Two Decades of Brazilian Ascendency

Two Decades of Brazilian Ascendency Kevin M. Powers April 5, 2013 Introduction Brazil has experienced a great amount of change in the past two decades. Political volatility, catastrophic macro-economic conditions, and expanding social inequality plagued the nation and hindered development. Beginning in the 1990’s, however, Brazil would undergo major reforms that resulted in such great success that they would join Russia, China, and India as a projected global power player of the future. This paper will explore the tenures of Brazilian presidents Cardoso and Lula, two leaders cut from entirely different political cloth. However, by keeping a sharp focus on the line of continuity between these two men, the paper hopes to demonstrate their mutual contribution to Brazil’s successful execution of political, economic, and social reforms.

Political Transition & Stabilization Political rule in Brazil before the 1990’s was defined by an intermittent mix of military rule and indirectly elected leaders. Marked by military coups, repressive governance, erratic regime turnover, and even one case of suicide, Brazil’s political system was cursed by significant instability during this period. Even the first directly elected president, Fernando Collor, was impeached for a conspicuous level of corruption. But after the impeachment of Collor, and a brief tenure of his vice presidential replacement Itamar Franco, Brazil would realize genuine political and economic reforms during what could be characterized as the Cardoso-Lula era. The peaceful and orderly assumption of power by Cardoso, and his subsequent change-of-command

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with Lula years later, suggests that Brazil had turned a corner toward a relatively stable democratic system (Power, 2010).

As the country’s minister of finance, Cardoso is credited with restraining hyperinflation through his Plano Real initiative. Widely heralded as the man who finally tackled Brazil’s chronic inflation, Cardoso’s popularity – along with support from Franco – allowed him to win the presidency in 1994’s first round of elections. The checking of hyperinflation is credited with contributing to the increased stabilization of Brazil’s political establishment. With inflation under control, popular angst caused by wild price increases could hardly be exploited by politicians to enact impulsive policies (Power, 2010). Furthermore, though Lula would run on a very progressive and anti-neoliberal message, he would tack to the right in an open letter to the Brazilian people that expressed his commitment to controlling inflation and respecting Brazil’s financial obligations. Once elected, Lula even disappointed his leftist allies by appointing predominately pro-market members to his new cabinet (Kingstone & Ponce, 2010).

The era of major reforms that began with Cardoso and was continued by Lula would also bring rise to coalitional presidentialism. Given the diversity of Brazil’s legislative body, which demands that a president cooperate with other parties to form a majority, power must be shared between the executive and legislative branches of government. The political rhetoric of Cardoso and Lula is dissimilar, but under coalitional presidentialism there was continuity across their presidencies manifested in a shared method of political management (Power, 2010). However, while Lula kept with Cardoso’s tactic of governing by coalition, he abandoned Cardoso’s relative distribution of cabinet posts weighted by party representation within the legislature. Instead, Lula

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loaded his cabinet with a 3-to-5 ratio of his fellow PT party members. This shortsighted political consideration would backfire. As there was not adequate patronage within his government to build a majority coalition, Lula’s allies resorted to direct bribery through a monthly payoff scheme that nearly ruined Lula politically (Souza, 2011). So while coalitional presidentialism represented a point of continuity between the two governments, Lula took a more corrupted approach to the strategy.

Economic Transformation Before the decentralization of the 1990s Brazil’s economy was built around governmentmanaged policies and practices of Import Substitution Industrialization (ISI), which resulted in economic growth at the expense of macro-economic stability and inter-regional inequality (Arbix, 2010). Hyperinflation, which at its worst reached nearly 2,500% in 1993, was a confounding form of pseudo-tax on the entire Brazilian economy. The rapid manner in which prices were increasing was particularly devastating for the working-poor who would see the value of their wages essentially vanish between pay periods. Brazilians were frustrated by a series of failed attempts to reign in the country’s hyperinflation. Cardoso and his contemporaries believed that ISI-based development, which was made possible by a Keynesian approach of deficit spending and loose monetary policy, was an impediment to economic stability and would need to be abandoned for tighter monetary policy and reduced government spending (Arbix, 2010). The centerpiece of his initiative would be the Plano Real (Real Plan) to end inflation (Power, 2010). The introduction of a new currency, coupled with contractionary fiscal and monetary policies - reflected in massive spending cuts and high interest rates - allowed for the Brazilian economy to control inflation while also attracting enough

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foreign capital to properly manage their balance of payments. By 1995 inflation was reduced to a mere 8% on average, and would remain steady at that level for more than a decade (Power, 2010). It’s worth noting that deflationary policies typically result in a corresponding economic contraction, even recession. But during this same period the Brazilian economy would experience an annual average rate of 3.2% economic growth and the real minimum wage would more than double (Power, 2010).

Social Protection Both Cardoso and Lula have developed and expanded social programs to protect Brazil’s impoverished citizens from the harsh effects of liberal economic reforms. Though Cardoso’s opponents would characterize his policies as purely neoliberal, his administration was actually responsible for social program spending growing from $1.3B to $12.3B between 1995 and 2002 (Sola, 2008). One of Brazil’s most successful social programs is the Bolsa Familia conditional cash transfer program. Developed into a federal program by Cardoso and expanded significantly under Lula, the transfer scheme is credited with contributing to the nearly 8% annual average reduction in poverty rates between 2003 and 2007 (Kingstone & Ponce, 2010). Additionally, Gini Coefficient of Income Inequality, which measures wealth inequality within a given population, fell by more than 9% between 1994 and 2008 (Power).

Conclusion Brazil successfully defeated hyperinflation while strengthening the economy, stabilized their volatile political system, and has developed a program of social protection to address economic inequality. However, the primary challenge moving forward will be sustaining the economic,

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political, and social stability established during the Cardoso/Lula era. This will be especially challenging under the leadership of a much less experienced politician, Brazilian president Dilma Rousseff. Continuity was the main theme of Rousseff’s election bid, but simply maintaining the Lula’s social policies will not likely be enough if Brazil hopes to live up to its expectations as a burgeoning super power.

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Bibliography Arbix, Glauco and Scott B. Martin. 2010. “Beyond Developmentalism and Market Fundamentalism in Brazil: Inclusionary State Activism without Statism”. Paper presented at the Workshop on "States, Development, and Global Governance", University of Wisconsin-Madison, March 12-13. Aslund, Anders. 2007. Russia's Capitalist Revolution: Why Market Reform Succeeded and Democracy Failed. Washington, DC: Brookings (All). De Souza, Amaury. 2011. “The Politics of Personality in Brazil”. Journal of Democracy, vol. 22(2): 75-88. Kingstone, Peter and Aldo Ponce. 2010. “From Cardoso to Lula: The Triumph of Pragmatism in Brazil”. In Kurt Weyland, Raul Madrid and Wendy Hunter (Eds), Leftist Governments in Latin America. New York: Cambridge University Press. Power, Timothy. 2010. “Brazilian Democracy as a Late Bloomer: Reevaluating the Regime in the Cardoso-Lula Era”. Latin American Research Review, vol. 45 (Special Issue): 218247. Sakwa, Richard. 2008. “Putin and the Oligarchs”. New Political Economy, vol.13(2): 185-191. Sola, Lourdes. 2008. “Politics, Markets, and Society in Lula’s Brazil”. Journal of Democracy, vol. 19(2): 88-93.

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