By Anthony Faiola
Washington Post Foreign Service
Tuesday, September 15, 1998; Page A15
SAO PAULO, Brazil, Sept. 14 – Here in Latin America's largest nation, the
Samba Days have lost their rhythm. In the past few months, unemployment
has increased steadily and booming economic growth has screeched to a
halt. In the past week alone, interest rates have almost doubled – to 50
percent – as Brazil bleeds $1.5 billion a day in fleeing foreign investment.
The government, meanwhile, has been forced to make emergency spending
cuts, and more belt-tightening measures are expected this week.
So, with the world watching anxiously to see whether Brazil becomes the
biggest casualty yet in the global economic crisis, one might think
Brazilians are looking for a change in the presidential election two weeks
from now, right?
Wrong. In fact, unlike Russian President Boris Yeltsin or Indonesia's
ex-president Suharto, Brazilian President Fernando Henrique Cardoso,
who took office in 1994, enjoys such enormous popularity in this
continent-size nation of 160 million people that polls say he may receive
more votes than all his opponents combined on Oct. 4 – enough for an
outright win without a runoff.
The key to why is as simple as the basket of vegetables in Julia Vilela's hands.
"Oh, life before Fernando Henrique" – most Brazilians call Cardoso
by his given names – "was nightmarish!" exclaimed Vilela, 58, a nursemaid
buying celery, onions and guava at an outdoor market in Sao Paulo,
the world's third-most-populous metropolis, after Tokyo and Mexico City.
"He made our money worth something. He stopped that horrible inflation
and made our [economic] situation stable. . . . I think he's the only one who
can put us back together again."
A former admirer of Karl Marx turned diehard capitalist, Cardoso reigns
as Brazil's economic hero because of his success in ending hyperinflation,
once so extreme that prices for food or furniture could double in the time it
took to cash a paycheck. He did it with his Real Plan in 1994, which
pegged the Brazilian currency, the real, to the U.S. dollar. At the same
time, he opened the economy to foreign investment and moved to privatize
state-run industrial dinosaurs.
The plan helped Brazil's vast number of poor most of all, and today they
desperately fear a return of hyperinflation. Making up about 40 percent of
the population, the poor were the least likely to keep their money in
interest-bearing accounts, which profited from the rising interest rates that
accompanied inflation. Also, as the economy stabilized and the real's value
solidified, stores began offering credit to the poor to buy such products as
microwave ovens and televisions for the first time.
At the same time, Cardoso managed, until very recently, to become the
darling of international investors, with Brazil luring more direct foreign
investment than any developing nation except China.
But now Cardoso finds himself desperate to preserve his Real Plan,
currently in greater jeopardy than during any period of his presidency. The
key index on the stock market in Sao Paulo, the financial capital of Latin
America, has lost 40 percent in the past 30 days.
That happened as foreign investors, chastened by Russia's economic
collapse, have taken a new, skeptical look at the plan, concluding that
while it may have licked inflation, it did so at the cost of inflating the value
of the local currency on world markets, ballooning the trade deficit and
increasing public debt to a whopping 7 percent of gross domestic product.
Even though the banking system here is far more solid than in troubled
East Asian countries or Russia – seven of the 10 largest local banks are
owned by U.S or European banks – many still see this nation as
vulnerable. Today, Brazil needs $50 billion a year in foreign investment to
cover its debt, although it still maintains cash reserves greater than that.
An economic collapse here would be far more costly to the international
community than any to date, including Russia's. U.S. companies have
more than $26 billion invested here, and it would hit Wall Street especially
Investors are taking a hard line on Cardoso's inability to deliver the
sweeping governmental reform he has promised for years, including
politically unpopular overhauls of the extraordinarily generous social
security system and labor laws.
"The problems here aren't just because of panic from Russia and Asia; it's
because Cardoso has failed time and time again at making institutional
reforms, and he has also tried his best not to be upfront about his failings,"
said Alexandre Barros, a Brasilia-based political analyst. "He is doing
what is politically best for him, not for Brazil."
Indeed, rather than devaluing the currency – a move that surely would
trigger a politically damaging surge of inflation right before the election –
Cardoso has encouraged the Central Bank to increase interest rates to
dizzying levels, a tactic that is sustainable only for a short time before the
Brazilian economy would dive into a deep recession that likely would take
the rest of Latin America with it.
Cardoso also has belatedly slashed government spending – mostly in
transportation and environmental programs – and likely will be forced to
take even bolder measures as international pressure on Brazil continues.
In an almost uncanny way, however, he has maintained deep popular
support. Brazilians seem to believe that because he has proven his ability
to cope with crises in the past, he may still find a way to guide the country
to safety again. He remains, for most people here, the brainy, multilingual
intellectual who made Brazil respected on the world stage and
strengthened its democracy while making it an economic force to be
"I know we're going through a bad time now, but Fernando Henrique is
the reason I have my car," said Adelcio M. da Silva, 43, a Sao Paulo taxi
driver who bought his used Volkswagen on loosened credit two years
ago. "And I'm not going to give up on him."
Helping Cardoso is a slick, American-style presidential campaign
designed by noted Brazilian marketer Nizan Guanes. Cardoso's TV ads
feature celestial music tinkling in the background as he extols his
experience at dealing with crises – a far cry from the donkey-riding,
man-of-the-people campaign that helped get him elected four years ago.
Meanwhile, Cardoso has done and said everything possible to encourage
the view of himself as an economic savior, even as the walls crack around
him. "Look, if things are difficult, it's better to hand over [power] to him
who has competence to handle these types of problems," Cardoso told
reporters during a campaign trip this weekend. "Why would anyone give it
to somebody else who doesn't know how to handle it? People should give
it to somebody who has experience."
Cardoso's vast support, experts say, also stems from a weak opposition.
Luiz Inacio "Lula" da Silva, a perennial candidate with socialist leanings, is
his only real rival and voter preference polls show him with less than half
of Cardoso's 43 percent rating. "The people don't see Lula as a credible
alternative, especially while Brazil is under assault by international
investors," said political economist Ladislau Dowbor. "If things are bad
right now with Cardoso, the people fear all-out chaos if Lula were
A one-time factory worker, da Silva has been stung by the fact that the
people who typically make up his largest voter base are supporting his
opponent in droves. "Cardoso has support from virtually every income
group, but he's strongest among the poorest people," said Mauro Paulino,
director of DataFolha, a major Brazilian polling firm. "That's a direct fear
of inflation returning."
The pressure on Brazil will continue, experts say, although many predict
that an International Monetary Fund offer of a line of credit – which Brazil
has yet to accept – will help Cardoso at least through the election unless
there is a sudden, massive assault on the real.
The ultimate question for Brazil, however, is this: What is Cardoso
prepared to do after the election? "After the election, he is going to have
to show investors that he is actually making the reforms he's talked about,"
said Mauro Schneider, vice president of ING Bank in Sao Paulo. "If not, I
don't want to speculate, but things will get even harder here."
© Copyright 1998 The Washington Post Company