The New York Times
October 26, 1998
 
Election of Rivals in Brazil Hurts Cardoso Reform Plans
 
 

          By DIANA JEAN SCHEMO

          RIO DE JANEIRO, Brazil -- Rivals of President Fernando Henrique Cardoso won important
          victories in gubernatorial races Sunday, handing the recently re-elected president a complex
          landscape for pushing through long-delayed government and economic reforms.

          In Sao Paulo, however, Brazil's most populous and wealthiest state, Mario Covas appeared likely to
          win re-election as governor, defeating former Sao Paulo mayor Paulo Maluf.

          Although Maluf's party forms part of the president's governing coalition, Cardoso had endorsed
          Covas. Maluf is known as a big spender with presidential ambitions of his own. His victory could
          have complicated Cardoso's efforts to control state spending and win congressional approval for
          reforms.

          Despite considerable foreign pressure on Brazil to demonstrate how it will restructure government to
          reduce deficits, Cardoso has put off publicly announcing his plans, fearing they could damage the
          chances of his allies in the elections. The delay costs Brazil heavily; each day, the country loses
          hundreds of billions of dollars in foreign reserves, and the longer the country maintains interest rates
          over 40 percent, the deeper its recession and debt.

          With Brazil's solvency seen as crucial to maintaining economic stability of Latin America and
          protecting the United States from recession, the United States and the International Monetary Fund
          are preparing to chip in toward an aid package of at least $30 billion to shore up Brazil.

          Cardoso won re-election on the first round of national voting earlier this month, but partial results
          showed left-of-center candidates leading in some of the most developed states of Brazil.

          Sen. Pedro Piva, of the president's Brazilian Social Democracy Party, called Sunday's elections "a
          warning sign for the government," adding, "I think we're going to have difficulties ahead to approve
          this package."

          The governors are important both because they control a considerable share of the national budget
          and act as natural leaders of their parties in Congress. States will be called upon to cut their budgets
          by as much as 20 to 30 percent, which will mean laying off civil servants. Current laws allow the
          states to fire workers if the payroll exceeds 60 percent of the state budget; under a new law the
          administration is proposing, layoffs would become mandatory once that ceiling was reached.

          In Rio de Janeiro, Anthony Garotinho, a former mayor of the city of Campos who belongs to the
          leftist Democratic Workers Party, was leading over Cesar Maia, a former Rio mayor belonging to a
          conservative grouping.

          In Rio Grande do Sul in the south, Olivio Dutra of the Workers' Party was also leading over the
          incumbent, Antonio Britto, a Cardoso ally.

          In Minas Gerais, former President Itamar Franco was leading by a wide margin over the incumbent
          Eduardo Azeredo, also of Cardoso's centrist Brazilian Social Democracy Party. Franco's party
          belongs to the governing coalition, but Franco has been critical of Cardoso's economic policies and
          personally stung by the president's re-election.

          In 1993, during Franco's presidency, he named Cardoso finance minister and launched the economic
          plan that would make Cardoso a national hero to a people weary of hyperinflation. But Franco was
          deeply humiliated at his party's convention earlier this year, when he sought to run for president
          against Cardoso. He was not only turned down, but laughed at.

          Sunday night, Sen. Maguito Vilela, of Franco's Brazilian Democratic Movement Party, said backing
          for Cardoso's reforms would not be automatic. The party would not support tax increases, he said,
          noting that one tax slated for increase, on financial transfers, was initially approved as a temporary
          measure to finance hospitals, but ended up going to offset the deficit. "It just burdened people and
          didn't do anything to improve health care," he said.

          Asked on Brazilian television precisely which measures his party would endorse, Vilela said, "If it
          means more sacrifice for the people," his party "will not support it."
 

                     Copyright 1998 The New York Times Company