By Mario Osava
RIO DE JANEIRO, Oct 2 1998 (IPS)

Brazil goes to the polls Sunday caught in the vortex of the international financial crisis, but the global financial storm is likely to have little effect on the outcome of the election.

The last opinion poll before the election, released Thursday by the Brazilian Institute of Public Opinion and Statistics (IBOPE) gave President Fernando Henrique Cardoso 47 percent of voter support and his closest opponent, Luis Inacio Lula da Silva, 24 percent.

Barring a last-minute change of heart by his supporters, and if one-third of the undecided, who totalled 10 percent of the poll’s respondents, vote for Cardoso, that would give him the 50 percent he needs to be elected directly, thus avoiding a second round of voting on Oct. 25.

And this is what the government is hoping for, especially the economic authorities, as prolonging the political uncertainty would only worsen the damage already suffered by the Brazilian economy, with runaway inflation rates of 49.75 percent and capital flight of 25 billion dollars in two months.

Decisions on an international bailout by multilateral institutions, governments and leading banks, will only take place after Cardoso’s next term in office is confirmed, since they would hardly relish the idea of negotiating with the left-wing opposition candidate, former steelworker Luiz Inacio Lula da Silva.

The reason is that while Cardoso plans to continue his orthodox economic stablisation programme, defending the Brazilian currency with tough fiscal adjustment, welfare and tax reforms, Lula is only suggesting exchange and import controls to lower interest rates, along with an expensive package of social and agrarian reform.

On the domestic front, fiscal adjustment, considered fundamental in order to overcome the crisis, demands tough cutbacks in public spending and increased taxes which can only be adopted after the election result is known.

Sunday’s elections will decide not only who is to be president, but also all 27 provincial governors, 27 senators – or a third of the Senate, the entire 513-member lower house and some 1,050 provincial legislators.

The final approval of welfare reform, for example, is expected this month, following the parliamentary elections.

But the future governments of the most important states in the country, like Sao Paulo and Minas Gerais, will only be defined in the second round, also on October 25. This could affect parliamentary voting, due to the absence of the traditional political leadership exerted by the state governors.

Time is a decisive factor and delays in approving other reforms, like those on taxes and public administration, will only prolong the state of emergency.

Industry cannot withstand many more months of interest rates at the present level, said chairman of the Sao Paulo Federation of Industries, Horacio Lafer Piva.

The vulnerable situation of the Brazilian economy is to a large extent a product of the election timetabling combining negatively with the development of the Asian crisis.

Brazil’s government had to increase interest rates in October 1997 so as to halt capital flight following the knock-on effects of the Hong Kong stock exchange crash and devaluations in neighbouring countries.

In order to avoid increases in the fiscal deficit, as a consequence of the high interests on the public debt, it adopted a package of 51 measures and 18 million dollars in savings and increased tax revenue.

Non-fulfilment of the target and the abandoning of various measures, with the attendant worsening of the deficit, undermined investor confidence in the foundations of the economy and real government commitment to improving these.

Finance Minister Pedro Malan complained on one of his trips abroad that electoral interests were obstructing application of measures, as the government had toned down fiscal adjustment for fear of a negative reaction from the electorate.

The increased international financial turbulence caused by the Russian moratorium, with its powerful impact on stock exchanges and Brasil’s foreign reserves, gave the impression that the fates were offering the opposition a great opportunity only six weeks before the elections.

The main opposition candidate, Lula, and his economic advisors unleashed their offensive, playing up the crisis and blaming the Cardoso administration for mishandling it.

But the ploy seems to have boomeranged, as the polls show the President has maintained and even increased his lead. Cardoso and Malan announced hardline fiscal adjustment three weeks ago, apparently without losing voter support.

Surveys indicate the uncertain situation has actually favoured Cardoso. Part of the electorate concluded they would be better off with a familiar, experienced captain at the wheel in the midst of the storm.

“I was going to vote for Lula, but now I’ve opted for Cardoso,” as the time is not ripe for new experiments, said Manoel Correia da Silva, owner of a small business providing pet supplies in Rio de Janeiro.

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