BRAZIL: Devaluation, Campaign Aggravate Jitters

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Jul 26 2002 (IPS) - The devaluation of the local currency and the likelihood of defeat for the ruling coalition candidate in Brazil’s Oct 6 presidential elections have aggravated the country’s economic and electoral jitters.

The real passed the psychological barrier of three to the dollar in the past two days, despite the Central Bank’s attempt to curb the depreciation of the local currency by selling 270 million dollars on the exchange market Thursday.

Meanwhile, the results of the latest opinion poll confirmed that as things stand now, ruling party candidate José Serra will not even make it to the second round of elections.

Only 13 percent of respondents said they would vote for former health minister Serra, compared to 26 percent who said they would vote for Ciro Gomes, the candidate of the Labourist Front coalition, according to the results of a poll released late Thursday by the Brazilian Institute of Public Opinion and Statistics (IBOPE).

The front-runner is still Luiz Inacio Lula da Silva, of the leftist Workers’ Party, with 33 percent ratings.

The 23 percent depreciation of the real since the start of the year, which has been especially sharp in the past two months, is generating inflationary pressure, and driving up the public debt, because one-third of the bonds placed were in dollars.

The net public sector debt has climbed to 5.8 percent of Gross Domestic Product (GDP), or 750.3 billion reais (250 billion dollars at the current exchange rate), above the 3.4 percent target agreed with the International Monetary Fund (IMF).

These economic indicators have further eroded confidence in Latin America’s biggest economy, while the results of the latest polls have fanned fears that the new government will fail to live up to the commitments assumed by the current administration, and trigger capital flight.

The nervousness has been transmitted to the Sao Paulo stock exchange, the country-risk rating has soared to 2,000, and the economy is on the verge of recession, according to the Getulio Vargas Foundation.

Brazil’s growth depends largely on foreign capital, but the current conditions do not favour investment. Pessimism is rising due to an external climate marked by a drop in the leading stock markets, scandals shaking transnational corporations, and neighbouring Argentina’s seemingly endless crisis.

The president of the Central Bank, Arminio Fraga, and IMF deputy managing director Anne Krueger, who visited Brazil this week, both agree that a new agreement with the IMF that would provide credit to help sustain the country through the change of government, is essential.

The swift decline in the situation indicates that it will be impossible to await the outcome of the October elections. But an agreement prior to the elections would be even more complex, because it would demand commitments from several presidential candidates, said Krueger.

The turmoil could be reduced if the opposition candidates clearly define the economic policies that they will follow if they win, concur Finance Minister Pedro Malán and a number of economists.

The uncertainty surrounding the elections is due in large part to the peculiar features of Brazilian politics, like the unexpected alliances and fractures that have occurred in this year’s election campaign.

For example, the coalition that backed the government of Fernando Henrique Cardoso broke up, and Serra has only received the support of the Party of Brazilian Social Democracy and factions of the Brazilian Democratic Movement and the Liberal Front, the three large forces that supported Cardoso throughout most of his time in office.

The largest factions of the Liberal Front have thrown their support behind opposition candidate Gomes, who is running for the Labourist Front, which is comprised of parties as diverse as the ex-communist Popular Socialist Party and the conservative Partido Trabalhista Brasileño.

Even Lula’s Workers’ Party, considered the most authentic and coherent political force in Brazil, took people by surprise when it struck an alliance with the right-wing Liberal Party, which is dominated by evangelical religious leaders.

Lula basically forced his party to accept the alliance in order to name textile tycoon José Alencar as his vice-presidential running-mate, with the aim of convincing voters that the Workers’ Party has abandoned its leftist discourse of the past and that a Lula administration would be moderate.

Although the Workers’ Party’s new alliance was unexpected, party divisions and coalitions that bring together strange bedfellows are nothing new in Brazilian party politics, political scientist Jairo Nicolau, the author of a study on the history of Brazil’s political parties, told IPS.

The Brazilian political system, in which 30 registered parties participate, keeps voters from clearly identifying the rules of the game, and gives rise to distortions, like the eventual rise to power of a coalition that is different than the one that was elected, he said.

The system also makes the vote highly personal, determined more by the image of the candidate than of the party, and poll ratings can change radically almost overnight.

But the advantage of the system is its flexibility, which enables leaders to cobble together new coalitions in parliament and shore up lost support, thus ensuring continued governability, said Nicolau.