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Transcript of The Center for Latin American Studies University of California, Berkely Rio Branco Forum on Brazil...
The Center for Latin American Studies University of California, Berkely
Rio Branco Forum on Brazil
Challenges Facing the New Brazilian Government
A lecture byPaulo Paiva
January 31, 2003
Challenges Facing the New Brazilian Government
• Election Results• The Challenges:
– Promote economic growth with stability– Conciliate macroeconomic stability with growing
social demands– Build a Coalition with the National Congress– Maintain an equilibrium between the representative
democracy and the “new corporatism”– Deal with the international agenda
• Public Opinion Poll
Election ResultsElection Results
Presidential election
First Round (Thousands) %
Lula 39,443 (46.7)
Serra 19,700 (23.3)
Others 25,347 (30.0) 84,490 (100.0)
Run Off Δ(Thousands) %
52,793 (61.3) 13,349
33,371 (38.7) 13,67086,164 (100.0) 27,019
Senate (81 seats)
2002 2003 2002 2003PFL 17 19 PT 8 14PSDB 14 11 PDT 5 5PPB 2 1 PSB 3 4PMDB 24 19 PL 1 3PTB 5 3 PPS 2 1
PSD - 1TOTAL 62 53 TOTAL 19 28
Change: 9 seats (11.1%)
Cardoso’s Coalition Opposition's Coalition
House (513 seats)
2002 2003 2002 2003PFL 98 85 PT 58 91PSDB 94 71 PDT 16 21PPB 53 48 PSB 16 22PMDB 87 74 PL 22 26PTB 33 26 PPS 12 15
PCdoB 10 12Others 14 22
TOTAL 362 304 TOTAL 148 209Change: 61 seats (11.9%)
Cardoso’s Coalition Opposition's Coalition
Major ChallengesPromote Economic Growth with Stability
Major ChallengesPromote Economic Growth with Stability
Option to maintain the same macroeconomic policy
Symbolic Actions
Effective Actions
Economic Challenges
Decisions of Macroeconomic Policies
Major Challenges Symbolic Actions
•Visited the Presidents of Argentina and Chile
•Visited President Bush
•Announced in DC the name of the Finance Minister
•Met with the WB and IDB Presidents
•Met with the Managing Director of the IMF
Major Challenges Promote Economic Growth with Stability
Option to maintain the same macroeconomic policy
Symbolic Actions
Effective Actions
Economic Challenges
Decisions of Macroeconomic Policies
Major Challenges Effective Actions
•Named a Financial Market Executive to be President of the Central Bank (Henrique Meireles)
•Maintained the previous board of directors in the Central Bank
•Announced a new project of law sent to Congress to increase the autonomy of the Central Bank (Monetary Responsibility Law)
•Adopted the structural reforms program of the previous government (social security, tax, and labor reforms)
Major Challenges Promote Economic Growth with Stability
Option to maintain the same macroeconomic policy
Symbolic Actions
Effective Actions
Economic Challenges
Decisions of Macroeconomic Policies
Major ChallengesDecisions of Macroeconomic Policies
• Maintained fiscal policy of austerity, expected primary surplus of 3.75% of GDP in 2003 or even higher• Did not accept to discuss the renegotiation of agreements between federal and state governments (renegotiation of state debts)•Inflation-targeting policy. Price stability as main goal of monetary policy. Economic growth due to lower interest rates more difficult •Maintained floating exchange rates• Commitment to honor existing contracts and agreements•Maintain the agreement with the IMF•First monetary decision of the Central Bank: increased annual interest rates from 25% to 25.5%.
Major Challenges Promote Economic Growth with Stability
Option to maintain the same macroeconomic policy
Symbolic Actions
Effective Actions
Economic Challenges
Decisions of Macroeconomic Policies
Major Challenges
Economic Challenges
• Restart economic growth in the short run•Approve the structural reforms:
•Social Security Reform – total Social Security deficit (private and public) is around 5.1% of GDP•Tax Reform – current tax burden is around 33% of GDP. If tax reform is not approved this year, the government must propose the maintenance of a) the taxes on checks (CPMF – Temporary Contribution on Financial Transactions) and b) the DRU (Elimination of ear-marked federal tax revenues) •Labor Reform
Major ChallengesPromote Economic Growth with Stability
Conciliate Macroeconomic Stability with Growing Social Demands
Major Challenges Conciliate macroeconomic stability with growing
social demands
Social Expenditures
Conciliate macroeconomic stability with growing social demands
93.3 98.6120 124.6 132.1 137.6 137.5
1993 1994 1995 1996 1997 1998 1999
Social ExpendituresSocial Expenditures increased
39% from 1994 to 1999
Source: IBGE (1991 and 2000 Census)
14% of GDP
11% of GDP
Major Challenges Conciliate macroeconomic stability with growing
social demands
Social Expenditures
Conciliate macroeconomic stability with growing social demands
1. To conciliate macroeconomic stability with growing social demands
2003 budget- primary surplus 2.8%(GDP)- discretionary expenditures: 2.1%(GDP)
distribution of discretionary expenditure:social development 72%infrastructure 13%production 5%defense 2%administration 5%environment 1%knowledge and information 1%others 1%TOTAL 100%
•Social demands•minimum wage•increase of civil servant's salaries•Fighting Hunger Program
• Risks•on the economic sideon the economic side
•No compliance with fiscal Targets•Higher inflation•Debt default
•on the social sideon the social side•Unable to meet social demands and expectations
Major ChallengesPromote Economic Growth with Stability
Conciliate Macroeconomic Stability with Growing Social Demands
Build a Coalition with the National Congress
Major Challenges Coalition with Congress
Senate 2003
House of Representative 2003
Strategy to built a majority
To build a coalition in the national congress Senate 2003 81 seats
Seats missing to: Simple majority (50%) 41-31= 10 Approve constitutional reforms (2/3) 54-31=23
PFL 19 PT 14PSDB 11 PDT 5PPB 1 PSB 4PMDB 19 PL 3
PPSPSD
11
PTB 3TOTAL 50 TOTAL 31
Opposition Lula's Coalition
Major Challenges Coalition with Congress
Senate 2003
House of Representative 2003
Strategy to built a majority
Seats missing to: (7 seats: independent) Simple majority (50%) 257-253= 4 Approve constitutional reforms (2/3) 342-253= 89
PFL 77 PT 91PSDB 63 PDT 18
PPB 43 PSB 29
PMDB 70 PLPTB
3441
PPS 19
PCdoB 12
Others 9
TOTAL 253 TOTAL 253
House of Representatives 2003 513 seats Opposition Lula's Coalition
Major Challenges Coalition with Congress
Senate 2003
House of Representative 2003
Strategy to built a majority
Major ChallengesStrategy to built a majority
•Composition of the Cabinet•Composition of Congressional Committees and election of Presidents of Senate and House of Representatives
•Alliance with conservative regional leaderships: José Sarney and Antonio Carlos Magalhães•In the National Congress, regional leaders have great influence
•Elected politicians changing parties common practice in Brazil)•Majority will need to be built for each important project
Major ChallengesPromote Economic Growth with Stability
Conciliate Macroeconomic Stability with Growing Social Demands
Build a Coalition with the National Congress
Maintain an Equilibrium Between the Representative Democracy and the “New Corporatism”
Major Challenges Maintain an Equilibrium Between the Representative Democracy and the “New
Corporatism”
Potential Conflicts between Representative Democracy and Direct Democracy
Neo-Corporatism
Major Challenges Neo-Corporatism
•Composition of the Cabinet• Economic and Social Development Council subordinated to the Federal Government
Major Challenges Maintain an Equilibrium Between the Representative Democracy and the “New
Corporatism”
Potential Conflicts between Representative Democracy and Direct Democracy
Neo-Corporatism
Major Challenges Potential Conflicts between Representative
Democracy and Direct Democracy
•Representative democracy versus direct democracy•Need to Strength Institutions (Congress, Political Parties, Judiciary, etc.)•Conflict between Representative Democracy and the practice of direct dialogue between the Executive Branch and the population •Popular Support – For example, trip to Northeastern States• To use organizations of the civil society (councils, for example) to lobby and pressure Congress
Major ChallengesPromote Economic Growth with Stability
Conciliate Macroeconomic Stability with Growing Social Demands
Build a Coalition with the National Congress
Maintain an Equilibrium Between the Representative Democracy and the “New Corporatism”
Deal with the International Agenda
Major ChallengesDeal with the International Agenda
Strength the Brazilian leadership in Latin America
Strength the democracy and peace in Latin America
FTAAA timeframe from 2003 to 2005
Co-presidency Brazil/USA
Mercosur - Rebuilt it within an environment of economic instability
European Community – Negotiations on barriers to agricultural goods
Public opinion results from recent poll
Country’s Satisfaction Index0ct.02: 24.3% Jan 03: 56.6%
Social Economic SatisfactionEvaluation: 34.0% (last 6 months)
Expectation: 63.6% (next 6 months)
President’s PerformanceApprove: Oct 02: 34.7% Jan.03: 83.4%Disapprove: Oct 02: 53.9% Jan.03: 6,8%
(CNT-Sensus: Jan. 19 to 23, 2003)
Expectations regarding Lula’s Government
Promises will be fullfilled: 69.9%
It will be a good government: 92.6%
Priority to Zero Hunger: 87.3%
Unemployment will decrease: 78.2%
Inflation will decrease: 63.9%
Interest rates will decrease: 61.4%
New minimum wage: R$ 266.00
Major Reforms (Priorities)
Labor Reform: 44.0% Land Reform: 11.5%
Social Security Reform: 11.2% Political Reform: 10.3%
Tax Reform: 4.1%
Mercosur and FTAA
Importance of Mercosur: 62.3%
FTAA: in favor: 30.8% against : 38.9%