised to keep legislators
through its December recess if they can't act on pension reform and other
matters.) Officials will be reaching for the carrot of a confidence-restoring
support package from the IMF and Group of Seven industrialized nations,
which almost certainly will come with specific strings attached. G-7 nations
include the U.S., Japan, Britain, Germany, France, Italy and Canada.
In the meantime, officials here are engaged in a complicated samba to
keep the country's checkbook balanced and shore up its dwindling
hard-currency reserves. The government has to roll over a hefty $47
billion of its own debt this month alone. It has a similar amount of dollar
reserves to work with, equal to about 10 months of imports. The
government has convinced companies that agreed to buy the pieces of
state telephone giant Telecomunicacoes Brasileiras SA to bring their cash
into Brazil early and invest it in high-yielding debt until payments come due.
That move resulted in a net dollar inflow Thursday of $2.8 billion, more
than offsetting a $600 million loss Friday.
Clever moves such as that will help in the short term, but unless the
government can restore confidence in itself with bold action to help bridge
the budget gap, investors will be watching Brazil's currency -- the real --
like a hawk. Most economists believe the real is overvalued and a recent
poll here showed 44% of Brazilians fear a devaluation that officials
promise isn't coming. But as the IMF's director of research, Michael
Mussa, said Friday: "The issue of the exchange rate remains."
In Washington, Brazilian Finance Minister Pedtro Malan vowed, ''There
will be no currency devaluation. There will be no exchange-rate controls
or capital controls. We will keep our fixed-exchange arrangement with the
current band system.'' |
