Economy Down, President Up

Weekly News Update on the Americas, Issue #451, 20 September 1998

International investors consider Brazil the next major country at risk in the global economic crisis. In the next three months, what happens in Brazil will be the key for what happens in Latin America and emerging markets, according to Eduardo Cabrera, Latin American strategist for Merrill Lynch, a New York-based brokerage. With the ninth largest economy in the world--its gross domestic product was about twice Russia's even before Russia devalued in August--Brazil has about $80 billion in short-term debt coming due in September and October.

US policy makers have generally supported President Fernando Henrique Cardoso, a former leftist who has implemented a number of neoliberal measures since taking office on Jan. 1, 1995. In 1994 he was finance minister, and before beginning his campaign for the presidency, he introduced the Real Plan, which contained inflation by linking the currency, the real, to the US dollar. But as the crisis deepens, US analysts feel that Cardoso hasn't done enough to restructure the Brazilian economy on the neoliberal model. It looks like the last days of Pompeii, complains Riordan Roett of the Johns Hopkins School of Advanced International Studies. [Wall Street Journal 9/14/98] US companies have more than $26 billion invested in Brazil. [Washington Post 9/15/98]

[Riordan Roett achieved some notoriety with a January 1995 memo he wrote for the Chase Bank Emerging Markets Group. The memo said that the Mexican government will need to eliminate the Zapatista rebels and will need to consider carefully whether or not to allow opposition victories if fairly won at the ballot box. See Update #263.]

Despite his economic problems, Cardoso is rising in the polls while his main opponent, the leftist coalition candidate Luiz Inacio Lula da Silva of the Workers Party (PT), is falling. A poll by the Ibope consulting firm published on Sept. 17 gave Cardoso 49% of voter preferences while Lula fell to 22%. [An Ibope poll released on June 6 gave Cardoso 33% to Lula's 28%; see Update #436.] Ibope interviewed 3,000 voters from around the country between Sept. 10 and Sept. 12, the period of the stock market's worst losses. Cardoso's current standing would allow him to win the election in the first round. [Clarin (Buenos Aires) 9/18/98]

[V]oters cling to the candidate they already know, says the Wall Street Journal, which notes that Lula supports exchange controls like the ones recently imposed in Malaysia to stop speculation from undermining the local currency, in defiance of neoliberal doctrine. [WSJ 9/14/98] Paradoxically, former factory worker Lula is especially weak among the poorest voters, who are traditionally his base. [Washington Post 9/15/98] The poor also make up most of the 64% of the population with a primary school education or less; only one third of these voters know that the financial crisis exists, according to media reports. The British Daily Telegraph writes that Cardoso has been helped greatly by a part of the Brazilian press which attenuated the impact of the news of the financial crisis. Cardoso's government has kept the majority of Brazilians in ignorance of what may happen in the future. [Clarin 9/18/98, quotation retranslated from Spanish]