Looking good

With a series of laws that help combat corruption and create opportunities for growth, Brazil has won a new respectability in the world. Inflation has fallen dramatically, the economy is still growing, and the country is taking the lead among emerging countries.

Carlos E. F. Barreto

The Brazilian government is experiencing a transitional change in its method of conducting politics. The pressure exerted on Congress, by the population, businesses and the political power of President Fernando Henrique Cardoso, has shaped a new wave of productive changes to the country's Constitution. For years the country had stagnated due to the lack of national pride and ill-placed self-interest on the part of politicians, a group placed on the bottom end of the public's trust according to a survey in all major Brazilian cities. It is finally apparent to politicians that they must make important changes to insure economic growth and a contented population, and naturally their own survival.

The new spirit and the implemented changes have garnered attention from all major economies around the world. During the United Nations 50th year Anniversary in October, president Cardoso's impressively busy agenda has highlighted Brazil's unprecedented place among world leaders. As the world's 10th largest economy, Brazil is seriously being considered to hold a seat at the UN Security Council. In addition, the country's admittance into the Missile Technologies Control Regime, a group of nations seeking to prevent proliferation of missile-capable technology, reinforces its new found prestige. Such positive steps point to future in which Brazil will be the leading representative of all developing nations.

The credibility of the nation has solidified. In October alone, $3 billion of foreign investment have been added to the existing $50 billion reserves. It is important to note that this inflow of foreign capital is mainly for long-term investment. In the automobile industry, new factories from Volkswagen, Renault, Mercedez and Mitsubishi have been announced, and improvements to existing ones, including Fiat and Volkswagen are under way. Brazil's economic stability is an important factor for its political achievements. Although political achievements are succeeding internationally, domestically it still has a long way to go.

The first wave to wash filthiness from Brazilian political shores was begun by ex-president Itamar Franco. He ran the country after Fernando Collor de Mello was impeached charged with passive corruption. Franco, a very honorable man, appointed Fernando Cardoso as his Finance Minister. It was Cardoso who would control inflation with a series of efficient macroeconomics policies. By December 1995, the yearly aggregate rate of inflation will be below 20%, a record low since 1976. And although the consumption spree that sprang from the currency stabilization has leveled with a policy of high interest rates, the economy will still grow 5% this year.

In order to make sure that the disease from the past decade does not haunt the country in the future, major changes must occur. The problem of inefficiency and political patronage created by state-run monopolies are on the verge of eradication. The Brazilian Congress passed amendments to open telecommunication, oil, mining, and electric industries to private and foreign investment.

Furthermore, an amendment, which will encourage foreign investment by granting foreign capital the same treatment as Brazilian investment, has passed. Additional reforms decreasing local government's share of tax revenues, guaranteeing the overhaul of the top-heavy welfare system, and the scrapping of civil servants' jobs-for-life guarantees are to be voted on by the end of the year. All of these are designed to shake the "sleeping giant," and wake him for the new global environment.

While many investors perceive the opening as slow, momentum for privatization appears strong. Even though the communications sector privatization, for example, is still three to four years off, hundreds of foreign companies are rushing in to get a piece of the telecommunications action. Industry giants including NEC, Siemens, Alcatel, Ericsson, Northern Telecom, Motorola, Hyundai, Nokia, Oki, and Samsung are expanding their presence in that market. Telebrás, Brazil's state telecommunications company, is the world's 11th largest telephone network, owns 27 subsidiaries, and operates 95 percent of Brazil's phone lines.

The crown jewel of the privatization program is CVRD (Compania Vale do Rio Doce), Brazil's only efficient state enterprise. The mining giant has 40 subsidiaries that made in 1994 $5.6 billion in revenues. It is the world's biggest iron-ore producer and Latin America's largest gold producer. The company also operates transportation systems, metallurgy and environmental projects with net value around $15 billion. The auction is due next year, and the winner of this giant conglomerate will have mineral reserves for 400 years. The privatization auction has received proposal from such foreign bidders as Merrill Lynch, Solomon Brothers, Nomura, Goldman Sachs, J.P. Morgan, and from many local investment banks. It will be one of the largest auctions in the world.

In the energy sector, privatization and concession will be combined to fight inefficiency. Twenty eight distribution companies, 29 hydroelectric and 23 thermoelectric power plants will be sold to private enterprises. The government has already sold two distribution companies: one in the state of Rio de Janeiro and the other in the state of Espírito Santo. The winners of those two also gained the rights to explore the distribution lines of fiber-optics cable. Opening additional areas
President Cardoso
to private investment, Cardoso signed a concession law that allows private companies to build highways, hydroelectric dams, and water and sewer systems.

The government's largest hurdle was fought against opposition to the dismantling of the massive state oil monopoly. In comparison to the other sectors, Petrobrás is entirely centralized and does not have additional subsidiaries. Founded in 1953, Petrobrás has failed to make Brazil self-sufficient in oil despite investments of more than $80 billion. With the amount of investment and its size, the company has the capacity to fulfill the nation's needs, however due to inefficiency, it produces only 50 percent of the fuel the country needs. Earlier this year, strikes from employees trying to sustain the state monopoly created chaos all over the country. These strikes successfully obstructed daily life and forced politicians to realize the danger of such a monolithic enterprise. The new law will allow foreign and private companies to engage in transport, drilling, refining, and distribution of oil, tasks that previously could be solely done by Petrobrás.

There is also a bill to end the job-for-life guarantee for any government worker. The reform will permit individual states to dismiss employees when its payroll reach 60 percent of total state revenue, and will prohibit the appointment of politicians' family members to offices in committees.

The bill will create an wage ceiling of $8,500, the president's salary, to all government employees. In a recent article in the biweekly economics magazine Exame, Professor Stephen Kanitz wrote that "voters give congressmen the power to legislate for a term of four years. During this time legislators are guaranteed employment stability, but not for a life-long period. Voters have not given congressmen the power to legislate for life." Furthermore, he notes that "the life-long term created by congressmen compromises the main spirit of democracy."

The attempts to control inflation, privatize state companies, dismantle state monopolies and re-organize state bureaucracy are some of the steps to re-direct the country into the path of prosperity. President Cardoso is committed to lead Brazil into the 21st century as the leader of the developing democratic nations. While Brazil still fights its internal bureaucracy, in the eyes of international organizations, the country has come a long way.

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