Payback Time in Brazil: Friends Get Cabinet Post

Brasília's White House, Palácio da AlvoradaMarch 15th was the 20th anniversary of Brazil’s latest experiment with democracy. For the first time in modern history, the public has participated in four successive presidential elections.

Since the military handed the job of running the country back to civilians, after twenty-one years of rule by five handpicked generals, we have experienced administration by five different non-military presidents.

The first of these was José Sarney, who was sworn in after the death of Tancredo Neves. Tancredo was elected by Congress in an indirect election against Paulo Maluf, a former military appointed governor of São Paulo State.

Sarney had been placed on the ticket as vice president due to his allegiance to the generals who ran the country from 1964-1985. Tancredo, who had been a vocal opponent of the military, was not completely trusted by the outgoing power. Sarney was viewed as a balance.

The circumstances surrounding the illness and death of Tancredo Neves, whom the populace revered, has never been explained. All kinds of conspiratorial theories have been expressed.

Sarney, whose family has dominated politics in the backward state of Maranhão for more than four decades, spent most of his energy in a successful effort to have the presidential term extended from four to five years.

During his administration many of the repressive measures of the military period, such as the prohibition of unions and political parties and press censorship were removed. A new constitution was drawn up. Inflation reached its peak of more than 40% one month, as I recall.

The Collor Years

The first presidential election that allowed the public to vote directly resulted in Fernando Collor de Melo’s ascension to the highest office in the land.

Because voters were worried about what would happen if Lula were elected, in his first attempt to become president, and some last minute dirty playing by Collor, the result of the second round was a victory for the relatively unknown Fernando Collor.

Collor, who had been a military appointed mayor of Maceió, the capital of his home state of Alagoas, comes from a political family who owns TV stations and a newspaper in Maceió.

He had the support of TV Globo, which is tantamount to being elected since most of the population watches this channel. He is a flashy Indiana Jones-like character who thoroughly enjoyed his office.

On his first day in office, Collor confiscated balances in bank accounts above a certain minimum amount in a move that was supposed to control inflation.

He and his advisors reasoned that if people had no money, they wouldn’t spend and therefore prices would not rise. Collor didn’t last long as he was nearly impeached and left office in early 1992 less than half way through his term.

Collor’s departure meant that the vice president, Itamar Franco, assumed the presidency. Collor had chosen Itamar as his running mate after several politicians had turned him down. So a man with serious limitations then led Brazil until the end of Collor’s term in 1994.

We have not seen the end of Itamar, who was later governor of Minas Gerais and is now Brazil’s ambassador in Rome. Lula wants him as far away as possible, with reason.

To his credit, Itamar Franco began the privatization process under the leadership of Fernando Henrique Cardoso whom Itamar had appointed first as Foreign Minister and later Finance Minister.

The 1994 presidential election became a battle between Cardoso and Lula. Cardoso (FHC) was the victor and managed to change the constitution to allow him to run again, which he did in 1998 again defeating Lula.

Fernando Henrique, a well-educated center leftist, managed to form a coalition with parties to his right and ran the country quite well, in my opinion.

The Real plan has brought annual inflation down to single digit figures and the privatization of telephone companies, steel mills and electrical distribution means that there are fewer places to put politicians in jobs for which they are not qualified.

Cabinet Shuffle

The proof that Brazil has made a peaceful transition from a tropical military dictatorship to a democratic society is that Lula was elected and allowed to take office, something that might not have happened had he won in 1989.

In a world where the words “freedom, democracy and elections” are being tossed around frequently, observers sometimes fail to recognize Brazil’s significant accomplishments in this regard over the past twenty years.

Ever since the municipal elections last November, there has been talk about changes in Lula’s cabinet, composed of thirty-six members with the rank of minister.

It will now be difficult for Lula to create new ministries to accommodate parties that he wishes to compensate for alleged support in Congress.

In the past he has loaded up the ministries and regulatory agencies with political friends, mainly members of the Workers’ Party, many of whom had been defeated in elections.

If the ruling coalition, headed up by Lula’s Worker’s Party, is to influence the legislative branch of government, his party must yield some choice posts to those of other parties that nominally support Lula. However this will not guarantee that the legislators will automatically do what the executive branch desires.

Action had been promised this week. As of late Saturday, no official cabinet shuffles have been announced. In the meantime, Brasília is in limbo awaiting Lula’s decisions.

This is not the first time that Lula has said he would replace some of his PT (Workers’ Party) comrades with aspirants from other parties.

As usual, competence and administrative experience will not be criteria for his choices but rather influence from those seeking to be closer to the till will preside.

Whatever happens, not everyone will be happy and by displacing his own party members, his support from the PT may continue to erode.

How all this political confusion might affect the stellar macro-economic performance that has been achieved since Lula came into office in January of 2004 remains to be seen.

The main objective of the government is to have Lula reelected in 2006. My feeling is that the tight monetary and fiscal policies we have experienced during the last 26 months may become more flexible. This could result in higher inflation.

The inflation targets set by the National Monetary Council are unrealistically low. With crude oil prices at record levels, iron ore and steel prices about to be raised and adjustments for the utilities and transport, not to mention possible higher prices for corn and rice due to the lack adequate rainfall in the south, it will be impossible to have inflation of merely 5.1% this year. The authorities will soon move the official target upward.

Basic interest rates, the world’s highest, were increased again this week to 19.5% p.a. Perhaps Lula will continue to support the strict orthodox policies of Finance Minister Antonio Palocci.

But these measures, that are unpopular with practically everyone but bankers, may prove to be an obstacle for Lula’s continued popularity if the economy slows down. Right now, Lula would win easily another presidential election against any of the possible opponents.

In spite of dissention within the Workers’ Party, they are probably destined to rule Brazil for the foreseeable future. The society indirectly finances the Workers’ Party due to the tithe that government workers of the party must pay to the coffers of the Party.

They are well organized and the ill tutored populace, which is required by law to vote, admires Lula. Unless political reform should take place or opposition forces can unite behind an electable candidate, the democratic process will continue to saddle Brazil with incompetent governments.

Richard Edward Hayes first came to Brazil in 1964 as an employee of Chase Manhattan Bank. Since then, Hayes has worked directly and as an advisor for a number of Brazilian and international banks and companies. Currently he is a free lance consultant and can be contacted at


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