The honeymoon between the President and Congress lasted more than
most political marriages of convenience, and now it has ended. After
accumulating victories for more than one year, Fernando Henrique Cardoso is being challenged
in two fronts: corruption in the banking system and constitutional reform.
President Fernando Henrique Cardoso (FHC) experienced serious setbacks in March. After
14 months of victories, he couldn’t have approved in Congress a proposal to amend the Constitution which would reform
the social welfare system. This was a long needed piece of legislation that among other things, would substitute the
period of work for the period of contribution in the country’s unjust retirement plan: 30 years for males and 25 years for
females. It would have great impact on teachers and other special retirees. A congressman, for example, now can retire after
two terms eight years and get a full salary for the rest of his/her life.
The regulation of such an intolerable benefit is crucial to trim excessive government bills. Furthermore, a
Parliamentary Commission Inquiry (CPI) has been formed to investigate the recent spate of bank bankrupticies afflicting the
country. These two factors could work against the efforts put forth by the FHC government to keep Congress focused on
important reforms. The constitutional reforms are vital to the survival of the 20-month economic stabilization Real Plan.
Decreasing government expenditure is critical to balance the budget. A country’s budget has two important
factors: the tax revenue and the government expenditure. The tax burden on the Brazilian population is already high enough
even though few pay their contributions. Thus, tax is not a wise tool to play with when trying to balance the Brazilian
budget. Moreover, previous governments have turned blind eyes on government spending and corrected the deficit through
tax increases which proved to be ineffective, recessionary and inflationary.
Cutting government spending is the right
way to go to consolidate the Real Plan. This means restructuring the
welfare system, privatizating state-owned enterprises, creating a
ceiling on government salaries, and trimming government payroll.
Cardoso stated that “without the constitutional reforms, inflation
could reach levels of 40 % rather than the current monthly rate of 0.4
%.”
Cardoso’s statement referred back to the mid 1980s when Brazil returned to democracy under José Sarney and
inflation was 40 % per month. In 1986, Brazil had its worst economic situation with the public deficit at 44.9 % of the
country’s gross domestic product (GDP). In 1995, on the other hand, inflation had a 22 % annual rate and the deficit was 28.3
% of total GDP.
Today, Sarney heads the Senate and he is
the key figure behind congressional voting on reform bills. The senate
leader’s chair gives him the ability to control which pieces of
legislation may pass and which may not. Some political analysts believe
that Sarney is playing a political game hoping that FHC fails, in this
way increasing his own chances to once again become president in the
1998 elections.
Eduardo Azeredo, the governor of Minas Gerais and an important political ally to FHC, stated that “it is
impossible to believe that people still exist who only make decisions based on thinking about votes”. This is very sad! Brazil
is changing and the population is becoming more aware of politicians that are too nice but not concerned about the
future of the country.”
Moreover, Azeredo completed: “It is not
possible that such an important reform has been voted on under the
inspiration of self interest. We are talking about subjects that
concern the future of Brazil and it should be viewed like that.” The
welfare amendment needed 318 votes to pass but only received 294. It is
interesting to see that by 1998, 18 congressmen will benefit from their
special retirement plan which otherwise would have been extinct.
The legislators celebrated the victory
against the agreement reached between the federal government and the
CUT (workers’ union). The Social Welfare Minister, Reinhold Stephanes,
in an interview with Reuters said that “unfortunately, the people had a
lot to gain from the bill, but the elite defeated the people once
again.” FHC plans to try the original welfare bill in Congress but it
is a more austere bill with little chance of passing. President Cardoso
refuses to give up decisive constitutional reforms.
Another major defeat for the FHC government was the commission set up to conduct a wide-ranging probe into
the nation’s banking sector, a move that could further slow passages of other constitutional reforms. The CPI requires
29 senators’ signatures to install it, but not surprisingly, 11 senators were from Sarney’s personal coalition.
The banking system in Brazil is going through a restructuring process to end a long period of cover-up losses.
Since Gustavo Loyola was appointed to preside over the Brazilian Central Bank, four major institutions have suffered
federal intervention after charges of missmanagement of its funds.
The latest scandal was a $4.75 billion coverup by failed Banco Nacional which dated back to 1985. It is strange
that the blame falls on the government that brings these corruption scandals up to the surface and not on the ones
that contributed to cover these up. The CPI should not be limited to federal interventions in 1995. It would be proper to
trace
the connections of failed banks back to their state or federal governments to the very beginning i.e.; Banco
Econômico and the governor of Bahia, Antônio Carlos Magalhães; Banerj and the governor of Rio de Janeiro, Leonel Brizola;
Banespa and São Paulo’s government under Orestes Quércia and Antonio Fleury; and Banco Nacional when Sarney was
the Brazilian President and had intimate relationships with Minas Gerais governor and Nacional’s owner Magalhães Pinto.
President Cardoso is still holding out hopes that he could block installation of the commission by persuading the
parties not to nominate members to the 13-member panel. He could expose several politicians if connections were uncovered,
but the FHC government has a 92 % popular support rating and such a CPI would only hurt the population. This six
month investigative panel would only divert attention from the reforms.
The two setbacks contributed to bad performances of both Brazilian stockmarkets: São Paulo fell 4.41 % and Rio
de Janeiro 5.25 %. Furthermore, the interest rate in the futures market went up for April contracts from 2.14 % to 2.17 %
and May contracts from 2.10 % to 2.13 %. These are clear indications of market disapproval for the congressional
carnaval created around important reforms. Politicians in Brazil should start to look at reforms as being crucial to their own
survival because the electorate is looking carefully. Society does not want Congress to throw away what has been
accomplished in the past 20 months.