The New York Times
January 21, 1999
Lawmakers in Brazil Adopt Step on Austerity


          By LARRY ROHTER

          BRASILIA, Brazil -- In an important advance in the government's effort to cut its deficit and
          reduce market pressures that have humbled the economy, the lower house of Congress on
          Wednesday night decisively approved a change in social security benefits for civil servants after four
          earlier attempts had been defeated.

          The action is significant because it takes Brazil a step closer to complying with a $41.5 billion rescue
          package that it signed in November with the International Monetary Fund.

          The vote also sends a signal to foreign investors and speculators that the political skills of President
          Fernando Henrique Cardoso and his Cabinet are sufficient to persuade a divided and recalcitrant
          Congress to approve his costly austerity program.

          The vote on Wednesday was the second in two days in which the government succeeded in pushing
          through fundamental elements of that policy, and it was taken after a long string of reverses that led
          to the devaluation of the currency, the real, by more than 25 percent.

          On Tuesday the Senate resoundingly approved a measure that would prolong and increase a tax on
          checks and other financial transactions.

          Several other steps remain, however, before Cardoso can proclaim victory.

          The tax on financial transactions, for instance, would have to to be passed by the 513-member lower
          house, which has a reputation for recalcitrance. That measure requires a 60 percent majority vote,
          because a constitutional amendment is necessary to enact it.

          As a condition for IMF assistance Brazil has to cut its deficit almost in half this year.

          The government has proposed a package of $23.5 billion in tax increases and spending cuts to be
          incorporated in its 1999 budget.

          The social security tax approved by the lower chamber on Wednesday was the central feature of
          that package.

          If the tax on financial transactions is renewed, it is generally expected to add $10 billion to
          government revenues this year.

          The proposed new social security tax would add less, $3 billion over two years, but was far more
          controversial. It therefore grew to be emblematic of Cardoso's entire program.

          In his election campaign last year Cardoso portrayed many of the retired government workers who
          would be affected as a pampered elite.

          That alienated many of them, including judges, professors and other influential professionals who
          quickly demonstrated an ability to lobby members of Congress.

          The government's last attempt to pass the measure was last month, and the failure of the legislation
          then raised questions about Cardoso's ability to deliver what he had promised the International
          Monetary Fund and other lenders.

          Wednesday, in an indication of the controversy that the issue has aroused, opponents again went to
          Congress to demonstrate and had a pushing and shoving match with guards.

          That passion spilled over onto the floor of Congress, where Cabinet members circulated among
          legislators in an effort to win over fence-sitters and the arguments were heated.

          One backer of the bill cited President Clinton's State of the Union speech on Tuesday in support of
          his position.

          But opponents accused Cardoso of selling out Brazil, which has the largest economy in Latin
          America, and its 165 million people to the IMF and U.S. banks and investors.

          "What the government has asked for to calm the markets is the blood of civil servants," said Walter
          Pinheiro, a leader of the Workers' Party, the main opposition party. "To please investors we are
          being asked to massacre retirees and government employees."

          The government overcame such opposition by narrowing the focus of the tax on benefits to retirees
          and current government workers, 1.4 million people in all.

          A blanket exemption for retirees who earn less than $400 a month was added to the bill, and
          sponsors included language that would exempt all but a handful of retirees older than 70 from having
          to pay anything at all.

          The measure moves to the Senate, where the government hopes that a vote can be scheduled as
          early as next week.

          The term of Congress expires on Feb. 1, and any further delays would undo much of the political
          effects of the vote on Wednesday night and could lead to an intensification of speculation against the
          Brazilian currency.

                     Copyright 1999 The New York Times Company