Man of the Year
The year 1994 was a chaotic one for Latin American financial markets. Rising US interest rates, plunging global bond markets and regional difficulties in countries such as Mexico and Venezuela put a tight clamp on capital flows to the region.
But in the midst of an uncertain scenario, Brazil took a major step toward assuming its role as a regional powerhouse—and an academic-turned-politician finance minister played an instrumental role in that step.
During his tenure as Brazil’s finance minister, Fernando Henrique Cardoso designed and implemented the multifaceted stabilization plan that cut inflation, shrunk the budget deficit, and introduced a new currency, the real, that actually appreciated versus the US dollar after it was launched on July 1.
Not only did the plan yield concrete economic results, it catapulted Cardoso into the presidency—giving him an excellent opportunity to push for long-term economic and political reforms.
As Brazil’s finance minister, Cardoso laid the foundation for Brazil to take its place as the major economic power in Latin America. And while many challenges remain—such as reforms to the constitution, the social security system, and substantial progress on privatization—Cardoso’s achievements provide a firm footing for future progress.
For all these achievements, LatinFinance has awarded President Fernando Henrique Cardoso its 1995 Man of the Year award.
From Scholar to Statesman
Fernando Henrique Cardoso, a sociologist by training, is the son of a senior military officer. He taught at the University of São Paulo, and was a prominent opponent of the military government which held power in Brazil from 1964 to 1985. Between 1964 and 1967 he worked at the Instituto Latino de Planificación Económica y Social (ILPES) in Chile.
In 1968, the military government stripped him of his political rights. During the next decade, Cardoso traveled abroad, serving as a visiting professor and researcher at Princeton, Stanford, Berkeley, Cambridge and the University of Paris. He became an alternate senator to Senator Franco Montoro in 1978, and took office in 1983 upon Montoro’s resignation.
Cardoso was a founding member of the Brazilian Social Democratic Party (PSDB), and from 1985-1986 he served as leader of the government in Congress. He participated in the Constitutional Assembly which rewrote Brazil’s constitution in 1987-1988 following the country’s return to civilian rule.
Road to the Presidency
But it was his ascension to the post of finance minister that launched Cardoso on a collision course with the presidency. In May 1993 he left his post as foreign minister and began putting together the economic stabilization plan that would make him president. The stabilization plan, commonly known as the Real Plan, consisted of three phases: first, fiscal reform, a major part of which was the introduction of a social emergency fund to shift spending from the Federal Government to state and local governments.
The second phase was the introduction of the Real Unit of Value (URV), designed to bring Brazil’s complex system of indexation in line with a single price adjustment mechanism. The final stage of the plan consisted of the conversion of the URV into a new currency, the real, which was backed by dollar reserves and issued at rough parity with the US dollar.
Cardoso resigned as finance minister on March 29, 1994, to run for the presidency. But his path to Brazil’s highest office was not yet assured. In mid-June, opinion polls showed Cardoso trailing Luis Inácio “Lula” da Silva of the Workers Party (PT). Lula polled nearly 40% of voters to Cardoso’s 20% in early opinion polls. And with the real scheduled to be launched on July 1, observers saw Cardoso’s chances for election directly linked to the real’s success.
The linkage, it turns out, paid off handsomely. By mid-August, Cardoso had overtaken Lula in the polls, with a Gallup poll giving Cardoso 37.5% and Lula 27.6%. From that point there was no looking back, as the ex-finance minister won easily in the first round of the elections in October, with votes for Cardoso almost double those for Lula. LF