Sarney Moves to Reform Brazil : Makes Good on Promises of Late Colleague Neves

With major budget cuts and a proposal to modernize Brazil’s constitution, President Jose Sarney made good last week on all the reforms promised by Tancredo Neves, the fallen leader of Brazil’s democratic restoration.

The first 100 days of the new administration began under the paralyzing effect of the post-surgery illness that led to the death of Neves, the 75-year-old president-elect, on April 24.

Sarney, 55, who as the elected vice president assumed the presidency, at first just performed the formalities of chief executive. He still seems apologetic to be in the job for which Neves--who enjoyed strong public support--was chosen by Brazil’s electoral college.

Sarney, a former state governor and senator, was a background figure during the pre-election period.

Quiet Determination

But with the quiet determination of a man who works 14 hours a day, Sarney has pushed through all the big decisions that Neves had promised as head of an opposition party alliance that ended 21 years of military rule.

“He has kept faith with the Neves program,” said Mauro Salles, who was a special assistant to Neves and a lifelong personal friend.

Sarney made a key decision last week on refinancing Brazil’s $100-billion foreign debt. He set the limits on how much domestic austerity will be imposed. In a meeting with labor leaders, he promised that salaries will not be reduced further, after a 30% drop during the past four years, and that job opportunities will be maintained. Unemployment is now at about 6% in large cities, compared with a high of 8% last year.

Neves gave top priority to halting inflation, which was running at an annual rate of 230% in March.

The main causes of inflation are massive public deficits, estimated at $14 billion this year, or nearly 6% of the value of all goods and services produced.

Conflicting Advice

Sarney got conflicting advice from his ministers. Finance Minister Francisco Dornelles insisted on deep cuts in public enterprise spending and high interest rates to discourage financial speculation. Planning Minister Joao Sayad said high interest rates should be reduced to stimulate the economy and taxes raised to boost government revenues.

After listening to delegations of businessmen, labor leaders and independent economists, Sarney resolved the dispute by ordering a $3.5-billion cut in state enterprise investments and increases in taxes and borrowing. The package is supposed to reduce the deficit by $8 billion.

This is less than the reduction proposed by the International Monetary Fund, which has been negotiating since April on a new 18-month stabilization agreement. Brazil needs the agreement to refinance about $50 billion in foreign debt coming due by 1991 with international banks and governments.

Sarney’s economic team has already reduced inflation from a monthly rate of 12% before March to about 8% a month now. This was done by applying price controls and reducing government spending. New cuts to be made will be aimed at consolidating prices.

Among the projects that will be eliminated are a nuclear power plant, Angra III, which was to have been built by 1991, and the second stage of the Tucurui Dam in the Amazon that would have doubled capacity from the present 4 million megawatts.

Wary of Drastic Austerity

But with Congress assuming a watchdog role on foreign debt negotiations, Sarney is not inclined to adopt drastic austerity measures, such as those adopted last month in Argentina when inflation reached 1,000%, calculated on an annual basis, and foreign reserves ran out. Brazil has about $8 billion in reserves and a strong trade surplus.

The policy now adopted here is gradual decompression of inflation, with a yearend goal of about 180%, while maintaining enough public investment and enough credit for agricultural and private industry to produce an annual growth of at least 4%.

Sarney has not shrunk from controversial decisions. The first of these was to call elections Nov. 15 for mayors of all state capitals, heretofore appointed by the military regime. This will give nearly 30 million voters--half of Brazil’s electorate--an early opportunity to vote in a big political test for the governing coalition, which is formed by the Brazilian Democratic Movement party of Neves and the Liberal Alliance party to which Sarney has close ties.

Potential Danger

Some political observers believe the election will lead to a breakdown of the coalition. Sarney’s shaky support in Congress would be undermined if the coalition parties do badly and there is an upsurge for the more radical parties, such as the Democratic Workers Party of Gov. Leonel Brizola of Rio de Janeiro. The Communist Party will also be eligible for the first time since 1946.

Sarney has announced an agrarian reform program that has unleashed a political storm. The program is supposed to provide land, mainly from federal property but with some expropriation of “idle private land,” to 3 million peasants by 1990.

Announcement of this program provoked resistance from landowners. More than 2,500 proprietors descended on Brasilia, the capital, to lobby Congress against providing funds for the program.

In reply to the landowners, the federal Agrarian Reform Institute said that big proprietors owe nearly $1 billion in unpaid land taxes, which the government will collect to finance the agrarian program. But the major landowners are threatening to resist by force.

In new settlement areas, such as the states of Mato Grosso, Goias and Para in the Amazon basin, armed conflicts between squatters and ranchers have led to more than 120 deaths in the past year, according to Roman Catholic Church agencies involved in rural affairs.

A New Constitution

Another major decision that fulfills a Neves promise was announced Friday. Sarney sent legislation to Congress that will convene a constituent assembly to adopt a new constitution. The move is expected to reorganize the political life of this country of 135 million people, which has by far the largest economy in Latin America and is potentially a major world democracy.

The constituent assembly--the first since 1945--will be formed by the senators and federal deputies chosen in next year’s congressional elections. It will meet in February, 1987, and will consider a draft constitution being prepared by a national commission headed by Alfonso Arinos, former foreign minister and a leading jurist.

Among other things, the assembly could reduce the present presidential term from six years to four, which Sarney has already said he would accept, and call for direct, popular election of the next president, as promised by Neves. Neves and Sarney were chosen by an Electoral College under rules established by the outgoing military regime.