Cardoso win spells more austerity for Brazil

October 14, 1998
Issue 

By Neville Spencer

Fernando Henrique Cardoso, leader of the centre-right Brazilian Social Democratic Party (PSDB), was elected for a second term as Brazil's president on October 4. With Brazil's economy on the brink of a collapse similar to those in Asia and Russia, Cardoso's second term is likely to bring more vicious austerity measures.

Cardoso gained 52% of the vote. The main opposition candidate, Luiz Inácio Lula da Silva (popularly known as Lula) of the leftist coalition dominated by the Workers Party (PT), gained 33%. Lula, a former factory worker and union leader, has stood as the PT candidate for the presidency twice before, in 1989 and 1994.

In this election, the PT made alliances with the Democratic Labour Party, led by Leonel Brizola, and a number of small left parties. In 1989 and 1994, Lula ran second and Brizola third. This time Brizola was Lula's candidate for vice-president. The overall left vote was maintained.

The PT fared well in some of the state elections held on the same day. It unexpectedly won the governorships of the Federal District, containing the capital Brasília, and the populous and economically powerful state of Sao Paulo.

The PT also won in the southern state of Rio Grande do Sul, where it has traditionally had a strong base in the city of Porto Alegre.

The platform of the PT-led alliance included reducing the working week from 44 to 40 hours, doubling the minimum wage, controlling imports and the exchange rate, and a massive increase in the health budget.

Since the Asian and Russian economic crisis, fears of a Latin American economic collapse on the same scale have increased. Stock market prices in the region have declined significantly, and most economies look very fragile, especially the oil-dependent economies of Mexico and Venezuela.

Collapse appeared close on August 27, when Argentina's stock market index fell by 10.6%, Brazil's by 10%, Mexico's by 6.1% and Venezuela's by 9.2%. Though the markets steadied the following day, stock market prices have fallen over the past year by 47% in Argentina, 34% in Brazil, 35% in Chile, 40% in Mexico and 66% in Venezuela.

Brazil is of special concern to international capital, and the International Monetary Fund is paying close attention to it. The Brazilian economy is the largest in Latin America and the ninth largest in the world.

The Russian crisis sent jitters around the world, yet the Russian economy was less than half the size of Brazil's and is significantly smaller still when measured with the now devalued rouble.

Klaus Friedrich, a director of Dresdner Bank AG quoted in the October 5 Washington Post, said: "Brazil is where we must draw the line in the sand and if we are not able to stop it in Brazil, then the dams are going to break".

The US investment firm Lehman Brothers estimates that Brazil needs US$200 billion in foreign reserves to prevent a devaluation of its currency. It currently has only US$47.5 billion, down from US$70 billion at the end of July.

Cardoso has been faithful to the neo-liberal dictates of the international lending institutions and has become quite a darling of international capital and its spokespeople. Henry Kissinger on September 24 declared that Brazil's government is the best he has ever known.

Two weeks prior to the election, it was made known that the IMF, the Inter-American Development Bank, the World Bank, the US government and other trading partners were ready with a bail-out of up to US$50 billion. This helped buoy confidence in the economy and prevent any financial disasters in the pre-election period.

According to September 30's O Estado de Sao Paulo, Brazil's state debt has already risen from US$51.5 billion to US$256.7 billion during Cardoso's first term, causing a huge drain on the economy; 87% of debt repayments merely cover interest.

Brazil's poor and workers will be expected to repay the loans and interest through a variety of austerity measures. On September 23, Cardoso announced tax increases and a "reform" of the public service.

The full impact of the austerity measures is likely to be considerably worse than the sketchy details Cardoso has given. Cardoso is likely to delay really bad news until after October 25, when some state elections will be completed.

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