BRAZIL: Congress Double Whammy Knocks Government for Six

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Mar 7 1996 (IPS) - The Brazilian government saw its hold on parliament wane unexpectedly when it suffered two defeats in on day Wednesday, sounding the red alert for an economic policy which appeared to be doing very well until now.

The Senate gave the Parliamentary Investigation Commission (CPI) the go ahead to look into banking irregularities, Wednesday, while the Chamber of Deputies threw out the social security reform.

Presidential adviser Sergio Amaral said the first of these rejections “could cause risks to the financial system, generating a process of instability and insecurity.”

Brazil’s President Fernando Henrique Cardoso said the CPI initiative was “inopportune and inconvenient.”

Cardoso said the proposal was politically motivated as the investigations will be limited only to his time in power, starting from Jan. 1, 1995, although the problems in the banks began long before.

The creation of the CPI coincided with the discovery of a new financial scandal in Brazil, where the National Bank, one of the private sector giants, hid losses of nearly five billion dollars from the supervisory Central Bank for 10 years.

Even more worrying for the government, 15 of the 29 senators who signed the CPI request came from groups within the ruling coalition.

The second shock came Wednesday night when their social security reform proposal was thrown out by the Chamber of Deputies. The government was expecting between 320 and 350 votes of support, but only got 294 – fourteen less than the permissable minimum.

The approval of any constitutional reform requires the support of three fifths of the 513 deputies – a minium of 308 votes.

This defeated proposal was presented by Deputy Euler Ribeiro after lengthy deliberation by the government, the parties and the unions.

Vicente Paulo da Silva, leader of the Single Workers Centre, withdrew his support from the proposal on Tuesday as he did not agree with many of the points covered.

During the session in the chamber, the union leader led a demonstration against the reform attended by 2,000 people, and many observers said this was the decisive element in the government’s defeat.

Minister of Social Security Reinhold Stephanes, who led the government negotiations, said the October municipal elections had also played their part, as many deputies are standing for mayorships and did not want to upset their local supporters.

Ribeiro’s proposal replaced the original amendment presented by the government last year.

Wednesday’s rejection means the original project has to go back before parliament, but its prospects are pretty dismal considering the recent rejected version fulfilled more of the opposition requirements.

“We have to renegotiate, start from scratch,” said Benito Gama, one of the ruling party’s most influential members.

“Congress is responsible for its decision,” said Stephanes, warning that the reform is urgently needed and that any delay could serious damage the nation.

Social security overspending is an important contributor to the public deficit, which many Brazilian economists see as the worst threat to economic stability.

Another important element is the level of public sector salaries, and the high interest rates on internal debt.

These two parliamentary defeats have increased doubts that the constitutional amendment on administrative reform, another attempt to reduce public spending, will be passed either.

In the last few decades, the federal, state and municipal governments have all offered their workers great perks, which the chronic inflation promptly wiped out.

Hyperinflation led to the implementation of a compensation system, but now inflation is back under control salary expenditure has rocketed, outpacing government income, said Cardoso.

Both the administrative and welfare reforms affect the “interests and privileges” established in the past, said Stephanes, but while this makes them more difficult to approve, the public deficit keeps growing.

However, the risk the CPI will investigate could be more imminent.

If things continue the way they are, there will be “bankrupcies in a series of banks,” said Senator Ney Suassuna, president of the Senate commission examining the government financial restructuring plan.

Cardoso stated that even though the process may work against him, no obstacles would be placed in the way of investigations and that “all the necessary information” would be offered.

The only other option would be for the government to boycott the CPI, preventing its loyal parties from appointing representatives until the six-month implementation limit on the proposal has expired.