Stable Economy All but Clinches Brazil’s Election

It was an aside during an explanation of monetary policy, on the eve of Brazil’s most recent attempt to halt the spiraling inflation that has plagued this country for more than a decade. But as economist Helio Portocarrero reflected three months ago on the anguish and turmoil that he and other Brazilians had endured under 2,500% annual inflation, he unknowingly summed up the almost certain outcome of this week’s presidential election.

“I’ll tell you what,” he said, “anybody who can make it so that when people go to the grocery store, the prices are the same that month as they were the month before, he could be anything in this country he wanted to be.”

Fernando Henrique Cardoso, 63, is the man credited with making that happen. As a result, pollsters and analysts say that barring a miracle, Cardoso will be elected the next president of Brazil.

“Cardoso will win,” said Carlos Augusto Montenegro, president of IBOPE, a polling organization. “The only question now is whether he wins on Oct. 3 or Nov. 15.”

If no candidate wins more than 50% of the presidential vote Monday, the top two contenders will face off in November.

The key to Cardoso’s success is an economic plan he devised earlier this year while serving for six months as finance minister. The plan both curbed government spending and overhauled Brazil’s currency.

First, the government balanced the budget through tougher measures against tax evasion and a special constitutional amendment that allowed it more discretion in spending. Then it launched a new currency, the real, to replace the old cruzeiro. One real was made the equivalent of one dollar.

Since the plan went into effect in July, inflation has dropped from 50% a month in June to less than 1% in August. And as inflation and prices dropped, Cardoso, who resigned his post to run for president, shot up in the polls, leaping from 15 points behind to 20 points ahead of socialist candidate Luis Inacio (Lula) da Silva in two months.

Cardoso’s emergence reflects a dramatic turnaround in the mood of this vast country. Just six months ago, the nation’s electorate was poised for a major overhaul of the federal government. The current president, Itamar Franco, was being vilified daily in the press and among the populace as incompetent or at best inconsequential.

Years of political corruption--including a presidential impeachment two years ago and a congressional budget scandal last year, involving scores of legislators and hundreds of millions of dollars in kickbacks and outright thievery--had turned a vast number of frustrated voters toward Lula, a former union leader and grade school dropout. Defeated in a presidential runoff five years ago by the later-impeached Fernando Collor de Mello, Lula promised radical reform; Lula’s Workers’ Party boasts about its nearly unblemished record of honesty.

Lula was so far ahead in the polls that, as late as July, analysts were debating whether he could capture the presidency in the first round.

But since the introduction of a new currency under the Cardoso-designed economic plan, Brazil has discovered a nearly forgotten sense of economic and political stability; a quiet optimism has crept across the nation. Franco, for instance, suddenly enjoys an 82% approval rating.

“You can feel that sense of optimism all around,” said David Fleischer, an analyst and political science instructor at the University of Brasilia for 22 years. “The main factor is the currency and falling prices. Right now, you have a general tone of confidence in the discourse of Cardoso and his group--and that’s changed the electoral tone. People have decided not to ‘throw the rascals out,’ because maybe the rascals aren’t rascals because they stabilized the economy.”

The economy has taken a decided turn for the better. Exports are up, having posted a record $4.2 billion last month. Imports are up, which means prices should remain stable or continue to fall. For the first time in years, consumers can buy stoves and refrigerators on credit and do something as simple as budget their earnings.

Foreign investment is pouring into the country. Net foreign investment has jumped 50% since July. In August, it was a record $1.5 billion. “And it could go as high as $3 billion a month if Cardoso is elected,” predicted Julius Buchenrode, director of investment management for Chase Manhattan Bank in Brazil.

Many financial analysts speculate that Brazil may be returning to the high growth and low inflation that made it the “miracle economy” of the 1970s.

The successes generated by the plan and widespread approval have allowed Cardoso--author, scholar, former senator and briefly a political exile during the country’s 21-year military dictatorship--to easily ride out political missteps that might otherwise have severely damaged his hopes.

Early in the campaign, his center-left party formed a coalition with the right-wing Liberal Front Party (known here by its Portuguese initials, PFL), made up of supporters of Brazil’s former military dictatorship and wealthy landowners. Months later, he was forced to dump his first running mate after newspapers uncovered financial improprieties.

Later, Cardoso was tainted when the finance minister was forced to resign after he inadvertently admitted that he had used his office to aid Cardoso’s campaign.

Cardoso’s campaign has weathered those political storms, leaving Lula’s party confused and bewildered. “We have been surprised by the plan,” said Marco Aurelio Garcia, a Workers’ Party official and senior aide to Lula. “We knew it would have an impact, but not with such a high intensity. Not even Cardoso expected this much of a boost.”

Lula’s only hope now is that they can force a runoff, where he hopes to change the debate from stabilization to development. “That will be the key,” Garcia said. “The plan has a great number of deficiencies. For one, it has locked the poor in at a low wage. They are lowering the taxes on imports, which will cause a recession. We don’t want to grow on the basis of catastrophe.”

But the prospects of a Lula comeback are so remote that most observers have switched gears to figuring out what Cardoso will do to continue the climate of growth and stability and to close the chasm between the rich and poor. Cardoso has promised to sell off billions in state-owned companies to reduce the budget deficit and to implement widespread social reforms.

“There have to be constitutional reforms in social security, the relation between the states and municipalities and federal government, and a reduction in the number of taxes,” Buchenrode said.

To accomplish those goals, Cardoso will need a two-thirds vote from a legislature that has been an almost unmanageable assembly of 19 parties, tinged by scandal and devoted more to regional bosses and personal interests than to solving urgent national problems.

The current legislature, for example, still has not passed this year’s budget for lack of a quorum, and last year’s efforts at constitutional reform fizzled because of political bickering. And the upcoming legislature should be much like the last one.

To counter the legislature, Cardoso has been pushing hard to win the election outright, with the hope that a mandate will force Congress to go along with his proposals or face constituents’ displeasure.

But Cardoso’s alliance with the right-wing PFL and other parties has raised doubts among some political observers as to whether he will be able to bring about the much-needed social reforms.

“It’s not a good bet because Cardoso doesn’t have the right allies to improve the country,” said Giancarlo Summa, author of “Revolution Goodby,” a survey of the Latin American left. “To improve the country, you need very deep social reforms, which would move the center of power and wealth. Right now, you have a country which is the ninth economic power in the world where 10% of the population has 48% of the total income. . . .

“When you start to modify this situation,” Summa added, “you have to face very strong economic and political opposition. It will be difficult, if not impossible, for him to do that when he is allied with one of the strongest concentrations of the old military regime and the conservative oligarchy of this country.”