Ana Maria Lopes de Almeida Sérgio Fausto Sérgio Florêncio Cláudia Maciel

with Vilmar Faria and Eduardo Graeff

Ana Maria Lopes de Almeida Sérgio Fausto Sérgio Florêncio Cláudia Maciel

with Vilmar Faria and Eduardo Graeff

Presidency of the Republic Special Advisory Body

Brasília, November 1999

NoticeThis paper aims at providing the reader who is unfamiliar with Brazil with a general

view of the strategic goals and main lines of action of the Fernando Henrique Cardosogovernment in the fields of economic and social development. The principal authorstake responsibility for the presentation format, inferences and interpretations, as well asthe accuracy of the information provided.

SUMMARY

Preparing Brazil for the 21st Century.................................................... 1

I – A new development model............................................................... 5

II – Public policy for inclusion ............................................................17

III – The radicalization of democracy................................................35

1

INTRODUCTION

“Brazil is no longer an underdeveloped country. It is, rather, an unjust country”.Fernando Henrique Cardoso, during the 1994 presidential campaign, thusexpressed a concern that increasingly weighs upon the minds of Brazilians.

ntil recently the extreme pov-erty and inequality that charac-terize Brazilian society were of-ten regarded as the sad, but in-

evitable, consequences of economic back-wardness. Since the 1940s, developmentbased on industrialization, rather thansocial reform, stimulated progressivethinking and political action in Brazil.During the “economic miracle” of the1970s, when the Brazilian economyachieved high rates of industrial growthwhile at the same time greatly concentrat-ing the distribution of income, the officialargument was that, first it was necessary toallow growth to occur so that later the“cake” of national wealth could be sharedout.

This line of reasoning, if it was ever valid,was stripped of all legitimacy after democ-racy was restored in the late 1980s. Socialdemands could now be freely expressed.Furthermore, there was an increasingawareness that the country had attained astage of development at which it was pos-sible to face up to the problems of fulfill-ing the essential needs of its population,without running the risk of “levelingdown” or bringing on political upheaval.What most shocks Brazilians today is notso much poverty as exclusion: the contrastbetween the relative prosperity of thoseengaged in what is today one of the tenlargest industrial economies in the world,and the lack of support experienced bythose unable to fit in this economy, or who

participate only marginally in it, as produc-ers or consumers.

Indeed, though the economic and tech-nological gap in relation to developedcountries persists, it now seems less un-bridgeable than it did fifty years ago. Nei-ther does it seem so deep as to justify thepersistence of levels of poverty that are stillhuge, although smaller then in the not-so-distant past. This places social inclusion,alongside economic development, at thecenter of the Brazilian political agenda atthe turn of the millennium.

The development project advanced byFernando Henrique Cardoso is the Brazil-ian social-democrat response to this dualchallenge. Briefly, it affirms that Brazil can,at the same time, achieve economic growthand social inclusion, within a democraticframework and as a market economy. Itassumes that Brazil’s participation in inter-national trade, investment and informationflows is now irreversible, bringing with itopportunities and also risks. It relies ongreater productivity and increased com-petitiveness of the Brazilian economy,along with increasing levels of private na-tional and foreign investment, to create thejobs. It recognizes the growing importanceof the role of non-governmental organiza-tions in the fulfillment of social needs. Andit proposes a profound reform of the State,designed to strengthen and adapt it for theperformance of the functions required forprojecting Brazil into the globalized pro-ductive system and providing universal ac-

PREPARING BRAZIL FOR THE 21ST CENTURY

U

2

cess to basic social services that are the re-sponsibility of the public sector.

Fighting poverty and exclusion has ceasedto be an issue of the “left” or the “right” inBrazil. It has become a national consensus,at least in terms of declarations of intent...It is among the fundamental principlescited in the Constitution; part of the plat-form of all political parties; the editorialline of the great media networks; and thediscourse of public figures from all walksof life.

The need to pursue this goal within theframework of democracy and marketeconomy is accepted by a great majority ofBrazilians, but it is not yet unanimous op-tion.

No organized group in Brazil todayopenly espouses undemocratic ideals. De-mocracy is a vibrant reality, as is mani-fested by closely contested elections, therecognition of civil rights, an independentmedia, and tolerance of dissent and con-flict. Nevertheless, certain factions on theextreme left have resorted to non-institutional forms of protest and dream ofrevolutionary breach with the past, albeitwithout a clear proposal of social change.The only brake on their radical inclinationsis the fear of losing favor with publicopinion and with the parties of the left thatare of electoral significance and which re-pudiate political violence under any pre-text.

On the right, the elitist-authoritarian ideasthat underpinned the suspension of de-mocracy in 1964 carry little political weightin the current context. It would, however,be too optimistic to imagine that they havebeen entirely banished from society.

The most significant resistance, thoughnot necessarily the most explicit, emergeswhen issues relating to the market econ-omy are at stake. The old left, which in-cludes parties with significant electoralweight, has retained its anti-capitalist in-stincts, even after having renounced the

prospect of revolution. Ignoring thestructural changes that have swept con-temporary society, they allow generous in-tentions to translate into retrograde pro-posals. They dismiss as “neo-liberal” anyconcern for the maintaining of the fiscalbalance or preserving macroeconomic con-sistency, which are the necessary prerequi-sites for any serious attempt to achieve ac-celerated growth and improve income dis-tribution. They advocate formulae for Stateintervention and protected markets, the ef-fectiveness of which expired in the 1970s,when the policy of growth through import-substitution finally met the end of its his-torical course. They interpret “State-owned” as signifying the most perfect rep-resentation of national and popular inter-ests, and end up in the hands of certainsegments of the bureaucracy, whose specialinterests have developed into a powerfulobstacle, not only to sustained economicgrowth, but also to any effective openingof the State to popular demands.

On the other hand, the influence of a tra-ditional patrimonialistic culture, which de-light in profits (especially when derivedfrom State subsidies) but which abhorscompetition, still permeates political partiesacross the ideological spectrum and thegovernment apparatus, especially at the re-gional and local levels. Though in retreat,in face of the demands for universality andtransparency voiced by more modern seg-ments of society, this mindset still hindersreforms intended to free the State from thethrall of special interests, whether on be-half of the bureaucracy or of privategroups. This has occurred especially whensuch opposition has been able to borrowideological justifications from the old leftand secure the votes of its representativesin the Legislature.

Divergent opinions and interests definethe ground upon which a consensus in fa-vor of the proposed strategy for changecan be built. This consensus has been re-markably broad. In electoral terms, it re-

3

sulted in Fernando Henrique Cardoso’svictory, by absolute majority, in the firstround of voting, in the presidential elec-tions, both in 1994 and 1998. In party-political terms, it is expressed through acoalition in which five of the seven electo-rally significant parties in the NationalCongress, including those representing thecenter and center-right, participate. Thishas made it possible to secure the passage,by a qualified three-fifths majority ofdeputies and senators, of bills for Consti-tutional Amendments submitted by thegovernment.

A remarkable feature of Brazilian socialdemocracy, under Fernando Henrique andvarious state governors, has been the op-portunity it has secured and its capacity todate to organise such a disparate majority,without itself commanding a majority ei-ther in the Congress or among the elector-ate.

The old left perceives this as an ambigu-ity, if not a betrayal of principles. They re-criminate leaders who in the past headedthe struggle for democracy and social jus-tice, for now being allied to their formerpolitical adversaries. And – so the argu-ment goes – it is all done in order to applyin Brazil the neo-liberal agenda of the“Washington Consensus”!

In reality, liberalism (with or without theprefix “neo”) has always been a scarcecommodity in Brazil. Except for a fewisolated voices, the Brazilian right hasnever been consistently liberal-conservative, in terms of a belief in socialdarwinism and or a dogmatic faith in theinvisible hand of the market. Historically,the elites have always shared a preferencefor the visible hand of the State, be itthrough the provision of protection andeconomic subsidies, or through the controlof social conflict by means of repression orpaternalistic concessions.

What is new in all this is the emergence ofmore modern social and political elites,who are more receptive to middle-class lib-

eral-democratic values and, even more so,to the expression of such values in the me-dia. Elites that are less insecure as to theircapacity to deal with social conflict withoutresorting to protection from an authoritar-ian State. These are capable of coming toterms with the fact that pressure “frombelow” does not necessarily mean a threatto the foundations of society, but rather anearnest desire to take part in its develop-ment.

The collapse of the Soviet block contrib-uted to this evolution, by reducing the fear– and, on the other hand, the attraction –of recipes for social justice based upon theabolition of private property. In the ab-sence of the ideological boundaries set bythe cold war and the authoritarian regime,the dialogue on how to redeem the na-tion’s “social debt” can now develop morefreely within society and among the politi-cal parties.

The economic crises that swept the 1980shad a similar effect, since they forced thebest minds to review their previous cer-tainties and divergences in a search for al-ternatives for promoting the resumption ofgrowth. This was generally perceived as arequirement for the very continuity of thedemocratic process.

The founding of the PSDB, in 1988, re-flected this trend. The party manifesto, is-sued upon its foundation, proclaims: “con-ceived as a party broad enough to encom-pass the confluence of different streams ofcontemporary political thought – e.g., pro-gressive liberals, Christian democrats, so-cial democrats, and democratic socialists –the PSDB is strongly united on the basis ofdemocracy as an essential value and themainspring for the changes demanded bythe Brazilian people”.

An even broader confluence appearedpossible, even then, between a center-leftset upon seeking these advances within ademocratic framework, without the willfulshortcuts attempted in the past, and mod-ern conservatism, open to social advances

4

and eagerly expecting, as all in Brazil gen-erally are, the resumption of growth.Something similar had occurred in 1984,during the election by Congress of the firstcivilian president in twenty years, throughan alliance of the PMDB, the principal op-position party, and the PFL, a dissidentwing of the governing party.

In 1984, the conservatives or “moder-ates”, as they prefer to be called, set thetone for the Democratic Alliance. The suc-cess of the Real Plan – the policy for stabi-lization set in motion by Fernando Henri-que when he was Finance Minister –opened a window of opportunity and re-sulted, in 1994, in the assembling of anelectoral coalition headed by a social-democrat candidate, with a reform pro-gramme based upon social-democratic val-ues.

Nothing that has been said here so farseeks to imply an idyllic view of thechanges currently under way in Brazil. Theexternal financial crises, the peculiarities ofan excessively fragmented political-partysystem, the government’s errors and limi-tations, and the very social and economicbackwardness of the country itself, have allimposed diversions and arduous correc-tions in course adopted. There is a distance

between subscribing to the initial proposaland the essential strategic options, andsupporting specific proposals for reform,and this distance had to be covered timeand again. A broad consensus, the essentialcondition for advancing along the demo-cratic path, has been repeatedly questionedand had to be rebuilt along the way.

Circumstances have bestowed upon Bra-zilian social democracy, young as it is, theopportunity to lead this process. The re-sults it has achieved so far can quite fairlybe attributed to its boldness in charting adistinctive path for Brazil to followthrough the storms of globalization andthe wisdom to share this path as broadly aspossible.

If “institutions matter” for developingcountries, as eminent economists have re-cently discovered, the Brazilian experienceof governance for change shows that theart of politics – the imponderable combi-nation of conviction and compromise – isalso of inestimable importance. Successesand obstacles in the implementation ofprogressive public policies in Brazil in re-cent years are, to a great extent, testimonyof how successful social democracy hasbeen in the exercise of this art.

The Brazilian economy must grow by roughly 5% per year over the next decadeif it is to maintain the supply of jobs in line with the increase of its economically-

active population.

ny development project that pro-poses to face up to the country’ssocial needs must bear this goalin mind. The macroeconomic

scenarios and investment plans of the cur-rent government have been prepared tak-ing this goal into account.

Effectively, growth of this order is infe-rior to that experienced between 1950 and1980, at the height of the industrialization-by-import-substitution period, when theBrazilian economy grew more than 7% peryear. From the income-per-capita view-point, however, the effect will be muchgreater, since population growth is cur-rently slowing and currently stands at 1.5%per year, just over half of the rate experi-enced during the 1950s. Similar reasoningapplies to the relationship between the in-crease in the economically-active popula-tion and the level of employment.

To sustain economic growth at a level of5% per year is an ambitious goal by anystandard. For a country such as Brazil, withlimited domestic savings, it implies a trulyextraordinary effort. The rate of invest-ment must rise, from the current 20%, to25% of GDP.

Roughly R$ 170 billion∗ of public andprivate resources will have to be investedover the next four years, simply to coverthe needs identified for the expansion of

∗ For the purposes of converting Brazilian reals

into US dollars, the average rate applied since theadoption of a floating exchange rate can be used,which between January and September 1999, wasUS$ 1 = R$ 1.79.

the electric-power, transport, and tele-communications infrastructure.

However, for Brazil, growth in itself isnot enough. It must also change the baseupon which growth is to take place so thatit can, at the same time, achieve positiveintegration with the world economy andreduce social and regional imbalances.

THE CHALLENGE OF GROWTH

WITH STRUCTURAL CHANGE

The cycle of development that lastedfrom 1950 to 1980 placed Brazil amongthe ten largest economies in the world, en-dowing it with a relatively well integratedand diversified productive structure. Itmade it possible to reduce levels of abso-lute poverty significantly, as can be attestedby improvements in literacy levels, infantmortality, and life expectancy. In relativeterms, however, it failed to alter, and per-haps even exacerbated, one of the most in-equitable patterns of income distributionon the planet.

Some of the basic features of the import-substitution model explain the combina-tion of rapid economic growth and theconcentration of income: inflationary fi-nancing on which, to a large extent, thedevelopment efforts of the State werebased; the high profit margins engenderedby protection of the domestic market;massive transfers of public funds to privatesector, in the form of tax incentives andsubsidized credit; low incentives to investin the training of labor.

The demise of this model, which enduredthroughout the 1980s, left its wake burden-

I – A NEW DEVELOPMENT MODEL

A

6

some problems. Inflation, feeding upon it-self through an intricate system of priceand wage indexation, rose to 1.000% peryear, with catastrophic consequences forthe distribution of wealth and the willing-ness to invest. Brazil’s increasing isolationfrom international capital and technologyflows, which coincided with the newscientific and technological revolution and

globalization, increased the technology gapbetween domestic production and worldstandards. Lacking organization and finan-cially debilitated, the State ceased to investenough for the maintenance, let alone theexpansion, of infrastructure. From beingthe main engine of development, the Statebecame the principal focus of the macro-economic imbalances that fanned high in-

Axes of Integration and Development and the goals of thePluriannual Investment Plan

To ensure that economic growth will not be hampered by bottlenecks caused bypoor infrastructure, Brazil must, over the next four years, add 28 gigawatts to its installedelectric-power generating capacity; expand domestic oil and liquid natural gas productionby 750.000 barrels; build 16 thousand kilometres of interstate highways and 3.000 kilome-tres of railways; and install 11 million new fixed telephones and 9 million mobile tele-phones.

The priority projects required to meet these needs are components of the “AvançaBrasil” Program, a federal-government investment plan for the 2000-2003 four-year pe-riod. The plan is based upon the Study of National Integration and Development Axes, anextensive survey that mapped out the economic vocations of Brazil’s macro regions andidentified bottlenecks and missing infrastructure links that must be overcome in pursuit ofthe country’s integrated development.

While serving as a basis for the definition of public-sector priorities, the study alsoserves the purpose of indicating potential investment opportunities for private enterprise.Roughly 70% of the total investment in electric-power, oil, transport and telecommunica-tions over the 2000-2003 period is to come from private sources.

2,78

7,41

3,52

1,43 1,421,90

4,51

-0,47

2,07

-1

0

1

2

3

4

5

6

7

8

1950-1980 1981-1992 1993-1998

%

Yearly growth of GNP, population and per capita income, 1950-1998

7

flation. Economic growth plummeted to1.4% per year between 1981 and 1992.

It was in this inhospitable terrain thatBrazil, in the early 1990s, had to face up toa transition to a new economic model,characterized by opening up of the econ-omy and leadership of the private sector. Itis with a view to consolidating this model,thereby allowing the country to resume itspath to development in conditions that ful-fil the needs of historically excluded re-gions and social segments, that FernandoHenrique Cardoso has led the country, firstas Finance Minister, (since 1993) and lateras President (since 1995).

This task, which remains as yet unfin-ished, amounts to no mean feat, for a se-ries of reasons that range from liabilitiesinherited from the previous period to thevicissitudes of achieving integration withthe world economy in adverse conditions.

The persistence of chronic high inflationmeant that the restructuring of the econ-omy had to be carried out in parallel to theimplementation of a monetary stabilizationplan. Economic policy had thus to concili-ate two often contradictory demands, in acontext characterized, above all, by ashortage of domestic savings. The expan-sionary effects of the drastic fall of infla-tion on public spending and on privateconsumption further exacerbated this diffi-culty.

The stabilization process with structuralchange coincided with increasing volatilityof the international capital market (theMexican crisis in 1995, the Asian crisis in1997 and the Russian default in 1998),which principally affected those countriesthat were most dependant upon foreignsavings. Brazil also suffered, along with alldeveloping countries, from the effects ofasymmetrical trade rules and practices gov-erning access to foreign markets.

It is thus hardly surprising that the costsof structural reform of the economy have

turned out to be higher than had initiallybeen imagined.

At the same time that accounts must besettled with the past, the consolidation ofthe new development model has sought toimprove Brazil’s prospects for participatingin the world economy.

The response to this set of challenges, onthe part of the Cardoso’s administrationand the coalition that provides its congres-sional support, has been an effort to re-build State institutions and reform theeconomy on a scale without precedent inthe history of democratic Brazil. In thecourse of this process various changeshave been carried out simultaneously andconcomitantly, though not always at thesame speed: from a high inflation economyto a stable economy; from a closed econ-omy commanded by the State to an openeconomy lead by private sector; from anentrepreneurial State to a regulatory State;from structurally maladjusted State to abalanced State; from a State that inducedinequalities to a State that fosters equalityof opportunities, and so forth.

All these changes are aimed to meetingthe requirements for sustained growth andreduction of income inequalities: low infla-tion, high productivity, adequate domesticsavings, redistributive public expenditure.

The greatest of all challenges has been tomake changes occur in a convergent man-ner and take root in society, by ensuringthat natural short-term differences in inter-ests or opinions can be resolved by demo-cratic means through negotiation and per-suasion.

THE REAL PLAN DEFUSES THE

INFLATIONARY SPIRAL

Between June 1980 and July 1993, infla-tion in Brazil reached an annual level of1.110%. Any further effort to reorganizethe economy was doomed so long as infla-tion raged out of control. The Real Planbrought in a new currency in June 1994,

8

dismantled the complex system for priceand wage indexing, thereby enabling infla-tion to drop to an annual level of 12.6% upuntil June 1999 (and 6.2% in the pasttwelve month, even after incorporation ofthe effects of the exchange devaluationthat occurred in January).

Price stability was the point of departureand remains the primary condition under-pinning the changes currently underway inthe Brazilian economy.

The drastic and sustained drop in infla-tion revealed Brazil’s greatest asset in itsstruggle to achieve economic competitive-ness with social equity: its vast domesticmarket.

High inflation rapidly corroded incomes,especially of the poor who had no accessto the indexing mechanisms to defendthemselves from its ravages. The end ofthe “inflationary tax” and the increase inreal wages brought 30 million Braziliansinto the consumer market. The proportionof the population described as poor, whichhad been 44% in 1993, dropped to 34% in1997. The positive social effects of stabili-zation have remained, despite the difficul-ties the Brazilian economy has since suf-fered as a consequence of financial crisesabroad.

With the achievement of price stability, abroad-based program of market reforms,the main features of which were consoli-dation of the open economy and privatiza-tion, was able to advance and produce thedesired effects in the economic system.

An adjustment aimed at reducing costs,typical of the reaction of companies to theearlier phase of the opening of the econ-omy, gave way to a renovation of the ma-chines and equipment, the installation ofnew plants and the pursuit of internation-ally-competitive scales of production. Thepositive effects of this investment cycle,slowed down but not suspended as a con-sequence of the external crises, have yet tocome on line.

From 1992 to 1998, the rate of grossfixed capital formation rose, from athreshold of 14%, to 18% of GDP (atfixed 1980 prices). Imports of capitalgoods increased from less than US$ 5 bil-lion, to US$ 16 billion over the same pe-riod. Inflows of foreign direct investment,which had withered in the 1980s, began toflow in increasing volumes. From less thanUS$ 1 billion per year between 1990 and1993, such investments soared to US$ 26billion in 1998, and to US$ 31 billion in thetwelve-month period ending in September1999. Between January 1994 and Septem-ber 1999, a total of US$ 82 billion enteredBrazil, a sum surpassed only by China,among the so-called “emerging” econo-mies.

The opening of the economy resulted insignificant technical-efficiency gains. Be-tween 1991 and 1997, total productivity in-creased at an average rate of 3.3% per year,far higher than in OECD countries. Therewere also gains in the efficiency of alloca-tion, as productive investment migrated toindustries in which Brazil enjoys greatercomparative advantages and competitive-ness in international trade.

The intensity of the transition from aclosed economy, which had predominatedfor roughly sixty years, to an open econ-omy, can be measured in terms of the ex-pansion of Brazil’s foreign trade, that in-creased from US$ 50 billion in the late1980s to over US$ 100 billion in 1998.This surge in trade, under the conditionsdescribed, occurred at a cost. However, thenew pattern of specialization which hasbegun to characterize Brazilian industryhas strengthened prospects for integratingthe country into the world economy.

The increase in imports, necessary for themaintenance of price stability and to in-crease productive efficiency, did not resultin a decline in the industrial structure. Onthe contrary, in the great majority of in-dustries, it was accompanied by increasedexports, albeit for the moment at a slower

9

rate, even among technology-intensive in-dustries, thus pointing to a pattern of spe-cialization within industries, rather thanamong industries. Moreover, the increasein imports cannot be regarded as explosiveas the ratio between imports and domesticindustrial production remains around 20%,which is a comparatively low level.

IN PURSUIT OF COMPETITIVE

INTEGRATION

The government has not been a passivespectator in face of changes in the patternof specialization of the Brazilian economy.Rather, it has actively sought an appropri-ate space for integrating the country intoworld trade and the system of internationalrelations. To this end, a new industrial andforeign trade policy and the exercise ofpositive presidential diplomacy have beentwo basic instruments.

The industrial and foreign trade policycurrently being implemented have aban-doned the protected markets and provisionof subsidies that characterized the formerdevelopment model. This does not, how-ever, imply the adoption of neo-liberalminimalism. Essentially, it seeks to ensure,to the greatest extent possible, that local

producers enjoy the same conditions astheir foreign competitors, especially withrespect to the cost of capital, which in Bra-zil is still subject to the inexorable pres-sures of the stabilization process. In brief,it does not seek to supplant the market,but rather, to make it work better.

This policy focuses upon sectors, such assteel, petrochemicals, paper and pulp, inwhich Brazil has traditionally enjoyedcomparative advantages, and also thosethat require high investments and ad-vanced levels of specialization, as is thecase of capital goods for the telecommuni-cations and oil industries. In these cases,especially, the aim is to maximize invest-ments in finished products whole while atthe same time making domestic productionof inputs and components feasible, therebyincreasing the local value-added compo-nent and spreading technical progressthroughout the productive system. Fur-thermore, it seeks to increase the contribu-tions of small and medium-size companiesand to avoid geographical concentration ofproductive activity. The automobile indus-try provides a good example of the successof this policy of avoiding industrial con-centration. There are today vehicle facto-

Oil – from a State monopoly to regulated competition

In June 1999 the Brazilian government held tenders for oil exploration and production ar-eas, in line with the opening up of the sector to private investment. Simultaneously, a Pro-gram for the Promotion of Investment in the Oil and Gas Sector – PROPAG, waslaunched, with financing provided in internationally competitive conditions by BNDES.The aim of the program is to maximize investments throughout the whole oil and gas

production cycle while, at the same time, making it possible for companies registered inBrazil, regardless of the origin of their capital, to bid, in conditions of equality, for goods-and-services orders stemming from such investments and, furthermore, to enable them toparticipate in international tenders.PROPAG is part of a broader policy for stimulating productive investment in the whole

range of activities carried out by the oil and gas industries. This policy includes equal taxtreatment for locally produced and imported capital goods, and also significant investmentsin science and technology, financed using part of the revenues resulting from the tenderprocess.A non-governmental institution, the National Organization of the Petroleum Industry –

ONIP, similar to counterpart institutions established in European countries, is to co-ordinate and promote actions aimed at maximizing the development of the oil and gasproduction cycles in Brazil.

10

ries in seven Brazilian states, as opposed toonly two at the beginning of the decade.

One of the significant advantages thatBrazil enjoys in its efforts to achieve com-petitive integration is the vibrancy of itsscientific and technological establishment.Despite the relatively low volume of stu-dents enrolled in higher education, Brazil-ian research and post-graduate studies sys-tem dates back over thirty years and isranked among the most successful in thedeveloping world. These currently accountfor over two thousand masters and doc-toral courses, catering for 80.000 students,with a faculty of 25.000. Brazil has an am-bitious scholarship programme for mastersand doctoral candidates, with resources ofthe order of R$ 650 million, benefitingroughly 38.000 students. Each year, ap-proximately three thousand studentsgraduate with doctoral degrees.

As measured by the number of paperspublished in internationally-recognised sci-entific journals, Brazil is among the top 20countries in the world in the field of scien-tific production. The technological balance– in terms of technology imports vs. ex-ports – has undergone remarkable growth,placing Brazil at the same level as Spainand Italy. The budgets of the three publicagencies responsible for fostering scientificdevelopment amount to over R$ 1.2 bil-lion.

For the implementation of its industrialand foreign trade policy, Brazil is also for-tunate to have its own development bank –BNDES, the which has greater lending ca-pacity than many international financial in-stitutions. Between 1997 and 1998,BNDES disbursed loan volumes amount-ing to roughly US$ 20 billion per year,thereby providing support for the indus-trial restructuring efforts and for the ex-port of high value-added and high-technology products.

The recovery of Brazil’s credibility stem-ming from the stabilization of its economyhas opened up prospects for the exercise

of presidential diplomacy as another meansfor securing Brazil’s insertion into theworld economy.

Brazil’s foreign strategy involves thestrengthening of the Mercosur customsunion with Argentina, Uruguay and Para-guay – within a framework of open region-alism, characterized by a fairly low com-mon external tariff and by efforts to in-crease trade with third-party markets andother economic blocks. Brazil’s trade withMercosur countries increased from US$4.6 billion in 1991, to 18.3 billion in 1999.At the same time, Brazil has been engagedin strengthening the ties between Mercosurand other countries on the South-American continent (through the signingof free-trade agreements with Chile andBolivia), and has sought to achieve bal-anced progress towards broader integrationwith other economic blocks, as in the caseof the proposed Free Trade Association ofthe Americas and the free-trade agreementwith the European Union. Brazil has thussought to preserve its position as a globaltrader, maintaining significant commercialexchanges with all the great economicblocks, and has a diversified export portfo-lio in which manufactured products play amajor role (accounting for over 50% of itsexports).

FROM THE ENTERPRENEURIAL

STATE TO THE REGULATORY

STATE

Between 1995 and 1998, the BrazilianPrivatization Program raised US$ 60 billionfor the Federal Government and the 27States, as against no more than US$ 8.6billion between 1991 and 1994. The open-ing up of infrastructure sectors to privateinvestment, and the resulting transforma-tion from an entrepreneurial State to aregulatory State, constitute an essentialelement in the effort to consolidate thedomestic bases for sustainable growth anda positive posture in relation to the world.

11

Initially, in the early 1990s, the BrazilianPrivatization Program was limited to theindustrial sector. It was later extended toinclude infrastructure. Today, telecommu-nications services are entirely in the handsof private enterprise. Oil and natural gasexploration and production, which hadformerly been a State monopoly under Pet-robrás, are currently attracting investmentsfrom various large international groups. Inthe transport sector, private enterprise hasassumed control of all Brazil’s railways andport operations. Privatization has nowspread to the generation and distributionof electric power and is taking its first stepsin the basic sanitation sector.

In the public utilities sector, aside fromthe need to privatize companies, it has alsobeen necessary to take measures to ensurethe creation of competitive markets and ofinstitutions capable of effectively regulatingprivate operators. In an intense institution-building effort, regulatory agencies havebeen established for the telecommunica-tions, oil, and electric-power industries.These agencies have been endowed withfinancial autonomy, decision-making inde-pendence (the terms of office of the di-rectors do not coincide with that of thePresident of the Republic and directorscannot be dismissed, except in specific cir-cumstances provided for by law), and aresubject to the rules for public consultationand the disclosure of information. All thisis designed to reduce the risk of the agen-cies being manipulated for political pur-poses or their falling prey to private inter-ests, while preserving their capacity to en-force the laws governing market competi-tion.

In an apparent paradox, privatization hascreated, for the first time in Brazilian his-tory, the means to ensure effective publicregulation of utility services. In the firsthalf of the 20 th century public utilities werepredominantly provided by private opera-tors, but there were no mechanisms forpublic regulation. In the post-war period

these utilities were taken over by State-owned monopolies, which also assumedthe function of regulating the markets inwhich they operated, in practice, thereby,avoiding any form of public control. Withthe advent of the regulatory agencies, con-sumers now have independent channels bywhich to submit demands or complaints.There is huge repressed demand for thistype of channel, as was recently demon-strated by the intensity of the reactionsfrom consumers and the media followingthe first failures that occurred after privati-zation of electric-power distribution andtelephone services.

The degree of efficiency gains introducedthrough privatization may vary, dependingupon the effective actions of regulatoryagencies and of the consumers themselves.

Unquestionably, the inflow of private in-vestment in infrastructure sectors hasbrought about efficiency gains. Time andcost savings in the operations of privatizedports, for example, have been remarkable,though they have yet to achieve the resultof bringing Brazilian port operations intoline with international standards. Above all,privatization has made it possible to fulfilthe vast need for investments in infra-structure, which, owing to the State’s inca-pacity to provide investment, could nototherwise have been achieved. This is thevital issue, in view of its consequences interms of the prospects for the expansionof the economy as a whole. And it directlybenefits consumers.

Investment in infrastructure, 2000-2003

Totalinvestment(R$ billion)

PrivateSector

Participation

Telecommunications 45 100%

Electric Power 52 86%

Oil 54 31%

Transport 23 52%

Source: Brazil, Pluriannual Investment Plan 2000-2003.

Telephone services provide a good exam-ple of the role of private enterprise in the

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provision of universal services which, inthe final analysis, affect the ability of Bra-zilians to exercise citizenship. The numberof mobile telephones has soared, from 1.3million in 1995, to 11.6 million in 1999.Though initially mobile telephones wereconsidered a middle-class status symbol, ina short space of time they have proven anessential work tool for small businessesand free-lance workers, besides providingrelief for homes that are still awaiting theinstallation of fixed landline services.

RESTRUCTURING THE

FINANCIAL SYSTEM

It has been estimated that revenues frominflation corresponded to over a third ofthe value of the production of Brazilianbanks between 1990 and 1993. When in-flationary revenues plummeted, the impactupon banks was dramatic. From 1994 to1995, the financial sector’s share of GDPdropped from 12% to 7%.

The risk of a systemic crisis seemed im-minent when the Central Bank intervenedso as to avoid the failure of two of thecountry’s largest private banks. The gov-ernment, faced with the crisis, took pre-emptive action. By means of a program forrestructuring the private financial system –PROER, funds placed in compulsory de-posits at the Central Bank by the bankingnetwork were used to finance operationsfor the transfer of ownership and/or reor-ganization of the stockholdings of institu-tions in difficulties. This pre-emptive as-sistance was complemented by measures tostrengthen supervision and inspection bythe Central Bank, an increase in the mini-mum capital requirement and a reductionof levels of leverage.

Over a third of the existing financial in-stitutions were affected by the reorganiza-tion of ownership. The number of banksdropped from 273 in June 1994, to 233 inDecember 1998, and there was a signifi-cant increase in the number of foreignbanks operating in the system.

Until the end of 1998, when the program,in practice, came to an end, R$ 21 billionhad been disbursed through its account(this sum should not be confused with fis-cal costs). These costs are paltry if com-pared to disbursements effected by othercountries, as a proportion of GDP, to faceup to the effects of systemic financial cri-ses that effectively occurred.

Sums disbursed for programs for theadjustment of the financial system

Year Loans/GDP

Argentina 1982 13,0%

Chile 1985 9,6%

Colombia 1985 6,0%

Norway 1988-92 4,5%

Finland 1991-93 8,2%

Sweden 1991-93 4,5%

USA 1991 5,1%

Venezuela 1994 13,0%

Brazil 1995-98 2,8%

The opposition, to this day, disparagesPROER as “donation of public funds tofailed bankers”. In fact, it made it possibleto restructure the Brazilian financial systemwithout trauma, and was necessary for thepreservation of the positive developmentsachieved through price stabilization. It pre-served Brazil from the damages caused tothe real economies of other countries by awave of bankruptcies among financial in-stitutions. It left the financial system inbetter shape to perform its role of provid-ing credit, and less vulnerable to externalshocks. In the light of the recent experi-ences of some Asian countries, this hasproved to have been no mean feat.

THE STRUGGLE FOR FISCAL

ADJUSTMENT

The structural adjustment of public ac-counts is an essential counterpart to pricestabilization, industrial modernization, pri-vatization, and the restructuring of the fi-nancial system, in order to provide supportfor the growth potential of the Brazilian

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economy. Unless a new fiscal regime isconsolidated, interest rates will remain un-der pressure and the scarcity of domesticsavings (currently around 18% of GDP)will continue to hamper production growthand domestic consumption.

Price stability has put into stark focus fis-cal distortions of a structural nature, whichhad previously been veiled by the corro-sion of the real value of public spendingand the indexation of public revenues.

Defusing the social-security time bomb

The greatest of these distortions is thesize and rate of growth of the social-security deficits. The gap between social-security revenues and the benefits paid outto public-sector employees (of the Federal,state and municipal administrations)amounts to roughly 3% of GDP, and mustbe filled by taxes paid by society as awhole. Social-security accounts for private-sector workers, which had presented a sur-plus amounting to 1% of GDP at the be-ginning of the decade, showed a deficit of0.9% in 1999, which is set to double overthe next fifteen years, and will continue togrow if nothing is done to stem the prob-lem.

The Constitution promulgated in 1988was generous in the awarding of social-security benefits. The increase in the num-ber of workers without a formal workcontract, who do not therefore subscribeto social-security, and, above all, the rapidageing of the population, represent bur-geoning threats to the balance of the sys-tem.

Defusing the social-security time bombhas become the most arduous battle frontin the construction of a fiscally balancedsystem.

The possibility of a radical reform, inwhich the current pooled system would bereplaced by a capitalization system, hasbeen discarded owing to the vast financialcosts associated with bearing the existing

stock of benefits and collected contribu-tions. The impact upon the public debt,estimated in an IMF study to amount tothree times the Brazilian GDP, would beincompatible with the goals of consolidat-ing economic stability and the resumptionof sustainable growth.

The path of gradualism has been adopted,and moderate success has been achieved inthe struggle to alter the course of the so-cial-security juggernaut.

Brazil was one of the few countries toguarantee retirement benefits taking intoaccount time of service only. An amend-ment to the Constitution has made retire-ment conditional to time of contribution tosocial security. A Bill currently beforeCongress proposes to include life expec-tancy at the time of retirement into the cal-culation of the value of benefits. In thisway, the ominous trajectory of the deficitof the social-security system may be forcedto grow at a slower rate, stabilizing at 1.3%of GDP as of 2015.

Another important aim of the reforms isto extend social-security coverage to a vastcontingent of workers – roughly 19 millionpeople, most of whom are domestic ser-vants or free-lance workers – who cur-rently do not enjoy any form of socialprotection. Several measures have beenadopted to encourage such people to sub-scribe to social-security, including the ex-tension of maternity benefits to all womenwho subscribe, without requiring a graceperiod.

Growth in the deficit of the social-security system for public servants hasbeen trimmed through the introduction ofan age criterion for the granting of retire-ment benefits. Nevertheless, this systemabsorbs fiscal resources that are sorely re-quired for the maintenance of basic socialservices. One palliative solution –a tax onpension of retired workers whose benefitsamount to more than their wages whenthey were working – is currently the sub-ject of negotiations between the federal

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government, the state governments andCongress.

A structural solution to the issue of socialsecurity for public-sector workers wouldhave to involve the establishment of com-plementary pension funds, so that the Statecould limit its liability to ensuring retire-ment in the same conditions as are theright of private-sector workers. This proc-ess is already underway, and the capitaliza-tion of such funds is to use resources fromprivatization of state companies (which is arich vein of revenue for the states).

Voluntary complementary social-securityfor private-sector workers has been en-couraged, through measures thatstrengthen supervision and stimulate com-petition in the market for complementarysocial-security plans open to the generalpublic, i.e., not linked to any specific em-ployment situation.

The multiple roots of the deficit

Reform of the social-security system liesat the heart of the construction of a newfiscal system, but is not its only feature.This is a battle that must be fought onvarious fronts, given the scope and thedepth of the role historically assumed bythe State in Brazil. State-owned companiesand financial institutions, whose numbersrose continually up until the end of the1980s, became a powerful factor in pro-moting fiscal imbalances. Furthermore,roots of these imbalances are not restrictedto the federal level. They also afflict the 27states and have ramifications extending tothe more than 5.500 municipalities, asthese spheres of government enjoy finan-cial autonomy in budgetary matters and arerecipients of roughly 45% of total taxrevenues.

A program to provide support for the re-structuring of banks controlled by thestates – and which in many cases has beenirresponsibly used to increase public debt –has resulted in their losing ground withinthe financial system. Of the 35 institutions

belonging to the states in existence in1996, only nine remain, and these havebeen duly restructured by their controllers.Ten such institutions were privatized or arecurrently undergoing privatization, includ-ing the state banks of São Paulo and Riode Janeiro, respectively, the first and thirdmost economically powerful states in thecountry; eleven have been transformedinto development agencies, without accessto bank reserves; and five have been or arecurrently through the process of extra-judicial liquidation.

As a counterpart for taking over the debtsof the states, the federal government hasmade them sign contracts that impedethem from contracting new debts, obligethem to conduct fiscal adjustment pro-grams and divest their assets, so as to attaingoals designed to reduce theirdebt/revenue ratios, while imposing pen-alties in the case of failure to comply withtheir commitments.

A federal law has been approved that es-tablishes the bases for a two-pronged pro-cess for reform of the public administra-tion: greater control of federal, state andmunicipal personnel spending and mod-ernization of management methods. Toachieve this it was necessary to change aprovision in the Constitution that had en-sured all public servants job security com-parable to the life employment guaranteesgranted to judges.

A pact for fiscal responsibility

In brief, by means of structural reform inthe field of public finance, some of theprincipal automatic mechanisms for feed-ing the public deficit have been defused,and the actions of institutions, typicallystate banks, that historically had financedthe unsustainable imbalances in public ac-counts, have been circumvented.

The corollary to this process – for theconsolidation of which a deeper reform ofthe social-security system for public ser-

15

vants is still lacking – will be the new FiscalResponsibility Law.

The Fiscal Responsibility Bill, currentlybefore Congress, establishes limits andadjustment rules for principal variables inpublic finances. Executive office holders,at the three levels of government, arecommitted to pursue sustainable fiscalpolicies, and are held accountable to theirrespective Legislatures. It imposes rules fortransparency for the disclosure of infor-mation relating to public accounts andsubmits managers to ordinary laws whichdefine punishments, including loss of pub-lic office, to those who infringe upon therequirements of procedures associated withtransparency and accountability in fiscalmanagement.

The effects of the reforms carried out sofar and those currently underway will be-come increasingly apparent with the pas-sage of time, and will help to ensure thelong-term balance of public accounts andprovide more favorable conditions forfostering domestic savings. This is the key-stone of the new standards for develop-ment financing, within the framework ofan open and stable economy, replacing thepattern that prevailed under the previousmodel, characterized by high profit mar-gins made possible by a closed economy,compulsory savings provided by means oflarge State-managed funds, and inflation it-self.

Seen from another angle, this set of re-forms amounts to a veritable culturalrevolution in a country where, until re-cently, combating the public deficit wasgenerally regarded, not merely as unneces-sary but, indeed, counter to the interests ofdevelopment and social well being.

In Brazil no other theme lends itself soaptly to the well-known remark of MaxWeber’s, that “politics is like the slowsawing of tough boards. It requires passionas well as perspective”. The perceptionthat boards have been sawed and thefoundations of a sustainable fiscal system

laid down, has created the conditions nec-essary so that an economy in an advancedstage of restructuring advance smoothlyalong the road to sustainable growth..

READY TO GROW

Despite all advances achieved in the pro-cess of stabilization and reform, the condi-tions under which it took place have not,as yet, allowed economic growth ratescompatible with the country’s needs. GDPhas reacted positively, it is true: between1993 and 1998 it expanded on average3.5% per year, as opposed to only 1.4%between 1981 and 1992. Per capita income,which had fallen 0.5% in the earlier period,grew 2.1%. This year, however, growth willbe zero or close to zero. Unemploymenthas increased, though not explosively: ithas risen from 5% of the economically ac-tive population in 1994, to 7.6%, accordingto the most recent data available.

This cost cannot be understated. Themost important point, however, is that thecountry has overcome the critical transitionphase to an open economy, and has ex-panded the conditions necessary for long-term growth, despite an increasingly ad-verse environment.

In the wake of the international crisistriggered by the Russian moratorium, inAugust 1998, Brazil was obliged to adjustits economic policy adopting a system offloating exchange rates and taking moreradical measures to achieve fiscal adjust-ment. This correction in the course didnot, however, imply that it had lost eitherthe ballast of stability or the goal of re-sumed development.

The change in relative prices in the econ-omy resulting from exchange devaluationdid not bring on a resurgence of inflation.The Expanded Consumer Price Index –IPCA, used as a policy tool to measurecurrent inflation, places it at roughly 8%.The social gains stemming from stabilityhave, for the most part, been preserved, ashas been demonstrated. There have been

16

no crises in the financial sector and theproductive sector has reacted better thanhad been expected: initial predictions hadindicated that GDP would decline by asmuch as 6%.

In view of the productive restructuringthat has already been carried out, the newconfiguration of relative prices is substan-tially favorable to exports and the produc-tion of substitutes for imports. The condi-tions have been laid down in preparation

for a new prolonged development cycle,with lower unemployment rates.

The lessons of the recent past do not al-low us wager that this favorable scenariowill materialize without making a final res-ervation: for a country such as Brazil, it isno longer enough simply to have “donethe homework” since vast asymmetriespersist in the prevailing conditions of in-ternational trade, and if progress is notachieved in the construction of a new ar-chitecture for the global financial system.

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The weight of the recent colonial past, marked by the institution of slavery,largely explains why Brazil still has disgraceful levels of poverty and inequality,

even after becoming the tenth economic power of the world.

he last country in the world to freeits slaves in 1888, Brazil enteredthe 20th century burdened by theheavy legacy of slavery. Freed, but

without rights the ex-slaves and their de-scendants formed the first great mass ofexcluded Brazilians. As slaves, they stoodon the lowest rung of the social ladder, butthey were at least a part of society. Freed,they had no status at all. They became in-visible. Up to the 1940s, this large margi-nalized contingent was not even noticed byBrazilian society. It was not recognizedunder the Constitution nor was it includedin public policies.

Until today a high price has been paid forthis legacy: though half of the Brazilianpopulation is white, 69% of the poor anddestitute are black and mestizo. Threecenturies of slavery created a mentality ofindifference to inequalities, violence andexclusion, which only during the secondhalf of this century began to be checked bya new middle class and by the popular ur-ban masses.

The system of “colonial provinces” whichthe Portuguese crown established tomaintain control over Brazilian territory,also left land ownership in the hands of afew, forming over more than four centu-ries the basis for the social hierarchy. Halfof the 350 million hectares of arable landin Brazil forms less than 2% of rural prop-erties.

The methodical construction ofinequalities

No country grew more between 1880 and1980 than Brazil, except for Japan. Brazilalso went through one of the most rapidprocesses of urbanization. In 1950 almost70% of the population of the country livedin rural areas. Today, 80% of the 165 mil-lion Brazilians live in the cities.

At the end of World War II, democracywas restored. In the 1950s, the peoplejoined in a more widespread discussion ofthe land question. The military coup d’état,in 1964, however, interrupted this processfor almost 25 years.

II – PUBLIC POLICY FOR INCLUSION

T

Excluded in Europe, immigrants in Brazil

Once the slave trade ended in 1851, the Brazilian coffee growers began to stimulate theimmigration of European workers to substitute slave labor on their plantations. At thisstage, “exporting the poor” to America was the large outlet for the immense surplus in thejob market generated in Europe. Those excluded from the industrialization process de-parted en masse from their countries to start a new life, chiefly in Brazil, the United Statesand Argentina. Between 1884 and 1945, Brazil received approximately 4 million Europeanimmigrants, above all Italians (1.4 million), (Portuguese (1.3 million), Spanish (574,000) andGerman (172,000), in addition to Polish, Austrians, Dutch, Greeks, Swiss, and Hungarians.

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Instead of dividing up the land, theauthoritarian regime chose to stimulate themodernization of the large landed estatesby offering cheap and abundant credit andencouraging cattle raising and cultivationof “commodities”. The accelerated mecha-nization of agriculture and the highly sub-sidized and readily available credit duringthe 1960s and 1970s meant that the smallproperties were absorbed by the mediumand large sized properties. Millions of ruralworkers and their families were expelledfrom the countryside and forced to moveto the large cities. The cities in turn wereunable to provide at a sufficiently fastenough pace the basic needs of housing,sanitation, transportation, health and edu-cation. Immense poverty belts have beenformed along the periphery of the largemetropolitan areas.

The “economic miracle” of the 1970s wasalso incapable of eliminating poverty anddestitution, though it did to a certain de-gree help to reduce it. Even less was ac-complished during this period to narrowthe gap in the tremendous inequalities ofwealth and income; the situation even be-came exacerbated. Some social groupsshared none of the benefits of this “mira-cle”: masses of landless rural workers, in-creasingly poorer and indebted small rurallandowners and groups of marginalizedurban workers.

The social problems became worse duringthe “lost decade” of the 80s: the numbersof poor and destitute rose, inequality in-creased and some segments of the middleclass and the lower class became more vul-nerable, particularly those dependent onthe Government and its action. Today, halfof the nation’s total wealth is in the handsof only 10% of the population. The aver-age income of this wealthiest 10% repre-sents almost 30 times the average incomeof the poorest 40% - certainly one of thehighest concentrations of income in theworld.

The result of these processes as a wholeand the combination of these processes isa complex and diverse structure leading toexclusion and social vulnerabilities, whichneed to be met by a similarly diverse set ofpublic policies. Without any illusion as tothe possibility of reforming in a mere fiveyears a society which spent 500 years as anunjust and unequal one. It will be a longroad but the first steps are being taken.

THE GREAT GOALS

1. To fight poverty and social exclusion

Almost 15 million Brazilians – one tenthof the total population – live at extremepoverty level, what means they don’t haveenough income to buy a basic foodstuffsbasket. The rural areas are the poorest ofthe country: although only 20% of all Bra-zilians live in these areas, 38% of the des-titute live there. The enormous regionalimbalances also contribute to the configu-ration of social exclusion.

The Northeast is the poorest of the fiveregions in Brazil. Though 30% of the totalpopulation of the country live there, but58% of all destitute live in that region. Inaddition to historical inequalities, theNortheast has the disadvantage of havingalmost half of its territory located in areaswith a semiarid climate. Half of the North-east population – 26 million – lives in thisregion, more than 10 million of them livein rural areas. It is the most densely popu-lated semiarid region in the world. Thefrequent and lengthy droughts and thefragile economic base resulting from an ar-chaic land structure were responsible forcenturies of destitution in the region. Illit-eracy of nearly half the rural populationconsolidated exclusion. The income of therural Northeast is a mere 29% of the na-tional average.

The indifference of the Brazilian elite tothe education of the masses is the mostperverse facet – as it is self-propagating –of social injustice. In the past thirty years,

19

the illiteracy rate fell by one half. Stillshocking is the fact that on the thresholdof the 21st century, 15 % - or nearly 15.9million - of the population over 14 yearsold of Brazil are illiterate.

This acute backwardness puts Brazil at adisadvantage even within Latin America,and is the main obstacle to be surmountedto reduce poverty and exclusion over thelong term.

Poverty: absolute number and proportion of the total population

1990 1993 1997

Million % Million % Million %

Total 61.3 44 62.6 44 51.8 34

Metropolitan 17.6 41 19.8 45 15.4 33

Urban 26.0 40 28.0 40 23.9 31

Rural 17.7 57 14.8 52 12.5 43

Source: Sônia Rocha, IPEA/RJ, based on Family Budget Research (1987/88)

Indigence: absolute number and proportion of the total population

1990 1993 1997

Million % Million % Million %

Total 24.1 17 23.5 16 14.1 9

Metropolitan 5.3 13 5.7 13 3.2 7

Urban 8.5 13 9.1 13 5.6 7

Rural 10.2 33 8.7 30 5.3 18

Source: Sônia Rocha, IPEA/RJ, based on Family Budget Research (1987/88)

Literacy situation of population over 15 years old, by age group, 1997*

Total 15 a 19years

20 a 24years

25 a 29years

30 a 39years

40 a 49years

50 years andover

Total (million) 108.0 16.6 13.5 12.3 23.2 17.6 24.8

Illiterate (million) 15.9 0.9 1.0 1..1 2.4 2.7 7.9

Illiteracy (%) 14.7 5.7 7.1 8.6 10.2 15.2 31.6

Source: IBGE – PNAD 1996/1997(*) Not included rural population from the states of Rondônia, Acre, Amazonas, Roraima, Pará and Amapá.

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The health statistics reveal anothershocking side of social backwardness. In-fant mortality rates in Brazil do not corre-spond to its economic level: 36 per 1000live births. In the rural areas of the North-east, the infant mortality rate is four timeshigher than in the urban areas of the Cen-tral South.

The social statistics also reflect the time-less marginalization that Afro-Brazilianshave been subjected to. Illiteracy amongwhites is 9% and 22% among blacks andmestizos. On the average the white popu-lation has attended school for 6.2 yearswhile African descendants have 4.2 yearsof education. Infant mortality, unemploy-ment and lack of access to sanitation serv-ices also affect the black and mestizopopulation more than the white popula-tion. When employed the blacks receivehalf the salary earned by whites.

A New State to promote social justiceIf Brazilian society is unjust, the State,

being at the same time part and the synthe-sis of society, has been the main link in thechain of perpetuation of that injustice. Tobreak this chain and place the State at theservice of improving the living conditionsat the base of society is the greatest cha l-lenge for Brazilian democracy.

Contrary to the general idea, the Braziliangovernment has a relatively broad, com-plex and costly system of social welfare.Today at various levels of the government,this system spends 21% of GDP. It ac-counts for one of the highest social expen-ditures in Latin America, as a percentage ofGDP, and is higher than the average ofthose countries in the world at the sameeconomic stage, and higher than the aver-age spent of developed nations when theywere at an economic stage similar to thatof Brazil today.

Instead of a solution, however, this oner-ous system is a fundamental cornerstone ofthe Brazilian social problem. Despite thesignificant effort made by society to fi-

nance the system, it has been extremely in-efficient, ineffective and has little power topromote income redistribution. A com-parison with other countries confirms this:While in Chile, for example, 36% of theexpenditures on health, education andhousing benefit the poorest 20% of thepopulation, and only 4% benefit thewealthiest 20%, in Brazil only 15% of theresources benefit the poorest 20% and21% benefit the wealthiest 20%.

The conclusion is inevitable: the govern-ment transfer of funds has helped to per-petuate the unjust distribution of Brazilianincome.

Social expenditure as a percentage of GDP -Latin America - 1998

Brazil 20.9%

Costa Rica 20.8%

Panama 20.0%

Argentina 18.6%

Chile 13.4%

Mexico 13.1%

The strategy to diminish inequalities

The necessary although not sufficientconditions for the social developmentstrategy of the Cardoso’s administrationhave been outlined above: macroeconomicstability, growth at a rate fast enough tocreate jobs and to significantly improve thebasic stage of well being of the population;State reform, focusing on that which it canand must do; consolidation of democraticinstitutions.

The federal government on its own is in-capable of solving the complex problemsconnected to the Brazilian social question.For this reason it attempts to work inconjunction with the other two levels ofgovernment – states and municipalities –and with the various sectors of civil soci-ety: firms, universities, churches, NGOs.These partnerships are indispensable to thesuccess of the process of decentralizationof the public policies on course, which re-

21

quire stronger social control over its ex-penditures and results.

Based on this set of conditions and prin-ciples, the social action of the administra-tion was organized around four focalpoints: an extensive reform of the basicsocial services under State jurisdiction, aquantitative and qualitative improvementin job opportunities and earning power;specific policies for rural areas and actionsand programs focused on alleviating themost acute poverty over the short term.

2. Raising the income level of society

The resumption of sustained economicgrowth is essential to reduce the inequali-ties and to promote social progress. With-out economic growth, there is no way toimplement active social policies: there is nogeneration of jobs and the reduced per cap-ita income and government revenues limitthe direct actions of social promotion.

Although the model of development thatcame to end in the latter 80s did raise theaverage standard of living of the popula-tion, it led to wealth concentration, somuch so that social inequalities increasedand significant numbers continued to bedestitute and poor. The economic stagna-tion of the 80s blocked the recent gainsmade in the standard of living and accen-tuated exclusion. The dispute between

classes intensified and it was not by chancethat inflation rose at increasingly higherrates, meeting with failure at all attemptsmade to control it.

We saw that the price stabilization at-tained with the Real Plan as of 1994 re-sulted in significant gains in the income atthe base of society. The purchasing powerof salaries increased. More than 11 millionBrazilians crossed over the poverty line.Almost 30 million shared in the market ofdurable consumer goods. This progresswas detained but not reversed by the re-percussions of the external financial criseson the Brazilian economy. It will be possi-ble to resume this progress once the econ-omy re-enters the path of growth in theyear 2000.

Restructuring of production and increase inproductivity

The decade of the 1990s was marked byprofound changes in the Brazilian labormarket. The immediate impact once theeconomy opened up and production wasrestructured was a decrease in the job op-portunities available and a greater demandfor skilled labor, due as much to techno-logical reasons as to changes in organiza-tion and management.

Similar to other countries that wentthrough this process, the technological

Robin Hood turned upside down: social security

In addition to being the major factor in the fiscal imbalance of the Brazilian government,social security functions as a powerful mechanism of regressive income distribution. Thereare two distinct systems: one for civil servants and the other for workers in private enter-prise. While 19 million retirees and individuals from the private sector will receive in 1999social security benefits totaling 5.8% of GDP, only 2.6 million inactive public servants andfamily members on pension will receive the equivalent of 4.3% of GDP.

The average value of social security benefits in the private sector equals 1.8 times theminimum wage, and 12 million retirees receive only one minimum wage. In contrast, theaverage value of social security benefits of the Executive branch servants equals 14 mini-mum wages, and of the military, 19 minimum wages. In the Judiciary the average social se-curity benefit is 44 minimum wages and for the Legislature, 58 minimum wages. All thingsconsidered, 7% of the total spent on social security go to the poorest 20%. More than 30%goes to the wealthiest 20%.

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component of the restructuring of pro-duction demanded new and more flexibleskills, lowering the demand for unskilledmanual labor. The organizational restruc-turing led to the abolition of intermediaryoccupational categories. The increase incompetition and the macroeconomic sta-bility led some sectors , especially thebanking sector, to cut back on the numberof employees. These two trends in re-structuring created the phenomenon ofhiring by subcontracting, which led to anincrease in workers employed withoutformal work contracts.

In general terms, there was a decrease inthe number of those employed in thetransformation industry, but this shrinkagewas partially compensated by the expan-sion of the services sector.

The new standard of competitiveness inBrazilian industry triggered an especiallyintense reaction during the first half of the90s, with work productivity growing at anaverage rate of 7.5% annually. During the80s, industrial productivity had practicallyreached a standstill, growing at 2% peryear.

Brazil needs to generate more than 20million job opportunities by the year 2015in order to respond to the growth of thework force. To create this number of jobsinside a scenario where the ratio betweenproduct growth/ generation of jobs be-comes less favorable is the most relevantstrategic problem for the country.

The increase in work productivity is, onthe other hand, the fundamental conditionnecessary for the distributive conflict be-tween capital and work to avoid becoming,within the framework of democratic insti-tutions, a no win situation, but one whichproduces more favorable results to in-crease the bottom income level of society.

Employment and income policies

No magic formula will generate jobs andincome. Creative and innovative solutionscan be produced, however, by coordinating

on numerous fronts the actions of thegovernment and of society. This is the em-phasis given by the Cardoso’s administra-tion.

Institutionally, efforts are being made tosimplify and unharness the existing over-regulation, which inhibits the offer of newjobs, and to modernize the system of laborrelations, wagering that stronger unionsand free collective negotiation will lead tothe solution of conflicts.

A roster of initiatives on course is de-signed to reduce the nonwage-related costsof work and to introduce new forms ofhiring. The reduction in the welfare relatedcharges would help lower the “Brazil cost”,stimulate businesses to hire more employ-ees, and above all, make workplace rela-tions more contractual, so as to include allworkers in the social security system.

Notable among other initiatives are theinstitution of work contracts for limitedtime periods; the legalization of overtime,which allows for the adjustment of workschedules to seasonal and cyclical varia-tions in production; the regulation of part-time work; and the temporary suspensionof work contracts, which provides fortraining the worker during a fixed periodfollowing his dismissal.

The active policies to generate jobs andincome were developed in three areas: mi-crocredit programs, agrarian reform andassistance to single family agriculture andprofessional training.

The transformations in the labor markettend to exclude lesser skilled labor, astraining becomes the principal factor indetermining whether one is hired and re-tains the job. In 1991 workers with littleschooling represented almost 39% of theactive work force and, in 1998, only 27%.During the same period, workers with nineto eleven years of schooling raised theirparticipation in the active work force from21% to 28%.

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In his first year in office, Fernando Hen-rique Cardoso established the NationalProgram to Train Workers, financed withresources from the Workers’ AssistanceFund. The program operates in two areas:sectors having greater potential to createjobs, such as tourism, civil construction,handicrafts, fishing, agriculture and cattleraising, personal and cultural services, mi-cro and small businesses; and groups incritical situations, such as the unemployed,workers threatened to be laid off, smalland micro businessmen, women, children,blacks and the handicapped.

Carried out in a decentralized manner inconjunction with the state governments,public associations, the syndicates andNGOs, the program operates in 2,600 mu-nicipalities, 500 of which are among thepoorest in the country. From 1995 to 1998,5.5 million workers were trained at a costof R$ 1.1 billion. In the next four years, thegoal is to train an additional 17 millionworkers.

Also created by the Cardoso’s admini-stration, the micro credit programs are ori-ented toward financing micro and smallbusinesses and toward providing technicaland managerial assistance to projects ofsocial interest. As a whole between 1995and 1998 these programs loaned nearly R$6 billion in more than one million financ-ing operations. In the next three years, thesmall and micro borrowers will have morethan R$ 8.3 billion at their disposal.

The new rural world

The Cardoso’s administration is at thehelm of the greatest program of agrarianreform in the history of Brazil. Neverthe-less it is clear that on the threshold of the21st century, solutions of the 19th centurycannot be adopted even for a problemwhich belongs to the 19th century. Activeand powerful popular organizations suchas the Rural Landless Workers Movement(MST) have a positive role to play, as longas their leaders keep anticapitalistic andtotalitarian tendencies in check and acceptdiscussing more modern ways to solveonce and for all the question of access toland.

Despite the unheard of number of expro-priations and settlements of landless work-ers, at no time did the government attemptto resolve the land problem by using onlythese classic instruments of reform. In ad-dition to maintaining the speed of land ex-propriation, during his second mandateFernando Henrique Cardoso proceeds toemphasize complementary actions and tointegrate the settlement of the landlessfarmers to local development plans. Theobjective is to create and consolidate newland restructuring initiatives, based on theprinciples of decentralization, participation,integrated actions, the emancipation of thesettlers and the diversification of thedemocratic instruments and models of landaccess.

Agrarian reform in numbers

It is estimated that there are approximately five million landless rural workers in Brazil.Between 1995 and 1998, 285,000 families received plots of land and 14.24 million hectares(an area equivalent to three and a half times the territory of Switzerland or nearly half of It-aly) were expropriated or purchased by the government. During previous governments, theaverage monthly number of families settled was 606; currently this number is nine timesgreater – 6,000 families per month. The number of families who have settled in the pastfour years surpasses by 60,000 the number of settlements made by all previous govern-ments.

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Initiatives such as the Land Bank and theCasulo Project (Cocoon Project) are addi-tional alternatives for agrarian reform,contributing to the indispensable economicinsertion of the new landowners that asany entrepreneur, need to be efficient,learn modern techniques, use technology,in effect, become competitive. Otherwiseactions for agrarian reform would onlyperpetuate poverty in the rural areas.

Recently created, the Land Bank is a fundfor financing the purchase of land, and willbe managed by the BNDES (The NationalBank for Economic and Social Develop-ment), under the orientation of a councilalso comprised of rural worker representa-tives. The letter of cooperative credit is aninnovation which complements traditionalintervention and is integrated to the marketwith no links to the State during all phasesof the process, from the selection of landto be purchased to the final closing. Thusit truly represents a new model of landpolicy.

Based on this model, instead of direct in-tervention by the State, the organizedcommunity goes to the market, choosesthe land, procures the land credit anddrafts its development projects. The eco-

nomic and social results certainly arehigher than those of the conventionalmodel are, since the producer and his asso-ciation assumes from the beginning entireresponsibility for the management of theundertaking.

Another innovative experience is theCasulo Project that prioritizes establishinga decentralized model of land policy in-volving all concerned parties. City and stategovernments register landless farmers andidentify the municipal and state publiclands, which are available or can be pur-chased. The federal government guaranteesthe credits and shares the financing for thesocial infrastructure with the other part-ners.Whatever the instrument used, the de-

mocratization of access to land is an in-separable part of the policy for rural devel-opment.Enhancing the role of the small producerThe priority for the coming years is to fi-

nance investments which will allow thesmall farmer, including the families settledunder agrarian reform, to improve his ca-pacity to compete in the marketplace, bydiversifying and verticalizing his produc-tion within the local structure. It is hoped

Strengthening Single Family Agriculture

Created by the Cardoso’s administration, the Single Family Agriculture StrengtheningProgram – PRONAF supplies credit with low interest rates to the small single family farm-ers and to cooperatives and production associations, as long as these include only smallproducers. The funds may be used to cover harvest or cattle raising costs or be invested,such as in the purchase of machinery, agricultural equipment, production goods and otherinfrastructure items which are essential to the undertaking. The maximum amount of fi-nancing ranges between R$ 5,000 for covering production costs and R$15,000 for invest-ments.

For the first time in the history of the country, with PRONAF the single family farmershad access to bank credit. A growing volume of resources has been placed at the disposalof the small producers: R$ 36 million in 1995, and 19,000 families served; R$ 650 million in1996 and 333,000 families; R$ 1.3 billion in 1997 and 414,000 families; R$ 1.8 million in1998 and 700,000 families.

One of the major initiatives of the government in the area of rural investment, PRONAFhas high social significance It is opening new prospects for almost 2.5 million small ruralproperties, creating jobs and income and consolidating citizenship in the countryside. Italso favors the decentralization of economic development, which brings benefits not only

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that local vocations will be used to theirmaximum to identify niches, based on thecurrent panorama of the agricultural andcattle raising sector, where the productionof the small farmers can be inserted. Thuscapable of producing in order to invest, thesmall farmer will also create a base for asustainable production of foodstuffs.

This guideline implies establishing creditlines corresponding to the specific situa-tion of single family agriculture. From 1999to 2002, the credits available for agrarianreform and the small rural property shouldtotal at least R$ 4 billion per year. Thegovernment will channel about R$ 2 billionduring the period to implement the localinfrastructures.

Special emphasis is also being placed onthe creation of rural employment not de-pendent on agriculture. The resurgence oftourism and the so called hinterland cultureis an important source for job opportuni-ties and income, especially in the emergingmarkets of ecotourism, sport fishing, lei-sure for senior citizens, farm hotels, socialand nautical tourism.

THE GREAT CHALLENGES

1. Making basic social services univer-sal and improving their quality

The present government began an exten-sive reform of the basic social services fal-ling under the jurisdiction of the govern-ment. Fernando Henrique Cardoso de-fends the idea that in Brazil’s case the Stateshould play a major role to offer theseservices, which are the responsibility of thegovernment but not necessarily of the stategovernments. Included in this definitionare basic education, basic health services,sanitation, low-income housing and basicsocial security.

In addition to making these services avail-able to all as well as to improving them,this reform is designed to meet the greatestand most difficult challenge of all, that ofrestructuring the benefits to increase their

redistributive impact. The challenge ismuch more political than technical: on onehand, there is a set of rights to be re-spected; on the other, there are privilegeswhich must be abolished.

To generalize education, increase school attendanceand improve the quality of instruction

The backward, decades old educationalsystem and the low average schooling ofthe Brazilian population are largely respon-sible for the social inequalities. This isproved by the fact that 45% of the headsof poor families never attended school orleft school before completing one year ofstudy. The disregard for education also ex-acerbated regional inequalities. In 1995, theBrazilian of the Northeast , the poorest re-gion in the country, had on the average at-tended school for four years, two years lessthat those living in the Southern andSoutheastern regions.

When he became president in 1995,Fernando Henrique Cardoso chose educa-tion and especially basic education as a toppriority. The extensive educational reformmade in the past four years began byclearly defining under the Law for Guide-lines and Bases for National Education of1996, the responsibilities of the federalgovernment, of the states and of the mu-nicipalities. In the same year, the Fund forEducational Maintenance and Develop-ment and Appreciation for the TeachingStaff – FUNDEF was established to reor-ganize the entire system of funding basiceducation, thus ensuring more resourceson a more impartial basis. Until then, eco-nomic resources were poorly distributedand poorly used. There was no correlationbetween the distribution of the moniesavailable from the states and municipalitiesand the number of students enrolled. Con-sequently, surplus monies available in welloff cities having a small number of mu-nicipal schools and few students could notbe transferred to poor cities having a largenumber of schools and many students.

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In effect since 1998 and despite strongpolitical resistance, FUNDEF correctedthese distortions. A minimum expenditureper student/year was established and thenumber of enrolled students determinedresource allocation. Of this amount, 60%automatically must go to pay teachers’wages. With these rules, FUNDEF becamea paradigm of the new emphasis placed oneducation by public policies.

The results were immediate. States andmunicipalities endeavored to enroll themaximum number of children possible toreceive more funds. The regional inequali-ties began to disappear because in thepoorer states and municipalities, where theminimum expenditure per student per yearis not met, the federal government com-plements the funds. In 1998 these addi-tional funds totaled $R 542 million. Theaverage national increase in teachers’ wageswas 13% but reached 50% in the municipalsystems of the Northeast where the salarieswere lower.

The challenge to improve the quality ofinstruction began to be confronted. Abroad reform of the curriculum at all levelsof instruction is now underway. NationalCurriculum Parameters were published forthe eight levels of elementary education aswell as terms of reference for primary edu-

cation and for a broad reformulation of theentire system of teacher training. The nextphase, already structured and approved, isthe complete reform of middle level andvocational instruction. Especially relevantwas the effort made to adapt the curricu-lums to the indigenous schools in such away as to preserve and to show deferenceto the mother tongue and the cultural tra-ditions of these peoples.

Also designed to improve the quality ofinstruction, the government created the“TV School” program, devoted to educa-tion at a distance. In order to do so, a kitcomprised of a television, a videocassetterecorder and a parabolic antenna is distrib-uted to all elementary schools with morethan 100 students This equipment allowsthe schools to receive directly or tape forfuture use educational programs to rein-force learning, to aid the work of theteacher and to train the teachers on a con-tinuous basis. In two years almost 57 .000kits were distributed.

The extraordinary progress made in thepast five years proves that Brazil is takingthe right steps to gain the time lost as abackward nation in the field of education.

Great strides were made to make basiceducation accessible to all The percentageof children from the ages of 7 to 14 en-

Robin Hood turned upside down: university instruction

Considering all three levels of the government –the Union, states and municipalities –Brazil spends today almost 6% of GDP on education. It is no small amount. The budget ofthe Ministry of Education corresponds to 1% of GDP. However, 60% of the resources goto finance the free public universities. As the poor practically never attend these universi-ties, 90% of the public expenditure is taken by the wealthiest 40%; the poorest 40% benefitfrom only 2.4% of the resources. Or, 0.7% of GDP of the country is transferred every yearto those who are not at poverty level. The same occurs with the program of scholarshipsmaintained by the government. The poorer 20% receive only 0.3% of these resources whilethe wealthier 20% absorbs 33.8%.

This is the historical problem of social expenditures in Brazil, which have perpetuatedpoverty. A significant portion of the resources is channeled to those who are not poor. Asthe poor pay taxes, just as those who are not poor, this means taking from the “have-nots”and giving to the “haves”.

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rolled in school rose from 89% in 1994 to96% in 1999. Thus the goal established bythe Tem Year Plan of Education for All,which sought to increase school enroll-ment to 94% at least by the year 2002, wasanticipated and surpassed.

At the middle level, the increase in thenumber of students enrolled was swift:57% from 1994 to 1999. In the past yearalone, the increase was 11.5%, reaching24% in some states. These statistics meanthat there are more children concludingbasic education and pursuing their studies,perhaps to meet the demands of an in-creasingly competitive job market.

The regional inequalities are decreasing.In the Northeast region, enrollment in ba-sic education rose 27% compared to 13%in the remainder of the country; at themiddle level it increased 62% compared to57% in the rest of the country.

Counting all enrollments at all levels ofinstruction, Brazil today has about 52 mil-lion students – approximately one third ofthe population attends school. It still is alow rate, but a big improvement has beenmade.

Eliminating unnecessary spending and making thepublic health system more efficient.

The Brazilian Constitution determinesthat access to health services should beuniversal, complete and equal . The exten-

sive juridical and administrative changesconceived by those who drafted the Con-stitution terminated with the creation ofthe Unified Health System - SUS. The gen-erosity of congressmen, however, did notcorrespond to the amount of resourcesavailable. The budgets were always tootight to ensure that the population of 160million Brazilians would be well served andfree of charge. Nevertheless the system ofservices provided by the public healthsector ensures assistance to 80% of thepopulation. The wealthiest 20% have pri-vate health insurance plans and policies.Five years ago, the government embarkedon improving the administration of thesystem, consolidating decentralization,transferring power, resources and respon-sibilities to the municipalities, expandingsocial control, combating fraud and defi n-ing stable and regular sources for fundingactions and health services.

In 1995, Fernando Henrique Cardoso as-sumed the commitment to spend at leastR$ 80.00 on health annually per habitant.The goal was surpassed. In 1994, healthhad a budget of R$ 13.7 billion; in 1998,R$ 18.7 billion, an increase of 36.5%,which assured an expenditure per capita ofR$ 115.59.

Health policy has pursued two basic ob-jectives: to improve the sanitation situa-tion, by emphasizing reduction of the in-

The school lunch and textbook programs

Government funds finance the National School Lunch Program, which guarantees at leastone meal per day to all children enrolled at the basic educational and primary school levels,in public and charity organizations. It may be the largest program of food provision for thepoor population ever carried out in the country. Almost 36 million meals are provided dailyduring the entire school year.

In addition to meals, the federal government distributes, free-of-charge, school booksthrough the National Textbook Program, to all children who are enrolled in the eight levelsof elementary education. In recent years, the program was expanded and the quality of thebooks improved, because all the texts were evaluated beforehand by teachers' committees.In 1998 almost 110 million textbooks were distributed.

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fant mortality rate, and to proceed with thepolitical and institutional reorganization ofthe sector. In 1990, the infant mortalityrate – considered the synthesis of the livingconditions of a population – was 48 chil-dren up to one year of age for every 1000live births. In 1998, this rate decreased to36 children, which was still high and exac-erbated by regional inequalities. In thepoorest regions, the rate is double the na-tional average; in the wealthiest, it is half.Nonetheless, the Program to Reduce theInfant Mortality Rate made importantstrides in the 914 poorest municipalitieswhere it was implemented by the govern-ment in collaboration with CatholicChurch. Between 1995 and 1997, thenumber of deaths of children up to fiveyears of age fell to 10.4% per year.

Two programs were expanded: theCommunity Health Agents, comprised ofindividuals from their own communitieswho are trained to carry out work in theareas of prevention and education, and theFamily Health Teams, which include phy-sicians and nurseries and provide basicambulatory assistance. In four years, thegovernment doubled the number of com-munity agents and tripled the number ofmunicipalities served by the two programs.In 1994, 29.000 agents worked in 879 mu-

nicipalities, assisting 49 million inhabitants– nearly 30 % of the population. In thesemunicipalities, the infant mortality ratedropped by 32%.

The Family Health Program increasedfrom 328 teams in 55 municipalities, fouryears ago, to 3,147 teams in 1117 munici-palities, assisting 10.7 million inhabitants.Research conducted in 58 municipalities ineleven states where the teams operate reg-istered a decrease of 51% in hospital ad-missions. Up to the year 2002, the goal ofthe government is to have 150 .000 healthagents and 20 .000 family health teams.

2. Centering actions on fighting poverty

A large part of the programs and initia-tives that comprise the social developmentstrategy of the Cardoso’s administrationwill have effects over the medium and thelong term. Nevertheless, significant seg-ments of the population live in such seri-ous or vulnerable situations that they can-not wait long. To attend to the mostpressing needs, it was necessary to use welldefined mechanisms to concentrate on thevery special segments and situations.

To treat efficiently and in a different waythose who are unequal among themselvesis the rule of these focused programs. It is

The just distribution of resources

In January, 1998, the program for Minimal Basic Attention – PAB was established. Thisprogram was decisive in improving the level of assistance to the poorer population. PABreplaced the traditional criterion for resource allocation according to the number of as-sisted people by the formula for allocating them according to the number of inhabitants.In practice, this meant that the notion of subsidizing the disease was replaced by the in-centive to its prevention.

With PAB, all Brazilian municipalities can now count on receiving at least R$ 10.00per inhabitant/year to cover the cost of health services. The old distortions were cor-rected. Prior to PAB, almost 120 million people, in more than 3,500 municipalities didnot benefit from health coverage due to a lack of resources in the budget for basic assis-tance. In less than a year, 4,665 municipalities began to receive funds from PAB trans-ferred directly from the Ministry of Health. This change, which went through extensivenegotiation and continues to encounter resistance, benefited 85.6 million. This newmodel of resource allocation, also adopted in education, is an example of the generalprinciple of social policy pursued by the Cardoso’s administration: always seek equity.

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imperative for the Brazilian governmentand for all society that hunger and infantmalnutrition be eradicated, that child laborbe eliminated, that programs for the directtransfer of income be expanded to combatthe worst situations of exclusion and thatpublic spaces be created where the gov-ernment and citizens may work together aspartners on common projects.

Fighting poverty and infant malnutrition

This plague has been confronted throughmeal programs linked to basic health ac-tions. In addition to the school lunch pro-gram which guarantees 36 million mealsper day to students in the public schoolsystem, the government created a broadprogram to distribute basic foodstuffs bas-kets to almost one thousand of the poorestmunicipalities in the country. In 1998alone, thirty million food baskets were dis-tributed.

In conjunction with private enterprise,the Workers Meal Program – PAT encour-ages businesses to provide meals to theiremployees, by offering a deduction of thecost on their income tax return. The mainobjective is to improve the nutritionalconditions of the low income workers.Nearly eight million workers in 70 .000businesses benefit from this program an-nually..

One of the priorities under the jurisdic-tion of the Ministry of Health is the Pro-gram to Combat Nutritional Needs, withspecific actions to assist undernourishedchildren between six and 23 months of ageas well as pregnant women at risk of be-coming undernourished. The program en-courages breastfeeding, nutritional vigi-lance, and provides one liter of milk perday and one can of soybean oil per monthto those children less than two years ofage. Participating in this program are 2,950municipalities and 550 .000 children andpregnant women nutritionally at risk. Inaddition, in 1998, 4.26 million childrenbetween the ages of six months and fiveyears of age in the nine states of the

Northeast received megadoses of VitaminA.

The elimination of child labor

Created in 1996, the Program for theElimination of Child Labor removes chil-dren between seven and 14 years of agefrom degrading and risky activities, pri-marily, from bricklaying, mining, cane-brakes and coal yards in 141 municipalitiesin seven states. The families of the childrenchosen by the program receive a monthlycash allowance from the government, withthe understanding that their children willabandon the work and begin to attendschool regularly. In 1998 the programsaided 120 .000 children.

Poor, abandoned and socially excludedchildren also find support in the BrazilChild Citizen Program, which invested R$103 million in 1998 to assist 431.000 chil-dren and adolescents from seven to 14years of age. The program provides educa-tional, health and professional trainingservices.

Direct income transferA social policy based on the principles of

equal opportunities and the promotion ofcitizens’ rights in Brazil must consider pro-grams for the direct transfer of income. Asa whole, these programs constitute an im-portant system of social security for facingvarying situations of need and of risk: ofold age, of work incapacity, of unemploy-ment, of the decision to remove childrenfrom school to make them work.

The existence and the constant improve-ment of such programs are fundamental tofight hunger and to reduce poverty. Themechanisms by which these income trans-fers are financed also vary. Some dependon the social security budget: others fromsuch funds as the Workers’ AssistanceFund, or others on Treasury funds. There-fore they require different actions from thegovernment. Most of the income transferprograms fall under the jurisdiction of thefederal government.

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Minimum income for the elderly and thehandicapped

There are two types of benefits for theelderly: the lifetime monthly income andthe benefit sanctioned by the Organic Lawof Social Assistance, put into practice bythe Cardoso’s administration. The benefitsare not cumulative, but they do guaranteethat the elderly and poor persons withhandicaps will receive a minimum monthlyincome equivalent to one minimum wage.More than one million individuals have ac-cess to these benefits. The number of poorpersons qualified to receive them has beenincreasing since the law took force. Cur-rently annual expenditures are R$ 1.5 bil-lion.

Employment insuranceFinancial assistance is granted for the

worker on involuntary unemploymentsituation. The assistance lasts five months,and may be extended for two extra monthsin case of increasing of unemploymentrates. Resources are provided by theWorkers’ Assistance Fund, which alsosupports programs for professional qualifi-cation and re-qualification and directingworkers into new jobs.

Wage bonusWage earners who receive less than two

minimum wages are entitled to an annualbonus equivalent to one minimum wage,aside from the benefits available from thebalances of their employer’s welfare fund.More than five million workers receive asalary bonus and more than 12 million de-serve the income from the fund. In con-junction with unemployment insurance,these programs represent annual resourcesof R$ 5 billion.

Minimum income

The implementation of minimum incomeprograms, so that the poorer families cankeep their children in school - thus, thewell known name given to the program:school grants - was rapidly incorporatedinto social rights. Experiments of this na-ture have been developed in diverse mu-nicipalities in Brazil.

By their nature, such programs can onlybe carried out at the local level in a decen-tralized way, due to the size of the countryand its enormous differences. They alsoneed to be publicly controlled and rely onthe commitment of the community. Thefederal government, however, is activelypresent with normative, logistic and finan-

Rural Welfare

This is the greatest agrarian and minimum income program in the country. It guaranteesa monthly income of one minimum wage to every man or woman in the rural area, eventhough he or she may never have contributed to the welfare system. The minimum ageneeded to claim the benefit is 60 years for a male and 55 years for a woman. Six millionworkers or family members receive a pension from the program at a cost of R$ 9.8 billionannually, financed by the social security budget.

Between 1991 and 1996, rural welfare expanded tremendously: the volume of re-sources rose more than 300%, the number of beneficiaries more than 50% and the aver-age monthly value of the pensions and retirement almost tripled. In addition the incomeof the farmers’ households doubled, because women also came to be entitled to the bene-fit as of 1993. In the small municipalities of the poorest regions, the number of partici-pants in the program is 20% of the population. If the beneficiary has more than one fam-ily member as a dependent – which is usual – almost half of the inhabitants in these areaswill be guaranteed one minimum wage from rural welfare. The expansion of this programlowered rural poverty within the general context of poverty in the country.

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cial support, especially in the poorer mu-nicipalities.

Currently, two programs of this type existunder the jurisdiction of the federal gov-ernment, and both were implemented bythe current administration. The first is theprogram to eliminate child labor men-tioned above. The second, more recent andtotally decentralized, aims to help thepoorer municipalities to adopt these initia-tives. The federal government funds halfof the total costs of the municipal pro-grams, in accordance with the criteria es-tablished by law. The value of the benefitvaries according to the per capita income ofthe poor families and with the number ofschool age children. When it is totally im-plemented, it should attend to more thanthree million families, with funds of R$ 1.5billion per year.

On the whole, the federal programs fordirect income transfer account for R$ 17billion per year and represent socially de-sirable ways of using funds from theTreasury, from social security and fromthose which constitute the workers’ wel-fare system.

The articulation of the third sector and the role ofthe Program for Community Solidarity

The magnitude of the social problems,the manifest crisis of public administrationand of the government and the renewedstrength of civil society demonstrated thelimits of State action in Brazil. To break

them means to create and strengthen newpublic arenas which are not necessarilygovernmental. It also means to stimulateinnovative ways to mobilize and formpartnerships between the different levels ofgovernment and State entities – the federalgovernment, states, municipalities, publicbusinesses and universities – as well asbetween the government and the numer-ous and diverse organizations in civil soci-ety – businesses, syndicates and voluntaryassociations such as NGOs, churches andsocial movements.

It was for this purpose that the Programfor Community Solidarity, directly linkedto the Presidency of the Republic, was cre-ated in January of 1995. In a short time,the program was characterized as the newmechanism to coordinate policies, to ar-ticulate among the various levels of gov-ernment, to focus the pertinent programson the most needy areas and populationsand to stimulate new forms of partnershipsto combat hunger and destitution and toface the acute situations of need and publicstates of emergency. Special support isgiven to the initiatives that promote com-munity solidarity and experiment with in-novative solutions.

Community Solidarity represents an im-portant break with former policies for sev-eral reasons: first, for the integration andselectivity of actions in the social area,which concentrate on health, education,

Literacy Solidarity – a model program

In the area of education, the best example of action in public arena produced by Brazil untilnow is the initiative known as Literacy Solidarity, an innovative project begun by CommunitySolidarity. Through campaigns known as "Adopt a Student", the project establishes partner-ships with civil society, recruits university students and mobilizes resources from private en-terprise to fight illiteracy in the 12 to 18 year old age range. The program operates chiefly inthe poorest municipalities, where illiteracy is the highest.

Two years after it was established in January, 1997, Literacy Solidarity was already operatingin 581 municipalities mostly located in the hinterlands of the North and Northeast regions. Tothis date, the program has helped 300,000 students in 866 municipalities The evaluation of theresults that integrate the initiative prove its efficacy especially because it forms part of abroader social action developed by Community Solidarity.

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sanitation, generation of jobs and profes-sional training, in contrast to the dispersionof the past; second, for combining acts ofaid – indispensable in the extremely needycommunities – with initiatives capable ofunleashing sustained local developmentprocesses; third, for the intense and delib-erate inclusion of organizations of society,which immediately called an institutionalhalt to patronage and pork-barrel practices.

The Council of Community Solidarity,comprised of representatives from society,develops four projects that synthesize thisnew approach: Literacy Solidarity, Trainingfor Youth, University Solidarity and Vol-unteer Promotion. In turn, the executivesecretariat of the program, dedicated toattacking the causes of hunger and destitu-tion in an integrated way, articulates a setof priority programs carried out under thejurisdiction of several ministries whichhave more potential impact in meeting theneeds of the population.

Charity and NGOs

Similar to what happens in other coun-tries, NGOs have also become a highlycritical and active actor in Brazil, includingsyndicates, lay and religious Associations,charity and community institutions. Re-cently, private businesses began to patron-ize important initiatives, but it is the com-

mon citizens who have donated their timeand money and proved to be the realthrust behind philanthropic activities andsocial intervention.

The society that was built on such unjustbases is beginning to show clear signs ofwanting to change. Faced with insufficientaction on the part of the State, it is startingto organize to solve its own problems andput pressure on governments to progress,in such diverse areas as the environmentand public safety, agrarian reform and theadministration of water resources andpublic funds, poverty and education, jus-tice and human rights.

Charity, which has never been a great tra-dition in Brazil or had much visibility inthe national culture, today flourishes andoccupies a noble place in the eyes of themedia. Rich and famous, sports and popu-lar music idols, arts and culture personali-ties have begun to create their foundationsand NGOs or associate themselves withsocial entities and campaigns, placing time,money, image and prestige at the service ofthe most diverse causes. Along with mil-lions of anonymous Brazilians, they form apart of the widespread and recent phe-nomenon of social mobilization in thename of citizenship, which has alreadyplayed a decisive role in the fight againstpoverty.

The booming expansion of solidarity

Research data released at the end of this year are impressive:

- 9 million persons receive direct social assistance today in Brazil, without any participa-tion from public funds;

- In total, charity raises R$ 12 billion per year;

- 36 million Brazilians participated in some social endeavor in 1998, by donating money orcontributing material goods. The personal donations of anonymous citizens alone totaledR$ 1.1 billion, even though they may not be deducted from income tax;

-one in every six Brazilians over 18 years of age volunteers in social projects throughoutthe country;

- even the poorest Brazilians, who earn from one to two minimum wages, make dona-tions. Thirteen percent donate money and 20% donate food and goods.

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For an increasingly greater number ofBrazilians, the persistence of hunger andextreme poverty in the country is a reasonfor shame and indignation and calls for ac-tion. Conscious of the limitations of theState, the Cardoso’s administration pro-poses and practices a social policy which isnot only open but which actively encour-ages the participation of the so-called thirdsector and the creation of public spaces foraction.

Clearly inspired by social democracy, thispolicy has as a reference the ideals of a so-ciety of well-being. The government isaware, however, that besides being a moralimperative, changing Brazilian reality is a

demand of a practical order. In the worldimagined for the 21st century, it simply willbe impossible for Brazil to maintain its po-sition among the largest economies of theplanet, without eliminating poverty and ig-norance, disease and social exclusion . Theprice of this immeasurable waste of poten-tial wealth are backwardness and the lossof competitiveness.

During these times full of changes, crises,risks and opportunities, one thing is cer-tain: there will be no place for nations in-tending to be truly modern which do notextend to growing segments of the popu-lation the conquests of integral human de-velopment

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The environmental dimension of development

Under the administration of President Fernando Henrique Cardoso, governmentalaction has fully incorporated the concept of sustainable development. Representatives ofgovernment, the business community and organizations of civil society meet regularly inpermanent forums to discuss the adoption of a new development paradigm. The keythemes of these discussions are: sustainable cities and agriculture, infrastructure and re-gional integration, the reduction of social inequality, scientific and technological develop-ment, and natural resources management.

Much priority has been devoted to the legal framework. In 1998, the Law on En-vironmental Crimes consolidated criminal and administrative sanctions for environmentaloffences. Under the terms of this Law, individuals and corporations who commit envi-ronmental offences can be held both civilly and criminally responsible, and liable to heavyfines and even imprisonment.

In 1997, a law was approved to promote more modern and effective control overwater resources. The creation the National Water Agency – ANA is expected to be ap-proved by Congress in the current year. The National Council for Water Resources, inwhich representatives of state governments, consumers and civil society participate, hasbeen set up to provide integrated management for the sector. Brazil has 8% of the planet’sentire supply of fresh water, a resource that is likely to increase in value in the 21 st Century.

Important steps have also been taken in the area of forest management, through measuressuch as the creation of new forestry and extractive reserves. The new Rural Property Tax,approved in 1996, will facilitate the establishment of new legally-protected forestry reservesand permanent conservation areas.

In the Amazon region, the issuing of permits for the commercial exploitation of mahog-any and virola has been suspended since 1996, with a view to better conserving the stocksof timber. Limits have also been placed on the deforestation of private lands, particularlyin rural properties where environmental degradation has already occurred.

More generally, Brazil has sought to ensure a more balanced approach to the economic,social and environmental aspects of development, and to abide by the following three pre-cepts: development must be sustainable in the long term; it cannot be attained throughpredatory exploitation of natural resources; and it must be of benefit to the whole society.Only thus can the goals of economic growth be reconciled with those of the reducing pov-erty and the promotion of a more equitable distribution of wealth.

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The restoration of democracy, after twenty years of authoritarian rule,marked a turning point in the political consciousness of the current generation

of Brazil’s leaders.

ifteen years have elapsed since thetransfer of power to a civilianPresident, and eleven since ademocratic Constitution was

promulgated. Democracy has clearly takenroot, not only in the institutions, but alsoin the practices and values prevalent inBrazilian society. Free elections are regu-larly held at all levels of government, withremarkably high voter turnout. The partysystem is highly competitive – and indeedfragmented – and there are no less thanseven electorally significant parties sharingeffective office in the Executive and Leg-islative branches of the Federal, state andmunicipal administrations. Organizationsof civil society, which played a significantthough incipient role in opposing authori-tarian rule, have blossomed under democ-racy and today actively compete for spacealongside political parties and organiza-tions of the State itself in defining the pub-lic interest and setting the course of publicpolicies. The independence of the Judiciaryis unchallenged. The press is diversified,free and aggressive, and often far in ad-vance of the opposition parties in its scru-tiny, holding the government accountablefor its failings. Peaceful demonstrations ofdissent and the expression of popular de-mands are commonplace.

These achievements notwithstanding, theexperience of authoritarian rule remains avivid memory, and the newly restoredfreedoms cannot therefore be taken forgranted. This is not to imply that the forcesof democracy live in dread of catastrophe;rather, it means that they feel responsible

for the consolidation of democracy, andthat this concern is taken into accountwhen assessing strategic options.

The convergence of historically andideologically disparate forces, was the keythat enabled peaceful transition to civilianrule in 1984. This same spirit of concilia-tion (a word derided by a major portion ofthe old left) was also present in the forma-tion of an alliance of parties that has lentits support to the Cardoso’s administra-tion. To the concern for preserving conti-nuity of the democratic process, a newpurposefulness, stemming from the vicis-situdes of the 1980s, was added: the questfor renewed economic and social efficiencyin the democratic decision-making process:in other words, a commitment to goodgovernance.

Brazilian social democracy shares thiscommitment with the other partners in thegovernment alliance. Its contribution tothe agenda of these joint forces stems fromits desire to radicalize and expand the lim-its of democracy, not only from the stand-point of its results, but also of the partici-pation in the making of decisions.

In contrast to other countries where de-mocracy is less recent, in Brazil it is per-haps easier to appreciate that democracy isan evolving process. Rather than being afinished building, it is a work in progress,something to be built and reinvented alongthe way. It consists of a set of values andforms of coexistence that open a path forthe peaceful transformation of society. Asthe world ponders the new utopia – a newhorizon for social transformation to moti-

III – THE RADICALIZATION OF DEMOCRACY

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vate and orient the actions of progressiveforces, – Brazilian experience strongly sug-gests that democracy itself is the name ofthe “viable utopia”.

Consolidating achievements

The Cardoso’s administration has com-piled a significant record of achievementsin the consolidation of democracy.

Relations between the Executive and Legislativebranches

Relations between the Executive andLegislative branches, often a source of ten-sions in the recent past and in the periodof democratic rule that lasted from 1946 to1964, are now conducted in an atmosphereof mutual respect and intensive dialogue.Were this not so, the government’s agendaof reforms would, in no time, have endedin deadlock.

The 1988 Constitution is extremely de-tailed and was drafted under strong influ-ence of interests and prejudices associatedwith the old regime of the interventionistState and its autarchic development model.For this reason, changes to the wording ofthe Constitution had to be accomplished inorder to secure various essential pointsnecessary for the consolidation of the newdevelopment model. No less than eighteenConstitutional amendments have been ap-proved since 1995, by a qualified majorityconsisting of three fifths of the votes ofBrazil’s deputies and senators. Eventhough the sum of the members of partiesthat make up the government’s congres-sional alliance easily surpasses the numberof votes required, in order to obtain ap-proval of these amendments an intenseprocess of advocacy and persuasion had tobe carried out, especially in the cases ofsuch controversial measures as social-security reform and changes in the rulesgoverning the job stability of public-sectoremployees.

The Brazilian Legislative branch has, inthe past, undergone periods when it simplyserved as a rubber-stamp, and others when

it merely obstructed the will of the Execu-tive. Under the Cardoso’s administration, ithas actually assumed co-responsibility forgovernmental decisions.

Decentralization

Within the sphere of the Executivebranch, the government has brought de-centralization to an unprecedented level,by expanding its scope and increasing itsefficiency. This included a variety of formsof partnership with the states and munici-palities, and with non-governmental or-ganizations. The Brazilian federation is al-ready highly decentralized from the stand-point of revenue sharing among the fed-eral, state and municipal spheres of gov-ernment. The division of responsibilitiesfor the execution of public policies, how-ever, is less clear, and there are outstandinggaps and overlaps. Initiatives pursued bythe present government have substantiallyimproved this situation in such strategicsocial areas as education, health, social as-sistance and land reform.

In a territorially vast and immensely di-verse country such as Brazil, decentraliza-tion, of the two varieties – through part-nerships between the different levels ofgovernment, and between government andthe community – is a powerful antidote tothe inefficiencies and waste generated byoverbearing bureaucratic structures, not tomention traditional pork-barrel practices.In brief, decentralization stands as a sym-bol for the building of citizenship andtranslates into qualitative improvements insocial spending.

Human rightsSignificant strides have also been made in

another decisive area for the building ademocratic society, namely, the defense ofhuman rights. At the beginning of his firstterm of office, President Fernando Henri-que Cardoso created a national secretariat,under the auspices of the Ministry of Jus-tice, the mission of which is to articulatelaw enforcement policy with the defense ofcitizenship and of human rights. One of

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the first tasks assumed by the secretariatwas the co-ordination of legal proceedingsfor the acknowledgement of the deaths ofpolitical prisoners who had “disappeared”under the dictatorship. The compensationpaid by the federal government to thefamilies of victims constituted yet anothersettling of accounts with the past, and senta clear message to the future: that the pub-lic authorities will have no tolerance withrespect to attempts to cover up violence.

This attitude, which is shared by the Na-tional Congress, authorities in the states,the media and non-governmental organi-zations, has born fruit in the form of de-nunciations, investigation and effectivepunishment, on an unprecedented scale, ofhuman rights violations.

Strict oversight and prosecution of publicagents for misbehavior, rather than ham-pering law enforcement, has tended tostrengthen it. This has proven especiallytrue in fighting organized crime, ramifica-tions of which were recently exposed inBrazil, through investigation carried out byCongress committees, the press, the Reve-nue Service and the Federal Police. A sec-retariat subordinated directly to the Presi-dency of the Republic has assumed the co-ordination of measures relating to illegaldrugs, encompassing prevention, rehabili-tation and the fight against drug trafficking.

The next steps

On the basis of the results achieved sofar, the prospects for radicalizing Braziliandemocracy point towards an agenda forpromoting change in institutions, and alsoin collective practices; the enhancement ofthe principles of representation, and alsothe extension of opportunities for directparticipation.

Political reform

At the institutional level, great priority hasbeen placed upon reform of the system forelecting members to the federal Chamberof Deputies and the state legislatures.

In accordance with the proportional rep-resentation system currently in force inBrazil, each state is regarded as a vastelectoral district, in which each party canpresent a ticket listing a variety of candi-dates, the number of which may amount todouble the number of seats that are up forelection. Voters have the option of castingtheir ballot for the party or, as is moreusual, for an individual candidate. The sumof the party’s votes and those of its candi-dates determine its weight when the seatsare shared out. The number of votes foreach individual candidate determine his fi-nal ranking on the ticket and thus whetheror not he wins one of the seats due to theparty. Thus, competition at the polls takesplace not only among the parties but alsobetween candidates of the same party.

As it incorporates campaign-finance rulesthat permit fund raising by individual can-didates, the system has a corrosive effecton party discipline. At the same time, itobscures relations between the office-holder and his constituents. The majorityof voters, confused in face of the vastnumber of candidates, are usually unable toremember for whom they voted. Indeed,many appear not to care, as is reflected bythe increasing number of blank votes castfor deputies.

Fernando Henrique, and a majority of theleaders who support him, concur that amixed proportional district voting system,based upon the German model, would, inthe light of Brazil’s particular characteris-tics, be the best option for electoral re-form. It appears that the principal difficultyfor implementing this option will be con-vincing the deputies themselves that thechange would not leave them overly be-holden to regional bosses at the time whennames were being selected for inclusion onthe party ticket.

In the meantime, as this discussion pro-gresses, other narrower – though none-theless positive – proposals that addressthe problem of fragmentation and thereby

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increase the internal cohesion of the par-ties, are being examined by Congress.

Access to justice

The restoration of democracy has placedthe Brazilian courts system on the spot;partly as a consequence of its traditionalweaknesses, and partly as a result of ad-vances in which the judiciary has been, atthe same time, a protagonist and the forumof events.

The 1988 Constitution strengthened theJudicial branch, awarded independence tothe Office of the Public Prosecutor, andentrusted them with the defense of a mod-ern and generous charter of rights. On theother hand, the highly detailed text of theConstitution placed a heavy burden uponjudges by requiring them to deal with is-sues which properly, in a less punctiliousconstitutional environment, would be thepurview of the Legislative and Executivebranches. Moreover, the Constitution ex-panded the powers of the courts to man-age their own funding, without clearlyspecifying oversight mechanisms for con-trolling this budgetary function.

The burgeoning awareness of rightsamong society, on the one hand, and theincreased supply of legal assistance by non-governmental organizations have, for theirpart, generated a significant increase in thedemands placed on the courts. Thus, anincreasingly well-informed citizenry hasbeen motivated to exert its rights, but in sodoing find an overloaded court system, inwhich often even trivial cases may languishfor years before a final decision is reached.This leads to a sense of inadequacy inquestions relating to civil law. Moreover, itis felt that impunity permeates the criminaljustice system.

The agenda for reform of the Judiciary isextensive, complex and involves the sensi-tive issue of the independence of thebranches of government. Nevertheless, ithas moved forward, as a result of the ef-

forts of the government and of the partiesthat provide its congressional support.

The progressive view places emphasis, inthis agenda, upon changes aimed at makingaccess to justice more democratic. Thesehave included the establishment of specialcourts for swift resolution of cases involv-ing lesser sums (which are already func-tioning in various states and at the federallevel); the consolidation of the vast body oflaw currently in force (also currently un-derway); the simplification of proceduralrules, and blocking of appeals whose onlypurpose is to stall for time; stimulation ofmeasurement and of arbitration as solu-tions to disputes concerning propertyrights.

Participation with quality

The improvement of representative in-stitutions and access to Justice are impor-tant, not merely as a means, but as an endsin themselves. They are important, notsimply because of the strategic role ofthese institutions in providing a universalstandard of material well being, but alsobecause of the greater or lesser degree ofquality they can provide for the exercise ofcitizenship. Social inclusion cannot bemeasured only as a function of employ-ment and income; it also involves the feel-ing of belonging to a community and ofhaving a voice in determining its destiny.

If this view is to guide reform of the Stateand of the economy, it must also, at thesame time, highlight the need to enhancethe quality of participation in society itself.

The inroads that the media and the non-governmental organizations have madeupon the political scenario are irreversible.As a result, both have been exposed to alevel of demands that brings into questiontheir very status as private institutions.Being the “third sector” may be a goodthing, but there is a price to be paid. Theprice includes taking on responsibility forthe quality of public debate.

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From the viewpoint of the media, thisimplies an increasing demand for preciseand in-depth information, which are noteasy to conciliate with the entertainmentvalue that attracts mass audiences. Themedia in Brazil displays levels of excellenceon both counts – as information and asentertainment. It has also begun to facequestioning – and to question itself – withrespect to the mix of these two features,which tends to result in trivialization of thepolitical scenario to the level of a varietyshow.

From the standpoint of non-governmental organizations, the price tobe paid stands on the fine line between le-gitimate defense of the interests and valuesof a part of society and the advocacy ofspecial interest that cannot or will not rec-ognize the point at which the part becomesdetrimental to the whole. Recognition ofsuch legitimacy was a major achievementof Brazilian labor unions in the 1980s. Theacceptance of its corresponding public re-sponsibility will define the scope of unionaction, and that of associative movementsin general, in the immediate future.

No law can ensure the quality of publicdebate. Changes in the laws and, perhapseven more, the adoption of codes for self-regulation, may help but will not solve theproblem. What is at stake, essentially, is thespread and maturation of values – theemergence of a new democratic civic cul-ture. This is something which neither can,nor should, be imposed by the State. Itought, above all, to be propelled by thedebate itself and by the exemplary qualityof actions. Politicians, holders of electedoffice, and high government officials havean important role to play in this. But theirs,however, is essentially no different to therole of leaders of the media and of civil so-ciety.

The State without borders

There can also be no turning back fromthe trend towards the increasing perme-

ability of national borders to internationalflows of goods, capital and information.This does not mean – and herein lies theproblem – that the Nation State has ceasedto be the focus for legitimacy and an es-sential instrument for the fulfillment of thesecurity and well-being aspirations of itscitizens.

Brazil is, and is proud to be, a land ofmixed races, a multicultural nation. It isalso, just as other countries in the WesternHemisphere, a product of the first wave ofglobalization, which stemmed from Euro-pean commercial expansion. It is a countrythat, as a consequence of its history, thebackground of its governing elite, and thetradition of its diplomacy, has always en-visaged the world more as a source of op-portunity than of threats. For all these rea-sons, it ought not, in principle, to have anyinsurmountable reservations in coming toterms with the realities of the new era ofglobalization.

All this notwithstanding, those who gov-ern a country such as Brazil experience theburden of responsibility for maintainingthe course chartered, in a world in whichthe helm of the State has become so small.

“You have got to sail on...”, the Portu-guese were wont to say, five hundred yearsago.

The new world that the 21st Centuryholds in store may be appearing on the ho-rizon, to the extent that the convergence ofvalues among peoples, on the basis of de-mocracy, leads us to build mechanisms forthe exercise of these values at the interna-tional level. It is already possible to see theprincipal guidelines for this: multilateralismas an unswerving principle; strengtheningthe United Nations and making its organsmore democratic, especially the SecurityCouncil; enhancing international law withclear and uniform rules of procedure; andunrestricted respect for pluralism.

Whether to come out of the shell or towaste away: these are the options between

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which the State must choose, in face ofharassment from new protagonists bothfrom within national borders and beyond.The option of emerging from the shell anddeliberately sharing its political arena re-quires, besides new criteria for legitimiza-tion of authority, a new type of leader, withan ability for networking. An ability for

navigating the multiple universes of themedia, of foreign policy, the non-government organizations, the multina-tionals, the globalized markets, the virtualpublic opinion in the Internet, trustingmore in the magnetic qualities of demo-cratic values and less upon the unilateralfiat of the old bureaucracy.