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In their own words. (Fernando Henrique)

Jul 1, 1998

Fernando Henrique Cardoso, President of Brazil
When Fernando Henrique Cardoso was named Brazilian finance minister in 1993, few could have foreseen the dramatic changes that would follow in the ensuing five years. The implementation and continued success of the Real Plan, his victorious bid for the presidency, and crucial-though not yet complete-government reforms have turned Brazil squarely on the path to realizing its longstanding designation as the country of the future.
Brazil has witnessed substantial financial, economic, political and social change during the past 10 years. What have been the most important changes over the past 10 years from the perspective of the economy and financial markets?
You don't need to go that far back in time to identify some watershed changes in Brazil with a direct impact on the national economy and on the way the country is perceived internationally. One has just to recall that four years ago the monthly inflation rate reached almost 50%, making it very hard for the population to plan ahead. We now have the lowest level of inflation since the 1950s. I would say that stabilization was the first crucial change. From stabilization was derived the return of predictability with regard to basic market behavior, and from that the return of confidence and investments, both national and foreign.But what I see as the most fundamental change came as Brazilians finally realized that economic stability was not incompatible with the fostering of social justice. On the contrary, the ability to push forward some much needed and long overdue social policies depended on stable economic conditions. In fact, by cutting down inflation, the Real Plan allowed for an unprecedented income redistribution. In a very short period of time, around 13 million Brazilians crossed the poverty line upward and were integrated into the market as consumers.Brazil is now a radically different country from what it was 10 or even five years ago. We are traveling along a well-defined path. We know where we want to go and we know how to get there.
How has Brazil's perception of its role in the global economy and financial markets changed since the 1980s?
Brazil's economic relations with the outside world have undergone significant changes since the early 1990s. Our average tariff on imports was reduced from 52% to 12%. Non-tariff barriers were torn down. Mercosul proved to be a success story and resulted in an increasingly powerful impulse to our international trade. The foreign debt problem, a major issue during the 1980s, is now largely solved. In 1995, for the first time in 15 years, Brazil was once again able to borrow directly on the international financial markets. Foreign direct investment has increased steeply since 1994. The participation of foreign companies in our privatization program has been significant. In sum, our external interface has contributed to expose the Brazilian market to a higher level of competition and thus became a fundamental stimulus to promote efficiency and better quality in our products and services.All things considered, the international economy ceased to be perceived mainly as a hostile environment that threatened our development and came to be seen as a realm of opportunities to be explored by Brazilians with an entrepreneurial spirit. In our relations with the world economy, the idea of a threat has been replaced by that of a challenge. Of course, there are still problems. Brazilian products still face protectionist barriers in some of the most important world markets, and problems like the volatility of capital flows still require a better, more articulated response by the international community. The Brazilian government is very much aware of these questions and we will continue to work with our partners in the international economy to tear down protectionist barriers imposed on Brazilian products and to strengthen the international financial system.
Have your perceptions of globalization and development issues changed since your days as an internationally recognized sociologist?
The world has changed a lot since then. It would have been absurd for me, or for anyone else, to ignore these changes. The process of globalization has taken on a new significance and new shapes and forms. The very process of production itself has been globalized. Advances in telecommunications and transportation over the last two decades have induced a major transformation in the way we look at things in the international economy. But those who have accurately read what I wrote will realize that there is an uninterrupted thread in my thought. Most of all, they will find a continuing and fundamental concern over the circumstances under which development can take place, for Brazil and for countries in a similar situation. What are the alternatives open for a developing country given the features of the international environment? How can such a country maximize its opportunities and better prepare for the challenges ahead? I have dealt with these questions as a sociologist and I am dealing with them now, as president.
Has the fundamental distribution of power and income in Latin America been altered during these past 10 years of privatization, government reform, declining protectionism and free market theory?
The greater changes in income distribution and social justice will not come merely from free markets, declining protectionism and privatization. These are important as a means to foster economic growth, which in turn is essential to create job opportunities. In the long term, what really counts is to be able to promote equality of opportunities throughout society. We are doing this by ensuring economic stability and by means of decisive action by the state, notably in the fields of education and health.The distribution of income in Brazil has been significantly improved by the success of the Real Plan. Inflation is like a tax that is imposed by the government on the whole of society, but disproportionately on the poorest segments of society, which have no protection from the erosion of purchasing power. Inflation is taxation without representation. Thus, the drastic reduction of the inflation rate achieved by the Real Plan had a significant and immediate impact on income distribution. From 1993 to 1995, as a result of the elimination of the inflationary taxation, literally millions of Brazilians have been able to cross the poverty line and to join the consumer market.From 1993 to 1997, the proportion of poor people in the Brazilian population decreased from 32% to 25%. The gap between the wealthiest and the poorest is still far too great in Brazil, but we are working towards higher standards of social justice. We still have a long way to go, but we have already taken important steps in the right direction.The distribution of power is also being transformed significantly. In Brazil, during the 1980s organized civil society became a major actor in politics. A new pattern of relations between the state and society emerged, in which non-governmental organizations and increased citizen participation forced the state to become more open, more accountable. The government reforms we are conducting today are imbued with that spirit. Government action in the social field is being decentralized and made more transparent, so as to prevent corruption. Apart from that, with the creation of new agencies-which will be in charge of regulating the market in strategic sectors such as communications, energy or transportation-we are strengthening the regulatory and supervisory functions of the government, while at the same time improving its openness and accountability. The idea is quite simple: to prevent special interests from having a disproportionate presence in national decision-making, thus ensuring that the public sphere will indeed be public and will not be used as a façade to the promotion of private interests, as has been the case too often in the past.

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