Brazil, historically has been consistent in its economic progress using unique features to increase growth potential.  The features consist of:

(i)         the absence of religious, ethnic or linguistic regionally organised enclaves that restrict the spatial integration of the national market; (ii) the maturity of political institutions and movements, which are willing to solve economic and social issues according to the rules of the democratic process; (iii) the extent and diversification of the country's renewable and non-renewable resources; and (iv)the dynamism and flexibility of the entrepreneurial class which has shown a great capacity to adapt to an envirom-nent of economic uncertainties and increasing competition from abroad. (Kinzo, Thomas, 9)

In order to keep a consistent flow of growth, the Brazilian economy must, however, overcome at least two important obstacles: "(i) the low levels of public investment and (ii) a human resource base that exhibits great disparity in its skills." (9) Brazil's growth potential is limited by high inflation, the over-involvement of government in the economy and the protection given to domestic industry in the past.  Improving the allotment of resources and working at domestic and external saving would allow the country to make positive strides economically and socially.  There are three very important socioeconomic points that focus on:

Competitive transformation: in an era of economic globalisation, Brazil should restructure many segment of its productive system, abandon econorrac activities based on spurious competitiveness and identify areas of comparative advantage;

Social equity.  Brazil has some of the worst social indicators among Latin American countries, and one of the most concentrated profiles of income and wealth distribution in the world.  In Brazil, the concept of poverty has gone through various definitions.  Finally, (in the 90's) poverty came to depict a new dimension - an increasing number of families living miserably on the outskirts of metropolitan regions and in the depressed rural areas, with no clear identification of their citizenship rights;

Sustainability:           During the periods of accelerated economic growth that have occurred since World War 11, Brazil has shown little regard for the impact of private and even public investments on the environment ... new expansion cycles should incorporate the concept of sustainable development, so that the rates of use of renewable and non-renewable resources fall below their recovery and maintenance rates. (I 0)

Brazil's long history of government intervention has made the economy difficult to deal with because of all the different institutions pulling from every angle.  To protect the consumers and workers from suspect competition, markets are constantly supplemented to avoid effects of numerous transactions.  Informal components of the economy have a high value ranging from "$IOO to $ 1 5 0 billion a year.  " (I 2)

As I mentioned before, there have been many programs in Brazil's history that have caused numerous problems for those in the private business.  Despite the Cardoso plan's success in decreasing inflation, private business has been able to sustain and/or adapt to whatever situations present themselves The economy has become more and more bureaucratic due to the increased rules of private activity.  Also, because of new management techniques and new products in the market, private Brazilian companies are more competitive by international standards.

This caused the economy to begin to grow starting in 1992 and 1993 for some very simple reasons such as "large idle capacity in the industrial sector, lower real interest rates, two consecutive, good, agricultural harvests and agreement between the government and the automotive industry, which provides for a lower tax burden and more medium-term credit..." (14,15) Inflation in Brazil has a long tradition that has continued into the 90's.  In 1993, inflation reached an unprecedented level of 2600 per cent, broken by the implementation of Cardoso's Plan and the country's new currency.  Beside taking fiscal responsibility of the government, 1995 saw Cardoso sign "a presidential decree that took possession of about 100,000 hectares (about 250,000 acres) of land from large, private estates and reallocated it to more than 3600 poor families." (Encarta Online)

The existence of inflation created a bi-monetary system before the introduction of the Real, which deepened the economic discrimination against the poor.  In the September 15 edition of the

Washington Post, Anthony Faiola reports that "the poor were the least likely to keep their money in interest-bearing accounts, which profited from the rising interest rates that accompanied inflation." It makes it extremely difficult for the population to have to use money and account deposits in commercial banks because they are not protected against rising inflation and there is no kind of interest rate.  In a country such as Brazil, constant inflation on growth and distribution of income make fighting inflation a central part of their economic plans.  In spite of the problems in the economy of the last few years, the future will bring Brazil to a period of economic stability with the possibility of growth and success.  Hopefully the Real Plan (O Plano Real) will make the situation better.

The Brazilian stabilization program was put into effect on the first day of July in 1994 with a new monetary system and the Real as the new currency.  According to Pedro Sampaio Malan, Brazilian Finance Minister, "the Real Plan ... is no doubt the most successful stabilization plan in Brazil history." However, the previous phases of this plan were put into effect in December of 1993.  The phases are as follows:

(i)         a fiscal adjustment (of a temporary nature), and

(ii)        the adoption of an indexed unit of account - which received the name of the UR V or 'unit of real value' - as a first stage towards

(iii)       the de-indexation of the economy and the adoption of the new currency. (67)

In raw numbers, the impact of the Real on the economy, especially inflation, was certainly welcome and without delay.  Consumer price index fell from " 5 00/o in June to 6.9 5% in July, 1.9 5% in August, and 0.82% in September." (67) The exchange rate was at I to I but the value of the Real appreciated against the dollar in the period, with the exchange of the dollar falling sharply by the end of September.

Brazilians had previously been through the same type of economic struggles before starting with the Cruzado Plan of 1986.  All the plans enjoyed zero inflation after implementation, but the Real Plan has features unlike that of the others that has caused continued success.  First, there were no price freezes, which was a component in all the previous plans.  Second, there were no surprise measures being taken.  The Real Plan stages were announced in a Statement of Motives put in place in December of 1993.

There was numerous public and national debate over what made the plan more and more familiar to the Brazilian population before the plan was introduced to Congress.  The plan also incorporated a number of adjustments that show a greater commitment to public accounts and monetary control.  Cardoso, the finance minister, negotiated all the steps in the plan, made sure that the country was aware that the plan would not go into effect if Congress would not approve stabilizing procedures for the current financial situation.  Opinion polls showed that the Real Plan had the support of the masses and that they thought that the plan would be good for the country.  The plan's implementation caused support to grow for Cardoso in the general elections over his adversary Luis Inacio Lula da Silva and he eventually was elected president with over 50% of votes.

Cardoso, who served as finance minister under predecessor, started it all in 1994 with his Real Plan, named after the national currence, the real.  The program pegged the real to the U.S. dollar and stabilized the economy, which had been wracked by hyperinflation so high that the price of basic food products could double in the time it took workers to cash their paychecks. (Faiola, Washington Post)

With Cardoso's election, the Real Plan began to take shape and gradually effect the economy.  The plan consists of three phases or parts that effectively organize the structure.  Phase I consist of short-term fiscal adjustment, phase 11 deals with deindexation and phase III details the New Monetary Regime.  A short synopsis of the phases are as follows:

Phase I was infact a group of measure taken during the second half of 1993, designed to organise the public accounts and achieve a zero operational deficit in 1994 and 1995.  This process was concluded with the approval of an amendment to the Constitution on 28 February 1994.

Phase 11 was the creation of a stable unit of value to serve as a unit of account: the URV (Real Value Unit) was officially adopted on I March and the spread of its use thoughout the economy was encouraged, imposed or naturally accepted over the period until 30 June 1994.

Phase III was the reform in the monetary system adopted on I July, which replace the former currency, the Cruzeiro Real, with a new currency, the Real, whose value was equivalent to I URV.  At the time of this changeover the basic lines of policy and instruments for the new monetary and exchange rate regime were laid down in legislation. (80)

These phases did much to fix inflation problems but also allowed consumers to buy things once again.  Consumer demand increased dramatically which made for more stable buying and an increased flow of consumer money into to the new system.  However, the need for high real interest rates and control of monetary expansion caused the Central Bank to practice a new exchange rate policy.  It has been described as one of the most profound changes since 1967.  The Central Bank sells foreign currency in a way that the exchange rate will never exceed parity of R$I=US$I.  No lower limit was established, which has allowed the exchange rate to float freely.

The performance of the Real Plan in the beginning months increased the support of newly elected Fernando Cardoso.  Still, there is a long road ahead.  Many people see inflation as continuing which means that eventually the plan will fail despite early success.  Only effort and credibility will reverse these expectations and keep Cardoso in office.  Fiscal adjustment in the long term based on the Social Emergency Fund, is restricted by law and making currency is conditional on approval by Congress.  The Central Bank continues to be formally an arm of the executive power with too much authority over functions not directly related to control of the currency.  Another concern involves Constitutional reform necessary to eliminate restrictions and abolish the state monopolies.

It is also essential, in order to consolidate stabilization and to attain self-sustained growth, a successful reform of our 1988 Constitution, which will enable, among others, the modernization of our public sector and the attainment of permanent fiscal equilibrium: the true anchor of any successful stabilization program.

Privatization may be an important source of revenue to help fiscal matters.  Also, other reforms of the Constitution are important to increase competition and create the conditions necessary for resuming development.  The Real Plan was a great starter for the process of stabilizing a shaky economy.  The new measures and reforms need continued political support in Congress, especially at the beginning of a new presidential plan.  Commitment to the plan will be the determinant of success.

The electoral victory of Fernando Henrique Cardoso over Luis Inacio Lula da Silva was not a total surprise.  Although Cardoso had a late surge in the polls, that late surge proved to be the final blow in defeating LWa da Silva.  The big surprise was the impact of Plano Real, his economic stabilization plan.  The timing was risky, the plan's uncertainty made sparked interest rather than waiting for a solution from the camp of da Silva.  As the inflation rate went down, Cardoso's popularity grew and led to his election.  The election had a special significance in that the new President was able to enter office with a contingent of supporters and legislation already in place.  Also, Brazil had grown tired of the political problems caused in the past and had just impeached Fernando Collor de Mello on charges of corruption.  Although the negative political conditions had a certain impact of the election outcome it was surpassed by the positive effects of the Real Plan.  The elections were strictly focused on the issue of establishing a stabilization program which would directly affect voters' pockets.  The plan was also obviously going to be carried out by it's creator rather than someone unfamiliar with it.  Therefore, Cardoso won easily in every Brazilian state except Rio Grande do Sul and Brasilia.

The 54% vote that Cardoso won in the first round against eight other candidates gave him legitimacy to carry on with the Real Plan.  No other democratically elected president would take office under such favourable conditions than Fernando Henrique Cardoso.  Although his government was already making changes, Cardoso still had many challenges to face along the way.  His greatest challenge was to build up support in Congress and in the states for making the Plan a success and especially for the implementation of social reforms present in the electoral campaign.  Despite these expectations, Cardoso looks to be on his way to answering all the expectations of being President and the next few years will illustrate just how important Cardoso was to the re-emergence of Brazil amongst other world powers.

Bibliography

1.         Government of the Rich.  Pt Net: webmaster@pt.org.br, Sandra Starling (excerpt from Jornol do Brasil, May 3, 1996).

2.         Growth and Development in Brazil: Cardoso's Real Challenge, edited by Maria D'Alva Kinzo and Victor Bulmer-Thomas (London, Institute of Latin American Studies, 1995).

3.         Anthony Faiola, "As Brazil's Economy Slumps, President's Popularity Soars," Washington Post (September 15, 1998).

4.         Anthony Faiola, "Brazil's Presidential Voste is Just The Beginning, Washington Post (October 4,1998).

5.      Michael Astor, Deflation leaves Brazilians less worried by crisis,

AP    (October 17, 1998).

6.      Website: The Results of the Real Plan, statement from Pedro

Sampaio Malan , Brazilian Finance Minister (September 1995).