LatinFinance - Special Edition - August 2013 - 52

2
THE
FUTURE
OF LATIN
FINANCE

Former president Fernando Henrique Cardoso reflects on what needs to be
done to return Brazil to a path of sustainable growth – the foundations
of which he helped set. By Thierry Ogier

Fernando Henrique Cardoso
A crisis foretold

T

he 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
popular unrest.
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 economic crisis?
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

52 l atinfina nce.com - 25 Years - August 2013

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 it?
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,
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