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President Fernando Henrique Cardoso - 1995-2002

Born in Rio de Janeiro, Cardoso received his doctorate from the University of Sao Paulo, where he began his career as a sociology professor and opponent of Brazil's military dictators. When Jean-Paul Sartre and Simone de Beauvoir visited Sao Paulo in 1960, Brazil’s intellectual community was so small during that era that, when Sartre was to be interviewed on live television, a spontaneous call went out to the audience for someone who could translate. A young professor volunteered. The young professor did not speak perfect French, and utterly failed to do justice to Sartre’s message. That young professor was Cardoso. Luckily, Sartre never discovered the ruse.

Cardoso lived in exile from 1964 to 1968. Upon his return to Brazil, the government suspended his civil rights, and he was banned from teaching. Cardoso was later elected to the Senate representing the state of Sao Paulo and became one of the founders of Brazil's centrist Social Democratic Party. Known as an inflation-fighting supporter of free market reforms, Cardoso became economy minister of Brazil in 1993. He has been credited with turning the troubled Brazilian economy around.

Cardoso was elected president of Brazil in 1994. He worked to reduce the role of the state in the economy, reorganize the federal bureaucracy and the social security system, renew federalist relationships and overhaul the complicated tax system, and he attempted to effect electoral and party reforms in order to strengthen the representation of political parties. Cardoso also actively encouraged foreign investment in Brazil.

Cardoso was inaugurated as president on January 1, 1995, under the most auspicious circumstances. He had won an outright victory in the first round of the election and had potentially strong support blocs in the Chamber of Deputies and Senate. He had strong support from a majority of the newly elected governors, including those from the important states of Minas Gerais, Săo Paulo, and Rio de Janeiro, which had elected governors from the president's own PSDB. Further, the December 1994 inflation rate was less than 1 percent, unemployment was low, and popular expectations ratings were extremely high. After his inauguration, Cardoso called the lame-duck Congress into session in an attempt to pass important legislation not acted on in 1994. President Cardoso abolished the CEI, which had not yet finished investigating corruption in the Franco administration, and transferred its mission to the new Internal Control Secretariat (Secretaria de Contrôle Interno--SCI). The Cardoso government pushed privatization and organized the sale of the Rio Dôce Valley Company (Companhia Vale do Rio Dôce--CVRD), one of the world's largest mining firms; the telecommunications system; and the electricity sector.

In 1995 Congress enacted major constitutional reforms, including economic deregulation, eliminating state monopolies, and changes in election and party legislation. By July 1995, the lower house had passed (and transmitted to the Senate) all five amendments dealing with the economic area. The amendments reduced to varying degrees state-held monopolies on coastal shipping, natural gas distribution, telecommunications, and petroleum, and eliminated the distinction between domestic and foreign firms in Article 171.

Perhaps the most important task of the Cardoso government in 1995 was to promote the reform of key sections of the 1988 constitution in order to reduce the role of the state in the economy, reform the federal bureaucracy, reorganize the social security system, rework federalist relationships, overhaul the complicated tax system, and effect electoral and party reforms to strengthen the political representation of political parties. In February 1995, the new Cardoso government moved quickly to initiate constitutional reform by a three-fifths majority of each house.

In the area of political reforms, Congress sought to improve Brazil's very weak party system. Congress proposed establishing a mixed system, prohibiting coalitions in proportional elections, establishing a minimum representation threshold (5 percent), permitting immediate reelection to executive office, imposing more rigid party fidelity norms, restricting party access to television and radio time, and establishing stricter regulations for campaign finance.

Fernando Henrique Cardoso was re-elected in October 1998 for a second 4-year term. President Cardoso sought to establish the basis for long-term stability and growth and to reduce Brazil's extreme socioeconomic imbalances. His proposals to Congress include constitutional amendments to open the Brazilian economy to greater foreign participation and to implement sweeping reforms--including social security, government administration, and taxation--to reduce excessive public sector spending and improve government efficiency.

As had been the case since mid-1997, Brazil was the origin of most of the shockwaves that troubled the region. In early December 1998, the Brazilian congress rejected a key part of President Cardoso's reform program, leading many investors to conclude that Brazil's political system would be unable to deal effectively with the country's mounting fiscal and current account deficits.

In January 1999, Brazil’s international reserves came under significant pressure as a result of a series of events that month. On January 6, 1999, the newly inaugurated governor of the State of Minas Gerais announced that the State would suspend for 90 days payments in respect of the State’s approximately R$18.3 billion debt to the Federal Government. A week later, on January 13, 1999, Gustavo H.B. Franco, the president of the Central Bank and one of the architects of the Plano Real, resigned and was replaced by Francisco Lopes, who attempted a controlled devaluation of the real by widening the band within which the real was permitted to trade. Subsequent Central Bank intervention failed to keep the real-U.S. dollar exchange rate within the new band, however, and on January 15, 1999, the Central Bank announced that the real would be permitted to float, with Central Bank intervention to be made only in times of extreme volatility.

On February 2, 1999, the Federal Government designated Armínio Fraga Neto to replace Francisco Lopes as president of the Central Bank. Following Mr. Fraga’s confirmation on March 3, 1999, the Central Bank eliminated two widely used overnight rates, the Central Bank Basic Rate (Taxa Básica do Banco Central) and the Central Bank Assistance Rate (Taxa de Assistęncia do Banco Central), giving primacy to the Over/Selic rate; because the Central Bank could influence the Over/Selic rate on a daily basis through its participation in auctions, repurchase transactions and reverse repurchase transactions, the Over/Selic rate permitted the Central Bank to react more quickly to changes in market conditions.

Following its decision to permit the real to float, the Federal Government formally adopted inflation targeting as its monetary policy framework. See “The Financial System—Monetary Policy and Money Supply”. The Federal Government also began negotiations with the IMF on adjustments to the 1999-2001 economic program agreed in November 1998 and new economic targets in light of the new foreign exchange regime introduced in January 1999.

During the second half of 2000, uncertainties about the U.S economy, concerns about Argentina and rising oil prices caused the real to decline in value against the U.S. dollar. The real-U.S. dollar exchange rate (sell side) in the commercial exchange market, as published by the Central Bank, declined 7.5% from R$1.8234 to $1.00 on August 31, 2000 to R$1.9596 to $1.00 on November 30, 2000. Brazil’s continued compliance with a $41.8 billion IMF-led support program agreed on November 13, 1998, as established by the IMF’s sixth review on November 28, 2000, and an improvement in the external environment resulting from interest rate reductions in the United States, reduced the downward pressure on the exchange rate, which ended the year at R$1.9554 to $1.00. The improved conditions also permitted the Central Bank to lower its Over/Selic rate target to 15.75% on December 20, 2000 and 15.25% on January 17, 2001.

On September 14, 2001, the IMF announced that its Executive Board had approved a new standby facility for Brazil in the amount of SDR 12.14 billion (approximately $15.6 billion) in support of the Federal Government’s economic and financial program through December 2002. Approximately $4.7 billion was available immediately, and Brazil made purchases totaling approximately $4.7 billion at the time the facility was established. The remainder was to be made available in five installments, subject to the satisfaction of certain performance criteria set forth in the Memorandum of Economic Policies accompanying Brazil’s letter of intent dated August 23, 2001. These performance criteria included targets for the primary surplus of 3.35% of GDP for 2001 and 3.5% of GDP for 2002 (an increase from the 3.0% target for both years under Brazil’s December 1998 IMF facility) and a net international reserves floor of $20 billion (a $5 billion reduction from the floor under Brazil’s December 1998 IMF facility). The standby facility replaced the previous three-year standby arrangement approved in December 1998.

Brazilian President Fernando Henrique Cardoso, a sociologist by training, was an active foreign policy president, having briefly served as foreign minister during the early 1990s. Under his administration, Mr. Cardoso has attempted to move Brazil beyond its traditional role of exerting influence over South America to becoming more active in the wider world. In the new century, Mr. Cardoso had been positioning his country to become a leader of emerging nations.

This was evident in a speech he gave in October 2001 in Paris to the French National Assembly, in which he warned that the war on terrorism should not obscure the need to address world inequality. He also criticized what he called the unilateral policies by some nations. Barbarism he said, is not just the cowardice of terrorism, but is also the intolerance and imposition of unilateral policies on the world scale. His words, which French lawmakers greeted with loud applause, were seen to be directed at the United States, although Mr. Cardoso later strongly denied this.

Although President Cardoso's policies appeared to have broad political support and he was re-elected in October 1998 for another four year term, his policies suffered major setbacks, including the failure of Brazil's congress to pass social security reform and various austerity measures on government spending. Furthermore, some important groups remain opposed to significant elements of his program, and the implementation of any policies of economic stabilization or liberalization is subject to significant compromises and accommodations.

Brazilian President Fernando Henrique Cardoso met with the four main presidential candidates 19 August 2002 to seek their commitment to the terms of a massive new loan from the International Monetary Fund. But the two leading candidates emerged from the talks without openly declaring their support for the loan. The $30 billion loan, aimed at stabilizing the economy, was to be disbursed over the next 15 months, as long as Brazil continues to maintain a budget surplus, holds down inflation, and meets other IMF targets. The announcement of the loan, earlier in the month, was designed to reassure nervous financial markets about Brazil's economic future. But market uncertainty over the outcome of October's presidential election and fears that Brazil may default on its debt have continued to drive down the value of Brazil's currency.

Frontrunner Luiz Inacio "Lula" da Silva of the leftist Workers Party read a letter to reporters that he gave to the Brazilian leader, urging a series of measures to alleviate the economic situation. He repeated his commitment to honor contracts and keep inflation down, but made no reference to the IMF accord. Instead, Mr. da Silva made clear he will change Brazil's economic policies. If we win the election," he said, "we will begin to change the economic policy from the very first day. This pledge is sacred." Luiz Inacio Lula da Silva, commonly known as Lula, was elected president in October 2002, after his fourth campaign for the office.

Lula's election campaign, based on the slogan "a Brazil with decency, seemed to represent a boost in national pride for Brazil's leftists. Many say they feel betrayed by President Cardoso's efforts to privatize Brazilian companies and open the country's markets to foreign competitors. While President Cardoso successfully tamed inflation, his second term in office was marked by high unemployment and low economic growth. Throughout his administration - which spanned eight years - Cardoso succeeded in keeping inflation down, fostered steady economic growth and stabilized the currency following a sharp devaluation in 1999. However, Brazil continues to suffer from widespread poverty. Of the country's 170 million people, 53 million live below the poverty line.

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Page last modified: 21-06-2013 14:15:46 ZULU