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The Center for Latin American Studies
University of California, Berkely
Rio Branco Forum on Brazil
Challenges Facing the New Brazilian
Government
A lecture by
Paulo 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 Results
Presidential election
First Round Run Off Δ
(Thousands) %
(Thousands) %
52,793 (61.3) 13,349
Lula 39,443 (46.7)
33,371 (38.7) 13,670
Serra 19,700 (23.3)
86,164 (100.0) 27,019
Others 25,347 (30.0)
84,490 (100.0)
Senate (81 seats)
Cardoso’s Coalition Opposition's Coalition
2002 2003 2002 2003
PFL 17 19 PT 8 14
PSDB 14 11 PDT 5 5
PPB 2 1 PSB 3 4
PMDB 24 19 PL 1 3
PTB 5 3 PPS 2 1
PSD - 1
TOTAL 62 53 TOTAL 19 28
Change: 9 seats (11.1%)
House (513 seats)
Cardoso’s Coalition Opposition's Coalition
2002 2003 2002 2003
PFL 98 85 PT 58 91
PSDB 94 71 PDT 16 21
PPB 53 48 PSB 16 22
PMDB 87 74 PL 22 26
PTB 33 26 PPS 12 15
PCdoB 10 12
Others 14 22
TOTAL 362 304 TOTAL 148 209
Change: 61 seats (11.9%)
Major Challenges
Promote Economic Growth with Stability
Major Challenges
Promote Economic Growth with Stability
Option to maintain the same macroeconomic policy
Symbolic Effective Decisions of Economic
Actions Actions Macroeconomic Challenges
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 Effective Decisions of Economic
Actions Actions Macroeconomic Challenges
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 Effective Decisions of Economic
Actions Actions Macroeconomic Challenges
Policies
Major Challenges
Decisions 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 Effective Decisions of Economic
Actions Actions Macroeconomic Challenges
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 Challenges
Promote Economic Growth with Stability
Conciliate Macroeconomic Stability with Growing
Social Demands
Major Challenges
Conciliate macroeconomic stability with growing
social demands
Social Conciliate
Expenditures macroeconomic
stability with
growing social
demands
Social Expenditures
Social Expenditures increased
39% from 1994 to 1999
132.1 137.6 137.5
120 124.6
14% of GDP
93.3 98.6
11% of GDP
1993 1994 1995 1996 1997 1998 1999
Source: IBGE (1991 and 2000 Census)
Major Challenges
Conciliate macroeconomic stability with growing
social demands
Social Conciliate
Expenditures 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 side
•No compliance with fiscal Targets
•Higher inflation
•Debt default
•on the social side
•Unable to meet social demands and
expectations
Major Challenges
Promote Economic Growth with Stability
Conciliate Macroeconomic Stability with Growing
Social Demands
Build a Coalition with the National Congress
Major Challenges
Coalition with Congress
Senate House of Strategy to
2003 Representative built a
2003 majority
To build a coalition in the national congress
Senate 2003 81 seats
Opposition Lula's Coalition
PFL 19 PT 14
PSDB 11 PDT 5
PPB 1 PSB 4
PMDB 19 PL 3
PPS 1
PSD 1
PTB 3
TOTAL 50 TOTAL 31
Seats missing to:
Simple majority (50%) 41-31= 10
Approve constitutional reforms (2/3) 54-31=23
Major Challenges
Coalition with Congress
Senate House of Strategy to
2003 Representative built a
2003 majority
House of Representatives 2003 513 seats
Opposition Lula's Coalition
PFL 77 PT 91
PSDB 63 PDT 18
PPB 43 PSB 29
PMDB 70 PL 34
PTB 41
PPS 19
PCdoB 12
Others 9
TOTAL 253 TOTAL 253
Seats missing to: (7 seats: independent)
Simple majority (50%) 257-253= 4
Approve constitutional reforms (2/3) 342-253= 89
Major Challenges
Coalition with Congress
Senate House of Strategy to
2003 Representative built a
2003 majority
Major Challenges
Strategy 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 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”
Major Challenges
Maintain an Equilibrium Between the
Representative Democracy and the “New
Corporatism”
Neo- Potential Conflicts between
Corporatism Representative Democracy
and Direct Democracy
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”
Neo- Potential Conflicts between
Corporatism Representative Democracy
and Direct Democracy
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 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
Major Challenges
Deal with the International Agenda
Strength the Brazilian leadership in Latin America
Strength the democracy and peace in Latin America
Mercosur - Rebuilt it within an environment of
economic instability
A timeframe from 2003 to 2005
FTAA
Co-presidency Brazil/USA
European Community – Negotiations on barriers to
agricultural goods
Public opinion results from
recent poll
(CNT-Sensus: Jan. 19 to 23, 2003)
Country’s Satisfaction Index
0ct.02: 24.3% Jan 03: 56.6%
Social Economic Satisfaction
Evaluation: 34.0% (last 6 months)
Expectation: 63.6% (next 6 months)
President’s Performance
Approve: Oct 02: 34.7% Jan.03: 83.4%
Disapprove: Oct 02: 53.9% Jan.03: 6,8%
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%
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