By Howard LaFranchi, writer of The Christian Science Monitor
The Christian Science Monitor
Globalization may be the world's economic reality, but all politics is still local - as Brazil's newly reelected president, Fernando Henrique Cardoso, is finding out.
The world is standing by to see if Brazil can avoid joining the national economies that have crashed into the financial abyss over the past year. After economic nosedives in Asia and Russia renewed attention on emerging markets, all eyes are now on Brazil: Its stable but overvalued currency, the real, has come under attack, while the disaster-in-waiting of the country's profligate deficit spending has been exposed. In response, international and domestic short-term investors have pulled out to the tune of hundreds of millions of dollars a day.
As the world's ninth-largest economy, Brazil could either hold off or usher in a wave of economic turmoil to Latin America - and more downward spiraling for the rest of the world, including the United States. Brazil can either shine as the country that proved the domino theory on emerging markets wrong - or enter the pantheon of ignominy. To replace all the global hand-wringing with a happy samba, the triumphant Mr. Cardoso, reelected to four more years Oct. 4, is promising to the world - the International Monetary Fund, World Bank, US government, and international investors - a tough spending- cuts package and far-reaching administrative reforms that might succeed in holding off a crash. Yet there remains that minor detail: local politics. Cardoso may have promised the IMF as much as $20 billion in spending cuts over the next year and fiscal reforms in return for a confidence-boosting infusion of $30 billion or more in international credit. He has promised there will be no drastic devaluation of the real like the chaotic peso devaluation that threw Mexico into a spin in 1994. But it is Brazil's powerful state governors and its traditionally undisciplined state legislators and national Congress members who will determine if the noise coming out of South America's giant in the months ahead is a sigh of relief or a crescendo of collapse. Brazil faces a second round of elections Oct. 25, when 13 runoff races for state governors will be decided. The governors are crucial because they hold considerable sway over state congressional delegations - as they do over much of the exorbitant public spending that has left Brazil with a public deficit equal to more than 7 percent of gross domestic product - more than twice what it was when Cardoso took office in 1994. The states' pork barrels and generous (as in an often-loose connection between drawing a salary and actually working) public employment conditions are legendary. To up his chances of making his plans work, Cardoso wants the most-cooperative politicians possible in the governor's chairs. So even though he has committed to announcing his reform package Oct. 20, many Brazilians say the real force of the economic plan won't be revealed until after the runoff vote. With the governorships of three powerhouse states - Sao Paulo, Rio de Janeiro, and Minas Gerais - up for grabs, Cardoso needs favorable results. Then too, Cardoso will want to push at least part of his package - including an expected tax increase on the country's biggest fortunes - through the lame-duck Congress that will meet through the end of the year. …