- Latin America’s Imperiled ProgressCardoso and the Struggle for Reform in Brazil
On 4 October 1998, Fernando Henrique Cardoso, widely hailed as Brazil’s best president in 100 years of republican rule, was reelected president with a 53.4 percent majority in the first round of balloting. Yet soon after he began his second term on 1 January 1999, his approval ratings had sunk to record lows, his credibility abroad was in tatters, and he faced the prospect of a crippled presidency. The reason for his plunge in popularity was clear: Cardoso’s political fortunes have been tied to his success in taming inflation through the introduction in mid-1994 (planned while he was serving as finance minister from 1993 to 1994) of a new currency, the real. But on 15 January 1999, after Brazil had lost billions of dollars in an effort to defend the value of the real, Cardoso announced that the government would allow the currency to float on exchange markets. Disillusioned Brazilians feared that the resulting slide of the real might revive the nightmarish inflation that had plagued the country in the past.
Yet more than the danger of renewed inflation is at stake. During his first term Cardoso’s administration had made striking progress on a number of fronts. Massive popular support for his currency stabilization program (dubbed the “Real Plan”) had dramatically increased his capacity both to push reforms through Congress and to address contentious issues of federalism, such as holding state governors to account for deficit spending. Although the momentum of reform slowed after 1996, Cardoso’s early victories had lasting effects, as market-oriented [End Page 49] reforms reversed protectionist practices and began to promote a more competitive economy.
Yet much remained to be done, and Cardoso’s ability to make further progress in his second term has now been cast into serious doubt. Millions of voters saw the devaluation of the currency as a breach of faith. This has not only created enormous uncertainty about Brazil’s economic future, but has shattered political and financial confidence in the president. His sharply diminished popularity threatens his ability to impress a measure of cohesion on an excessively fragmented party and legislative structure, underscoring concerns about the capacity of Brazil’s political institutions to govern effectively. Thus the country’s economic and political prospects are both tied, to an unusual degree, to the question of whether Cardoso can restore his political standing.
The Cruzado Plan and the 1988 Constitution
Brazil’s 1985 transition to democracy took place under extremely adverse economic conditions. Virtually throughout the 1980s, Brazil had triple-digit annual inflation; in the early 1990s, inflation spiraled out of control, reaching at times even four-digit figures. Two major attempts to stabilize the currency, first in 1986 and then in 1990, ended in disaster. In January 1985, the election of Tancredo Neves, a moderate opposition leader from the Party of the Brazilian Democratic Movement (PMDB), completed the transition to civilian rule. Tragically, Neves died before he could take office. He was succeeded by his running mate José Sarney, a former congressional supporter of the military regime and head of the newly-founded Liberal Front Party (PFL), who had originally been added to the ticket to provide a conservative counterweight. In February 1986, Sarney decreed the Cruzado Plan, based on the introduction of a new currency of the same name and a wage-price freeze. The initial plunge in inflation boosted Sarney’s popularity ratings sky-high, but the results were short-lived. Like so many subsequent attempts, the Cruzado Plan suppressed inflation without eliminating its underlying cause, deficit spending. By the year’s end, inflation had reignited, and President Sarney’s popularity ratings took a nose dive. Two new wage-price freezes were tried in 1987 and 1989, but to no avail.
Sarney’s abrupt loss of authority seriously weakened his ability to play a leadership role in the drafting of a new constitution. In the absence of strong leadership, institutional reform proceeded in a piece-meal fashion, subject to the ebb and flow of political influence. Rather than crafting new, more efficient institutions, the 1988 Constitution simply...