The Limits of Promise

Latin American Outlook

Although many Latin American countries have a history of unrealized potential, perhaps none of them has ever captured the imagination of outsiders quite so much as Brazil. It is not difficult to see why. A continent-size landmass, culturally unique but with a genuinely international projection, rich in natural resources, with a population of 165 million, it boasts of the world’s tenth largest economy—one trillion dollars’ worth. Nor is this all. Qualitatively Brazil is far ahead of its Latin American neighbors in crucial areas like communications (10 million Internet users) and heavy industry (it is one of the world’s largest steel producers). It has the capacity to absorb huge amounts of foreign capital—$300 billion to date.

Unfortunately, this is only one side of the coin. Huge areas of Brazil, particularly its northeast, subsist somewhere on the borderline between the third and fourth worlds. Its teeming cities, particularly Rio de Janeiro and São Paulo, are overwhelmed by rural migrants in search of work and also by rising rates of violent crime. Ten percent of all Brazilians cannot read or write. United Nations agencies have placed Brazil at 125th among its member nations in health care—a figure that Brazilian diplomats angrily reject. Though the country’s per capita income ($4,700) puts it among the "upper middle class" of developing nations, it has the sixth most inegalitarian income distribution in the world.

These contrasts are well worth bearing in mind in light of upcoming municipal elections at the end of October. Although their purpose is to choose local authorities, Brazil watchers regard the races as a virtual referendum on the stewardship of President Fernando Henrique Cardoso and, even more, a harbinger of what to expect in 2002, when Cardoso—who cannot succeed himself—will have to step down.

Reform at Midpassage

It is often said that Brazil is the country of the future—and always will be. One might just as easily remark that Brazil is at the crossroads—and always will be there, too. Brazil is not merely a country of contrasts; it is one of studied and continuous ambiguity. On one hand, over the last decade it has made remarkable strides in dismantling an unproductive public sector and encouraging new foreign investment; on the other, having half-finished the job he began in 1995, President Cardoso now tells journalists "the cycle of economic reforms is over."1

The remark fairly takes one’s breath away in light of certain facts. The first of these is that Brazil’s national public debt has grown from 30 to 50 percent of the country’s GDP over the last few years; its annual interest eats up some 40 percent of tax revenues. What makes these numbers particularly frightening is the fact that Brazil cannot—as in the past—turn to foreign lenders to deflect domestic political pressures. As if this were not enough, the country is overwhelmed by unfinanced entitlements. Social security deficits now equal 10 percent of Brazil’s annual GDP, while "off deficit" obligations already exceed the $80 billion in revenues generated by the sale of public enterprises during Cardoso’s first administration (1995–1999).

While the public sector has been greatly reduced in size, it has not disappeared altogether, and it continues to borrow at high interest rates, which make credit scarce and expensive. As for the private sector, an unusually high tax burden for developing countries (30 percent) diverts savings away from job creation. Cardoso’s political star rose in the early 1990s when, as finance minister, he brought inflation to a halt by tying Brazil’s currency to the U.S. dollar. But the phenomenal growth of the public debt forced him to devalue last year. While the economy has recovered this year, even remarkably so, real wages are down and unemployment has increased by roughly 25 percent. Meanwhile, rigid labor laws discourage job creation and promote the spread of informal work, which deprives the government of tax receipts and the laborer of any protection from the social security system. Five years of arguing have failed to produce a consensus on reforming the system.

In many ways Brazil is caught in a vicious cycle. It has made enough changes to push the macroeconomic figures in the right direction, but not enough to create new jobs and raise incomes, particularly in the less-favored sectors of society. It is a familiar Latin American dilemma these days, but one that acquires truly dramatic consequences in a society as large and important as this one.

The Political Landscape

How will these questions sort themselves out at the ballot box? This being Brazil, no clear-cut answers are likely to emerge. Nonetheless, it is evident that Brazilian politics are evolving in an entirely new way. Except for a long parenthesis under military rule (1964–1986), Brazilian politics since 1930 has been dominated by forces that were at once centrist and populist. Their only challenge came from the Marxist or semi-Marxist Left, which until quite recently was disorganized and lacking in firm leadership. Today, however, there is a third political family in Brazil. The new one, which might be called "neoliberal" (in Portuguese) or "neoconservative" (in English), is made up of Cardoso’s Social Democratic Party (PSDB), the Liberal Front (PFL), and the majority wing of the Brazilian Democratic Movement (PMDB), an invention of the military, but one that has nonetheless acquired major political traction of its own. The fact that Cardoso himself vociferously denies that he is a man of the Right is irrelevant; in Brazilian terms, at least, he has become one and is so perceived by most of his fellow citizens.2 In any event, he relies heavily in Congress on the support of conservative or neoconservative forces in his own party as well as in the PFL and PMDB.

The hoary flag of populism is now carried aloft by former president Itamar Franco, governor of Minas Gerais state and the leader of a dissident wing of the PMDB. Franco found himself on the front pages of the world’s financial press last year when he cut off payment of his state’s obligations to the federal government in Brasilia, a challenge that Cardoso somewhat surprisingly fended off with some success. Franco remains, however, a lightning rod for nationalist and populist resentment over the president’s reforms, particularly those privatizing some of the country’s largest public enterprises. He makes no secret of his desire to return to the presidency.

The lodestar of the Left remains the Workers’ Party (PT), whose leader is Luiz Inacio Lula da Silva, a former metal worker and union official who has already run unsuccessfully for the presidency three times. In the October elections the PT will run joint lists with the Democratic Labor Party (PDT), the Socialists, and Franco’s wing of the PMDB. While Franco and Lula might well merge their forces to win a beauty contest in the municipalities, it is unlikely that they—or their parties—could agree on a unified ticket in 2002, such as the Center and Left have been able to do in Argentina and Chile. Even if they could, it is less likely still that they would succeed in governing together.

As for Cardoso’s coalition, even if it manages to carry the day in the municipal elections—or, more likely, merely avoids a disastrous rout—it will still be left with the problem of finding a candidate and a message two years out. The task will be all the more difficult if the outgoing president insists on disavowing further progress on the road down which he has been taking his country for the last five years.

Straws in the Wind?

One way of understanding the trends in Brazilian politics is to study parties and elections. Another, however, is to look more closely at emerging forces that are still semipolitical or parapolitical. While they do not run candidates for office, they can succeed in making the task of governance difficult or even impossible. Here is one such straw in the wind. In May two radical leftists won an election to the board of one of Brazil’s largest pension funds, the Caixa de Previdencia dos Funcionarios do Banco do Brazil (PREVI). With $17.5 billion in its coffers, the PREVI is one of the largest institutional investors in Latin America, holding 27 percent of EMBRAER, the airplane manufacturer; 10 percent of CVRD, the world’s largest steel maker; and 10 percent of the Brahma brewery, Latin America’s largest beverage company.

The newly elected board members will be joining another ideological soul mate elected in a previous cycle. With only six members on the board, this gives the Left the right to block decisions requiring a majority vote. More to the point, one of the new board members is the official responsible for recommending how the fund invests. This could have a major impact on the priorities of the sixty-two leading Brazilian companies in which the fund has a significant stake.
It could also halt or slow the speed and scope of further privatizations, which, needless to say, the new board members firmly oppose.

Another indicator is the rise of the Landless Movement (MST). At the end of June, the government announced a three-year $1.1 billion land reform package, which would provide land, housing, and other basic services to 250,000 landless Brazilians. It would also bring schools, electricity, and hospitals to the neediest rural areas. But leaders of the Landless Movement rejected the offer out of hand, demanding precisely three times that sum. More to the point, MST leaders do not regard the government as necessarily the last word on this or any other subject. Claiming to represent some 2.5 million people, the MST is much given to direct action and proclaims that "both the government’s economic model and its agricultural policy are dependent on international capital and politics."3 (It also favors a national referendum to allow Brazilians to decide whether or not to pay the foreign debt.)

The MST engages in direct action—mainly seizure of idle farmlands, sometimes leading to violent clashes with both police and private security forces. Lately it has upped the ante by threatening to invade cattle ranches; in its view, stock raising represents a misuse of potential agricultural land. It also opposes the use of land for large-scale export agriculture and the cultivation of genetically altered crops because, it claims, such practices foster dependence on "transnational corporations." Its opposition to multinationals was recently highlighted by its attack on the Liberian ship Antilanca in the northeastern port of Recife. The demonstrators failed in their attempt to burn the cargo—transgenic maize—only because of the timely arrival of the police, but they did damage the windows and doors of the vessel and daub it with anti-Cardoso slogans.

Here is yet another straw in the wind. In May the estranged wife of Celso Pitta, mayor of São Paulo, went onto prime-time television to reveal the corrupt practices that have been flourishing under her husband’s rule. Among other things, she revealed that municipal hospitals were forced to buy medicine at inflated prices, that one of the sons of the mayor’s political patron had pocketed parking revenues, and that she herself was part of a scheme to divert money from a school-lunch program. Her husband’s response? Not only did he deny all of the charges, he even claimed that his wife was being used by upper-class Paulistas who resent the fact that he is black—the first such mayor in the city’s history—and from humble origins.

The Pitta case points to an interesting fact about Brazilian politics today: the country had no 1960s and seems determined to compensate for the fact. Pitta’s race-baiting is merely one aspect of this phenomenon. A growing black consciousness movement in Brazil is putting paid to the notion—assiduously cultivated by generations of Brazilian publicists and diplomats—that their country has no "racial problem." Another aspect is the penchant for direct action on the part of rural activists. A similar efflorescence of environmental, feminist, and other movements—all brought together under the banner of resistance to "neoliberalism" and "multinational corporations"—does not necessarily assure a decisive leftward trend in Brazilian politics, but it does suggest that whoever takes over from Cardoso will have a difficult time continuing on his course (assuming that the successor is committed to doing so).

Too Big to Ignore

Brazil’s future is not something to which outsiders can remain indifferent. This is not a banana republic but a major economic player on the world scene—the most "first world" of third world countries. It represents the second largest venue of U.S. investment in Latin America and is the mainstay of MERCOSUR (Argentin a, Brazil, Paraguay, Uruguay), which is currently negotiating to coordinate macroeconomic policies, investment rules, and other aspects of integration. If this design succeeds, MERCOSUR will be the world’s third largest economic area after the European Union and NAFTA. Unfortunately, Brazil’s political development has run far behind its economic attainments and is not likely to catch up any time soon. The result is bound to be a continuing tug of war between apparently limitless possibilities and equally impressive constraints, with neighbors and investors holding their breath as Brazilian politicians negotiate their way around the sharp curves that lie ahead.


1. Financial Times (London), July 4, 2000.

2. See the latest poll reported in El Nuevo Herald (Miami), July 17, 2000.

3. Quoted in Latin American Weekly Report, August 1, 2000.

Mark Falcoff is a resident scholar at AEI.

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