By Thierry Ogier
The man who two decades ago helped lead Brazil into a new era
of economic stability is, today, less than sanguine about the
future of his country.
Fernando Henrique Cardoso, Brazil’s president
from 1995 to 2002, says a failure in recent years to uphold the
principles of economic reform could have devastating
consequences for Latin America’s largest economy.
In an interview with LatinFinance, he says Brazil must urgently
reassess its growth model if the country is to remain
competitive in a fast-changing global economy.
As finance minister in 1994, Cardoso oversaw the launch of
the Real Plan, an economic stabilization program that was part
of a broader process of deep macroeconomic and institutional
reforms. The initiative, which saw the real pegged to the
dollar, put an end to years of hyperinflation and helped propel
Cardoso to the presidency a year later.
In that role, Cardoso pushed through a number of liberal
reforms, including a break-up of state monopolies in a number
of sectors, including oil, mining and telecommunications, as
well as a restructuring of the financial sector.
The reform process, while strengthening competitiveness, was
not without its costs – in particular, a sharp rise in
public sector debt and macroeconomic imbalances. This
culminated in Brazil’s 1998/1999 financial crisis,
as investors turned on the nation in the wake of
Russia’s 1998 default.
Brazil’s economy eventually stabilized and the
ground was set for a boom over the following decade and the
country emerged as one of the world’s leading
middle-income economies. Yet today, that narrative has soured,
amid a collapse in growth, rising inflation and a wave of
At 82, Cardoso remains a potent force in Brazilian politics.
Here, the elder statesman reflects on what needs to be done to
return the economy to a path of sustainable growth –
the foundations of which he helped set.
LF: Has Brazil learned its lessons from decades of
FHC: I believe so. We learned a lot during past crises as
well as during the recent one. The quality of financial
management improved. There has been a long and persistent
effort to put public finances in order, to restructure the
public and private banking sectors, including through
privatization, and civil service reform.
As a consequence, Brazil has become more resilient in facing
crises. This includes the ability now to increase the central
bank’s international reserves and deal with
exchange rate volatility and inflation in a more sophisticated
manner than in the past. There has been some important progress
in these areas, that is undeniable.
However, following the 2008/2009 financial crisis, there has
been some decline. There has been a lack of persistence and
effort: in particular, a lack of focus on the priorities that
were central to the economic policies that allowed Brazil to
achieve its past success.
Do you mean complacency?
Not only that. There has been a lack of long-term vision.
There was an attempt to go back to a model that used to be in
place in the past, but that did not work well in my opinion:
greater government interference [in the economy]; favors to
selected sectors, through subsidies; and, the artificial
management of public spending. This makes it harder to
accurately assess the economy and could lead Brazilians and
outsiders to question the continuity of economic policies.
You are in a unique position to analyze the social
unrest that gripped Brazil in 2013. What accounts for
I was a sociologist in Paris during the 1968 crisis there,
so I have some experience with such [protest] movements. There
was a degree of spontaneity in this movement in Brazil. It
emerged because of a short circuit. In this case, the short
circuit was the rise in public transport fares, although there
could have been a number of other triggers.
The more profound question is: how does a short circuit lead
to a fire? And how does the movement spread across the whole of
Brazil without strong co-ordination? Was this the result of a
certain malaise? Where does such a feeling come from?
Inflation had begun to rise and there was a feeling that
despite improvements in the employment level, the quality of
jobs was not so great. Moreover, industry is in trouble, public
services are poorly managed, especially given the poor quality
of healthcare and education.
Meanwhile, social mobility and social inclusion are on the
rise. At first, these trends are positive but people soon
demand better quality services. All of these factors were
behind this protest movement.
Even though the demands of the protests were not actually
linked directly to the economy – it may have started
with a very specific demand, related to bus fares or others
linked to the quality of life – there was a kind a
snowball effect due to this general malaise, which had gone
How could such a sentiment go
In Brazil, like elsewhere, we are living in a kind of dual
reality. The government and the official media say everything
is marvelous, that Brazil is the world’s seventh
largest economy. This is true, in a way, but you cannot forget
that the society has not improved as fast as the economy.
There is a lot of insecurity, a lot of violence, the quality
of employment is not that great; day-to-day life is harder than
the general picture would lead people to believe. What
we’re experiencing is a kind of reality shock, or
as psychologists would call it, "cognitive dissonance".
Recall what Alexis de Tocqueville said about the French
revolution: it occurred after the government made some
concessions, when things had started to improve; it did not
happen at the height of oppression, although that is also
In Brazil, the crisis came as things appeared to be
improving [for society]. Things are improving, but we want
Rising inflation and sluggish economic growth were
in the background of this latest crisis, but also a demand for
better public services?
The issue of bad management and the rise in living costs
– all this was ultimately behind this crisis. What I
found strange was that the government response seemed to focus
mainly on the political angle and tried to resolve this through
a political reform. But its solution did not go to the roots of
There is a greater call to stamp out corruption. Corruption
has caused outrage among the middle classes, specifically. The
people do not feel they are being represented, especially,
though not only, in Congress. There is not a single voice that
is widely accepted right now in Brazil.
The voice that was most popular, which was
Lula’s, has gone quiet.
Will the social unrest have negative repercussions
on the economy?
Yes, it already has. There is a lack of a clear vision on
how to deal with the crisis. The social unrest is not the cause
of the economic difficulties but it makes things more
difficult. There are problems that existed before this crisis,
such as Eike Batista’s troubles; there are
economic problems, which are not socially or politically
related, but when political and social problems emerge, they
make economic problems worse.
Brazil is already suffering in terms of investor
perception. How long-lasting will these effects
In the short term, markets are overreacting. But these are
problems that you must fix in the medium-term. The strength of
the Brazilian economy is great, the society is too, but at the
moment the feeling is more negative than positive, no doubt
But what will it take for the economy to recover in
the longer term?
Brazil must understand that the global financial crisis is
coming to an end. The US has invested in new energy
technologies that are going to have a global impact. We must
take the measures that are required to deal with this issue in
our industry, in our oil extraction, energy in general
– this is a serious challenge.
All these events unfold against a challenging global
background – a slowdown in China, a decline in
commodity prices, the prospect of rising US interest
The combined effect of technological change in the US, and
the slowdown in China, which will probably impact commodity
prices, must lead Brazil to review its strategy. Just as during
the 1990s, we had to change everything because of the changes
that globalization brought, Brazil again needs to review its
Hopefully, this will be possible with a change in power and
the emergence of a new group that understands better the
dynamics of the country and its role in the world. This is
So this is not possible under the current
No. With this government, it looks difficult.
There is some concern that a decade of prosperity
for Latin America has come to an end. What is your
Latin America today is very different from what it was 20
years ago. Now, you have a group of countries that are
organized in the so-called Pacific Alliance. You have
"Bolivarian countries" on the other side, and Brazil has
remained a bit in doubt between the two. Changes that occurred
in Latin America have weakened our voice in Latin America. The
region is not homogenous. Countries are taking different
How should Brazil position itself towards the
Pacific Alliance and its new dynamics in the
We must review our strategic position, we must regain the
capacity to influence the region. To do that, we have to decide
which side we are on. Are we going to keep on accepting forever
this Bolivarianism, which is not very clear about what it is
going to do? Or shall we take another direction?
It is clear that in Brazil we will always have a government
where the state will have more weight than, say, in Chile or
Colombia. This is due to our challenges as a very large
country, where wealth inequalities are still great and where
poverty is still significant. So the state still has an active
But we need to see with greater clarity what is the role of
the state, the role of the market and what is the role of the
society. This has to be rethought in Brazil so that we can
adapt to a changing world.
You did not mention Mercosur, of which you were one
of the main protagonists. Should Brazil instead be moving
closer to the Pacific Alliance?
I think so. The real problem is that Mercosur has not moved
forward. There has been a standstill, and Brazil became
isolated in terms of international relations and trade
agreements while countries of the Pacific Alliance have become
Brazil needs to make an effort again to achieve greater
integration in the global economy. So yes, we must start to
integrate with the most dynamic countries of our region:
Colombia, Chile and Peru. I think Uruguay and Paraguay are
moving in the right direction. Brazil has more in common with
this mentality than Bolivia’s or
Venezuela’s or Nicaragua’s…
This is not our way.
Do you think the reform agenda has been implemented
well since the time you were in office?
From 2004 onwards, president Lula stopped all the reforms.
As the global economy was booming, he sought to take advantage
of the tail winds. He’d rather avoid domestic
political problems and internal divisions. So the reform
process stalled. Almost nothing was done.
President Dilma has been trying to resume some reforms in
ports, some concessions of public services – but with
less political strength than Lula had. But she has been doing
it in a shy fashion, and somewhat reluctantly – one
may have the impression that she would not like to have done
The result is that the infrastructure is still paralyzed,
which is serious, it has long-term consequences. There has not
been any progress at all in the labor market. There has been
limited progress in the social security reform. It would have
been easier to push the reform agenda forward during the years
of bonanza, but Lula preferred not to change what was difficult
to achieve to preserve his popularity. This will have an impact
We will have to resume this reform agenda, which is more
microeconomic than macroeconomic. The management needs to
improve a lot. There has been more interference of party
interests in recent years and clientelism in the government
machine. This is a drag on efficiency of the government.
Is your legacy – the end of hyperinflation
– now at risk? Is the current government proving more
tolerant towards inflation?
I would not say it is at risk. Inflation is still small. But
here has been a loss of enthusiasm for keeping these key
factors under control. There has been a lack of organization to
resist inflation. Public spending and debt have increased a
lot, and above all, which is more serious, it’s
difficult to see what is happening with the public
There is an accumulation of problems, which will have to be
tackled later. The government has not completely given up on
what is fundamental. But when it comes to improving the lives
of Brazilians, there are signs it has started to weaken.
Concerns now center on the depreciation of the
real and the risk of inflation – which you faced
during the 1999 devaluation. What are the implications
In a way, that was already the dilemma at the time of the
1999 real devaluation. Fiscal policy was loose. Now, again,
fiscal policy is loose. When the fiscal policy is loose, the
only exit is monetary policy, interest rates. It is bad, it has
a negative impact, it weighs on the exchange rate.
So here we have to go back to what was done in the past: a
more rigorous fiscal policy and interest rates that are not so
high. We need a different policy mix. Policy is not science. It
is more like navigation. There is no recipe. You need to have a
good understanding of the current situation and be able to
navigate well. Now there is some uncertainty about the way we
Later, when we are forced to act, we will either need a very
austere fiscal policy, which would have an impact like what we
see in Europe, or there will be a very steep interest rate
hike, which also has a negative impact.
So it would be better to be more cautious now in fiscal
policy and give more independence to the central bank
– as it has already started to have – so that
it can complement fiscal policy and do what can be done in
terms of the exchange rate.
We also need to understand what is happening with the US,
where the dollar will really strengthen. This is going to make
things harder in the whole world, and here too.