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
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
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
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
US government, and international investors - a tough spending-
package and far-reaching administrative reforms that might succeed
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
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
- 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. …