brazil overview

Globalization and Recent Political Transitions in BrazilAuthor(s): Marcus Faro de Castro and Maria Izabel Valladao de CarvalhoSource: International Political Science Review / Revue internationale de science politique, Vol.24, No. 4 (Oct., 2003), pp. 465-490Published by: Sage Publications, Ltd.Stable URL: http://www.jstor.org/stable/1601633Accessed: 25/12/2008 22:05

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International Political Science Review (2003), Vol 24, No. 4, 465-490

I P Sk I I S P

Globalization and Recent Political Transitions in Brazil

MARCUS FARO DE CASTRO AND MARIA IZABEL VALLADAO DE CARVALHO

ABSTRACT. This article discusses political transitions in Brazil in the context of globalization. It focuses on the political legacies that offered resistance to external processes and on the emergence of "new checks and balances" that constituted the relevant conditions for processes of political decision-making from the 1980s to 2002. It also shows that the management of economic policies, combined with the broader political process, was an important dimension of these political transitions. The article concludes by emphasizing the challenges that exist in the treatment of social issues and the connections between the domestic and the international agendas.

Keywords: * Brazil * Democracy * Economic policy * Globalization * Social policy

(I) Introduction

In a trip to Uruguay, in early March 2000, the Brazilian President, Fernando Henrique Cardoso,l declared to newspapers that the tariffs imposed by the American government on imports of steel and orange juice from Brazil were directly connected to poor social conditions in his country. Cardoso asked: "What is the responsibility that American or European markets have in keeping economies closed, in keeping a situation of hunger here?" (Folha de Sdo Paulo, 2000: 1).2 The president also declared that American trade policies had a direct impact on "employment here [in Brazil]" and on "Brazilians' life conditions."3

The declarations by President Cardoso are an example of how transformations in world politics and world economic conditions in recent years, known as "globalization," have had an impact on the political and economic processes of different societies in the world. Capital-account liberalizations (which have occurred in many countries, often under the guidance of the International

0192-5121 (2003/10) 24:4, 465-490; 035232 ? 2003 International Political Science Association SAGE Publications (London, Thousand Oaks, CA and New Delhi)

International Political Science Review 24(4)

Monetary Fund), the push toward trade liberalization since the first General Agreement on Tariffs and Trade (GATT) negotiations, and the spread of democracy in the world have all contributed to an increase in the interaction of both political and economic interests, not only inside territorially referenced polities, but among all such polities around the world. However, the impact of developments occurring in the international environment has not been the same in all societies. The differences may be explained by the presence of distinct local conditions which act upon external influences and may modify the nature and timing of outcomes. Such local conditions include values or ideas relevant to policy-making and institutional organization, local economic and political interests, local institutions, and institutional histories-all of which interact with external economic constraints.

Historical neo-institutionalist approaches to contemporary politics (as opposed to neo-institutionalist approaches based on rational choice) have offered enlightening analyses of political change and transitions in policy-making in different nations. A well-known example is the account of how the shift from pre- Keynesian to Keynesian modes of policy-making took place in the USA, Sweden, and Britain in the wake of the Great Depression of the 1930s (Weir and Skocpol, 1985). The relevant point in this kind of analysis (which will also be employed in our article) lies in the emphasis given to the constraints imposed by existing policies and state capacities on the action of social and political groups, as well as on the decisions of politicians and governments.

Our article will focus on political and economic transitions occurring in Brazil in the context of globalization. It will consider the "policy legacies" and the innovations in ideological or value orientations taking place in the policy-making process in Brazil since the 1980s in the context of exogenous ("supranational" or "international") constraints. The article will therefore discuss recent transitions in Brazil from the point of view of the impact of globalization on Brazilian democratic politics and liberalization policies, and also from the point of view of domestic political conditions which have modified the timing and nature of outcomes.

Our analysis will start with the transition from oligarchic politics to populist politics in the 1930s. Then we will focus on the transition from populist politics to recent events in the 1990s.

(II) Resistances Emerge from Old Transitions

Economic globalization was largely a result of the decline of the world economic conditions which prevailed during the cold-war era. During this era, efforts were made to maintain peace, as well as to liberalize trade through GATT negotiations, though with limited results, and to sustain a regime of virtually fixed exchange rates worldwide, buttressed by financial assistance provided by the International Monetary Fund (IMF) to governments facing balance-of-payments difficulties. The refusal of Europe and Japan to buy dollar-denominated securities as a way of balking at American deficits growing out of the inflationary financing of American social welfare expenditures and of the American war in Vietnam in the 1960s (Cox, 1994) created tensions in the world economic system, leading to the demise of the "Bretton Woods regime." The suspension of the convertibility of the dollar into gold by US President Richard Nixon in 1971 was a major blow to the international economic system. Deregulation of financial markets prepared the

466

FARO DE CASTRO & VALLADAO DE CARVALHO: Globalization and Political Transitions 467

ground for the internationalization of the banking industry in the 1980s, while capital-account liberalization combined with the risks inherent in exchange-rate fluctuation increased the vulnerability of national economies due to enhanced volatility of financial markets. Furthermore, the attempt at cartelization by the oil- producing countries (Organization of Petroleum Exporting Countries) and the American interest rate hike under Paul Volcker placed many developing countries, including Brazil, under severe economic strain.

Many countries in the world have adjusted to these new world economic conditions. In Brazil, however, transitions were slow, and matters came to a breakpoint with the onset of three-digit inflation in the 1980s (see Figure 1). Indeed, while most Latin American countries had adopted pro-market reforms by the early 1990s, Brazil was considered, alongside Cuba, as one of the two "late reformers" in the hemisphere (Almeida, 1996: 214). The sluggishness of the Brazilian reaction to globalization has been largely attributed to the "stickiness" of existing state structures and the historically embedded ideas and practices prevalent in the policy-making process. Why was this so? In order to provide an answer to this question we need to take a few steps back, and to proceed from the 1930s.

The year 1930 was indeed a landmark in Brazilian history, for it brought a radical shift from local-oligarchic to national-populist politics when President Getulio Vargas came to power. It was under Vargas and subsequent governments that the so-called "developmentalist model" of policy-making was instituted in Brazil. This model lasted for many decades and facilitated economic growth led by industrial production boosted by import substitution. With some simplifications, the duration of this "model" can be divided into five broad periods: * The period of transition from decentralized oligarchy to political centralization

(1930-37) * The period of civil dictatorship (1937-45)

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Source: (IBGE Brazilian Institute of Geography and Statistics) <ftp://ftp.ibge.gov.br>

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* The "populist-democratic" period (1946-64) * The period of military dictatorship (1964-85), and * The period of transitional reforms (1986 to the present). With respect to economic policy orientations, the "developmentalist model" was characterized by: (1) the active role of the state in the promotion of economic growth through rapid industrialization; (2) a protectionist trade policy; (3) the creation of regulatory and financial (official credit) state structures; and (4) by the direct participation of the state in production through the creation of public- sector enterprises.

Developmentalist policies won active support from industrial groups, labor unions, and a growing middle class, which were a product of the new economic and social conditions brought by the crushing of the older oligarchic politics. The political prevalence of the new "model" was expressed in the dominant power exerted in the Brazilian Congress by the coalition of the Partido Social Democrata (PSD) and the Partido Trabalhista Brasileiro (PTB) in the democratic-populist phase. These were, respectively, the rural and the urban party organizations that from 1946 to 1964 provided channels for political negotiation for the presidency. But the development of this party structure only poured old wine into new bottles: it absorbed and adapted previous extensions of presidential power which operated largely through "appointed intendants" as state governors (Vargas's interventores) and through a wide-ranging corporatist framework whose main components were created during the 1930s and 1940s. The development of such a corporatist framework placed economic production and social services under the clientelistic control of the head of the federal executive (Souza, 1990: 134-5). The "economic" portion of this corporatist framework comprised four kinds of instruments: "a) bodies designed to balance agricultural and commodity production and consumption or to regulate imports and exports; b) bodies designed to provide incentives to private industry; c) bodies designed to implement, extend or reform basic infrastructure for industrialization; [and] d) bodies that were meant to engage directly in economic production" (Souza, 1990: 99). Alongside these there was the "administrative-political" segment of the framework. This segment was centered on the Administrative Department of the Civil Service (Departamento Administrativo do Servico Puiblico or DASP), a "super ministry" whose regional offices often functioned virtually as "political back offices" for presidential politics (Souza, 1990: 96-8). Lastly, the "social" portion of the framework was a diversified array of group-focused pension and social insurance funds supervised by the Ministry of Labor (Malloy, 1979). This "social" portion of the corporatist framework together with the operation of the labor law commissions also instituted by Vargas in 19324 were the means by which a form of political tutelage was exerted on the mass of the population, under what was later described as "regulated citizenship" (Santos, 1979).

In sum, the populist politics which developed from the 1930s relied on the plebiscitarian legitimation of the centralizing power of the president, complemented by the pre-emption or suppression of party life (from 1930 to 1946 and from 1964 to 1985) and by the control of congressional politics under the PSD-PTB coalition from 1946 to 1964. Moreover, the power of the president was also complemented by the clientelistic distribution of subsidies, rents, and benefits to economic and social groups by means of the corporatist framework orchestrated by the federal executive (see Table 1 for selected corporate bodies).

468


TABLE 1. Selected corporate bodies (1930-1940)

(1931) * National Coffee Council

(1932) * Institute for the Protection of Cocoa

(1933) * Institute for Sugar and Alcohol * Pension Fund for Maritime Workers

(1934) * Pension Fund for Bank Clerks

(1935) * Pension Fund for Commercial Employees (1937) * Industrial and Agricultural Credit Program of the Banco do Brasil (CREAI)

(1938) * Pension Fund for Public Sector Workers (IPASE) * Pension Fund for Cargo Transportation Workers (IAPTEC) * Pension Fund for Industrial Workers (IAPI)

(1940) * Institute for the Defense of Salt * Commission for the Steel Industry

Source: Nunes (1997) and Malloy (1979)

Another institutional feature also developed and grew in importance after the 1960s. This was the political use by the federal executive of macroeconomic management and its distributive impacts. This can be called the "political use of economic policy," which in the Brazilian case took the form of "economic populism." The "political use of economic policy" is in a sense the result of the policy-induced social experience of variations in economic production and consumption, which may be combined with the plebiscitarian legitimation of the power of the president. Economic populism is a political use of economic policy in which the emphases on growth and income redistribution are given preference over concerns with inflationary trends and external constraints.

The introduction of economic populism in Brazil changed the way in which governments were able to operate in managing political conflicts. Indeed, prior to the 1930s, the disruptive energies of potential conflicts were subjected to oligarchic domination. Subsequently, they were entangled in the practices of patronage, clientelism, and co-optation of the "presidential intendancies" and of the corporatist framework characteristic of the "developmentalist state." Lastly, during the military regime of 1964-85, the disruptive potential of political conflict was largely absorbed into the interplay between macroeconomic policy, private economic action, and the formation of economic expectations and their interaction with shifts in public opinion. This interplay is, of course, intensified with the extension of the right to vote to ever-larger portions of the population (see Table 2 ).

The "political use of economic policy" and the development of "economic populism" were favored by the professional and academic internationalization of economics and by its growth as a distinct area of expertise and training in Brazil.6 The transformation of multilayered adversarial procedures into secluded technical decisions of macroeconomic policy-making (which drastically concentrated administrative discretion by focusing on precisely quantified, value-neutral, depersonalized regulation of money flows) was expanded by the gradual implementation of statistical services and standardization of the accounting and bookkeeping methods employed in the management of public finance. In the case

470 International Political Science Review 24(4)

TABLE 2. Number of voters as percentage of total population in Brazil (1945-1990)

Year Percentage of voters

1945 16 1960 22 1966 27 1970 31 1974 35 1978 41 1982 47 1986 52 1988 54 1990 55

Source: Souza (1992), p. 197

of social welfare expenditures in Brazil, this included, for example, the unification of the social insurance system in a single National Institute of Social Assistance (INPS) in 1967 (Malloy, 1979: 83-145) (see Table 3). The creation of the Superintendence of Money and Credit (SUMOC) in 1948 and of the Central Bank of Brazil in 1964 are other examples of reforms that made possible the development of the "political use of economic policy" and of "economic populism" in Brazil.

During the military regime (1964-84) economic populism employed three major policy mechanisms: monetary correction from 1964, small exchange-rate devaluations from 1967, and tax exemptions. These were "automatic devices" in economic policy-making that were able to avert political crises during the period of military dictatorship by suppressing the direct adversarial procedures typical of political competition (see Skidmore, 1973: 28-31). The operation of "monetary correction" (adjustments in the value of contracts authorized by the publication of an officially certified index of past inflation) was perhaps the best example of such automatic economic devices.

It is against this background that one should understand the Brazilian transition to democracy in the 1980s. Indeed, during the late 1970s period of military dictatorship, international economic conditions, in particular the rise in the price of oil imports, were already highly unfavorable to developmentalist policy-making which relied on public expenditure to foster growth. Nonetheless, President Ernesto Geisel (1974-79) decided to adopt the Second National

TABLE 3. Evolution of the social insurance system in Brazil (1923-1970)

Year Number of institutions Active insured Retired insured

1923 24 22,991 1930 47 142,464 8,009 1940 95 1,912,972 34,837 1950 35 3,030,708 181,267 1960 6 4,222,470 518,088 1970 1 9,545,000 890,000

Source Malloy (1979), p. 102


Development Plan, which insisted on import substitution even under external economic restrictions stemming from the emergence of globalization. The strategy also included obtaining foreign commercial loans, which was initially acceptable given the willingness of the international banking industry to recycle petrodollars (Kapstein, 1994). But this later resulted in greater economic difficulties deriving from the balance-of-payments and fiscal impacts of the American interest rate hike on foreign debt servicing.

In spite of the efforts of pro-democracy leaders in the 1980s, it could have happened that the comeback of democracy in 1985 could have been just another 'turn of the wheel,' another moment in a cyclical pattern in which civilian and military governments alternated in power while essentially keeping the same policy-making model (the 'developmentalist model'). A second experience of 'democratic populism' in line with the 'developmentalist model' could have been (and in the late 1980s, under the Sarney administration, it certainly seemed to be) yet another turn in the cycle of Brazilian politics. This time, however, the cycle was broken. The difference came as a result of the combination of: (1) institutional reforms introduced in the process of rebuilding the Brazilian democratic regime, especially a revitalized federalism which reinstituted adversarial procedures as part of the decision-making process, thus rendering "economic populism" less manageable; (2) the emergence of a richer "interest pluralism" in Brazilian society, given the massive growth of the urban population during the decades of rapid industrialization; and (3) the shift from "economic populism" to "economic pragmatism" under Cardoso's Plano Real, with the brief, but decisive interregnum of Fernando Collor de Mello's "plebiscitarian liberalism."

(IH) The Rise of the New Checks and Balances

The democratic transition in Brazil has indeed been described as a comparatively long one, involving protracted negotiations, and resulting in a rather conservative compromise. However, it has also been a process in which power was distributed widely to different groups irrespective of their position in the corporatist framework. This was a break with a tradition of political centralization in the federal executive, a tradition which accompanied the adoption of the "developmentalist model" from the 1930s. It was this legacy, with its adjuncts of the corporatist framework, which began to be modified during the transition to democracy in the 1980s. Three crucial events have been instrumental in creating a new institutional environment. The first was the direct election of state governors in 1982. The second was the adoption of a new constitution in 1988. The third was hyperinflation, which thwarted economic populism. A fourth element which added momentum to the changes was the multiplication of a wide-ranging variety of interest groups.

The elections of 1982 were a first step in decentralizing the power of the federal executive and provided more leeway for subsequent negotiations with respect to the transition to democracy. As two analysts have indicated: "The fact that in 1982 the first direct gubernatorial elections occurred and the expectation that the political transition to democracy would proceed without backlashes had an impact on the hierarchy prevailing among the centers of power" (Sallum and Kugelmas, 1993: 290). Thus, since 1983 the power of the opposition parties has grown and the power of the federal government to influence local politics has declined. The elections were in fact "a break away from the structure of control [exercised] by


the central power upon the federation" (Sallum and Kugelmas, 1993: 290). This also affected the relationship between the Brazilian Congress and the no-longer- monolithic federal executive. In sum, "Institutional centers of power which were once subordinated [to the federal executive], such as political parties, the National Congress, local governments, etc., gradually won autonomy vis-a-vis the central power and became more broadly representative of the people" (Sallum and Kugelmas, 1993: 291).

A second step which consolidated the decentralizing tendency of the transition to democracy in Brazil was the adoption of the 1988 Constitution. After 1985, under civilian rule, democratic leaders decided that the constitution then in force (the 1967 Constitution, as amended in 1969), which had been the child of authoritarianism, should be replaced by a new, truly democratic charter. Thus, the 1988 Constitution incorporated a number of provisions designed to act as safeguards against a possible return to authoritarianism. Three of the new constitutional features must be singled out for their subsequent political and economic effects. The first was the reinforcement of the power of the National Congress vis-a-vis the federal executive. A second was the decentralization of federally collected funds to state governments (fiscal federalism). A third feature was the adoption of a detailed bill of rights, together with provisions that gave autonomy to the judicial branch and to public prosecutors. A more robust federalism, a reinvigorated political life in the legislature, and the so-called "judicialization of politics" (Castro, 1997a, 1997b; Vianna et al., 1999) were relevant consequences of these developments.

The multiplication of interest groups outside the more traditional party and corporatist structures of the "developmentalist state" was also an important change, beginning with the emergence of the so-called "new unionism" (novo sindicalismo) which also developed in the process of the transition to democracy. The "new unionism" was a labor movement that grew as a spin-off from workers' associations originally controlled from the top down by the corporatist framework of the developmentalist state (Alves, 1984). Benefiting from grassroots activism strongly supported by the so-called "church base communities" (comunidades eclesiais de base) of catholic priests inspired by the "liberation theology" movement, labor-union leaders, most notably Luiz Inacio da Silva (popularly known as "Lula"), became a strong catalyst of pro-democracy social forces in the late 1970s. Subsequently, civic mobilization grew increasingly plural and was translated into an impressive multiplication of interest groups and social movements outside the control of the "developmentalist" corporate framework.

The diversification and growth of interest mobilization can be visualized in the number of social movements through which new issues and forms of social action were articulated. According to Gohn (1997), three broad cycles of politically relevant social movements can be described as occurring in Brazil from 1972 to 1997. The first cycle features the sprouting of civil society associations and social movements under which groups were politically mobilized either nationally or locally to demand the return of democracy from 1972 to 1984.7 During the second cycle associations and movements organized to fight for a growing plurality of interests and issues in the period from 1985 to 1989.8 The third cycle spans 1990-97 and is characterized by a relative decline in urban movements and a rise in rural movements as well as by the articulation between national and international groups. This third cycle nonetheless includes a still-growing diversity of interests and issues.9 Furthermore, there was also a diversification of

472


economically oriented organizations of workers and producers (Almeida, 1996: 224).

Thus, the 1982 gubernatorial elections, the adoption of the "democratic" 1988 Constitution, and the growth of civic as well as economic interest pluralism introduced unprecedented transformations in Brazilian politics. The power of the National Congress was enlarged vis-a-vis the executive;'1 the party system became reinvigorated and diversified; the press and public opinion grew increasingly influential in politics; the political culture of Brazilians began to change and to uphold democratic elections as a political value (Moises, 1995); the corporatist structure inherited from the "developmentalist state" gradually declined as a major conduit for patronage and began to compete with a host of newer associational bodies linked to a more pluralistic pattern of interest representation, including unions, grassroots social movements, non-governmental organizations (Diniz and Boschi, 1997; Gohn, 1997), and municipalities (Abrucio and Costa, 1998); judges and public prosecutors became more active in challenging public policies and in protecting citizens' rights (Arantes, 1999; Castro, 1997a; Vianna and Burgos, 2002); and mayoral and gubernatorial elections and local politics acquired more importance in people's lives in determining the outcomes of the national political process in the context of a reinvigorated federalism (Silva, 1997). In short, at the level of politics, one could say that a Brazilian version of "checks and balances" was under construction from the late 1980s and throughout the 1990s, a period in which "interest pluralism" also developed.

(IV) Effects on Public Policies

The "new checks and balances" developed in ways that created novel procedures and also brought new challenges for dealing politically with issues ranging from social policy to economic policy (Silva, 1997). This happened primarily as a consequence of the adoption of the 1988 Constitution. Thus, besides the development of disputes among state governors and mayors regarding the appropriation of public funds collected by the central government (see Abrucio and Costa, 1998), state governors have also engaged in "horizontal" conflict, through which they have attempted to attract more federal funds or to attract investors by offering tax breaks in the so-called "fiscal war."

One of the recent challenges in Brazil in this field has been that of finding ways of transforming "non-cooperative" federalism into a "cooperative" kind of federal system (Abrucio and Costa, 1998). Moreover, given the provision in the 1988 Constitution concerning the distribution to municipalities of funds collected by the government of the union, many local political groups have attempted to create new municipal jurisdictions in order to become recipients of such funds under the constitution. In many cases they have succeeded, leading to a substantial increase in the number of municipalities in Brazil. In the state of Piaui, for example, the number of municipalities has grown from 48 to 221 in the period from 1988 to 1997, having thus more than quadrupled in nine years. The total variation in the number of municipalities in Brazil from 1988 to 1997 has been more than 31 percent. This increase in the number of municipalities became an additional element in the complex political game of new checks and balances in Brazil.

The more robust federalism has also affected social policy-making. The influence of renewed federalism on social policy can be seen, for example, in experiments in the decentralization of policy implementation (Arretche, 2002). In


fact, local control of social policy was a hallmark of Brazilian politics even during the "developmentalist era." As has been stressed by scholars (Abrucio and Costa, 1998: 111-12), "Even in the case of highly centralized and bureaucratized policies, such as social security under the INPS [National Institute of Social Assistance], and later by the INSS [National Institute of Social Security], the paternalistic character [of policy implementation] was maintained by the patrimonialistic control, at the regional and local levels, of bureaucratic posts that were strategic to the management of services." In the 1990s, this condition has been subject to change, given the experiments with and proposals for "cooperative" arrangements among municipal, state, and central administrations. Thus, for example, several Metropolitan Health Consortia have been established in Brazil since the implementation of the so-called Universal Health System (Sistema Unico de Saude) created by the 1988 Constitution (Abrucio and Costa, 1998: 115-42). Also, in the areas of both public health and primary education several bodies representative of local communities have been established in connection with the transference of funds collected by the central government (Abrucio and Costa, 1998: 144-5).

Lastly, revitalized checks and balances have affected economic policy-making as well. The "new checks and balances" which have grown since 1982 reinstituted direct adversarial procedures that hinge on local, regional, and national electoral politics, with consequences for economic policy-making. The new checks and balances became in this sense a novel political ingredient of existing "economic populism," since they added institutionalized sub-national pressures for fiscal and monetary expansion. On the side of fiscal policy, the populist dynamics of the new checks and balances are exemplified in the chain of political interactions between local and national authorities. As one author has put it:

The mayor [who has to satisfy constituencies] complains and asks for money [from] the governor. The state government, in turn, whose resources are also insufficient, complains and asks for money from the President of the Republic. The latter, who is in no position to satisfy everyone's demands, blames the international financial system, the IMF, the National Congress, the Constitution, the political parties, etc. (Montoro Filho, 1994; quoted in Castro, 1997c: 63-4)

On the monetary side of economic policy similar tendencies occurred. According to a report published by the president of the Brazilian Central Bank in 1993, outgoing governors in 1982 used the public banks of state governments to finance the campaigns of those candidates they wished to support (Castro, 1997c). The report indicated this political fact as being at the origin of subsequent difficulties in implementing centralized economic policy in Brazil. Subsequent governors often carried on the public finance practices of their predecessors. Moreover, state constitutions provided for the existence and operation of state banks independent from the central authority (Castro, 1997c). The capacity of state banks to finance politically motivated expenses by trading state treasury bonds in financial markets added to inflationary pressure on the Brazilian currency. Thus, centralization of monetary policy also became a problem of federalist politics under the new checks and balances, which gave new impetus to a now politically fragmented "economic populism."

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(V) The Internal-External Link and the Collor Divide

The significance of these transitions in terms of internal political and economic conditions cannot be fully understood without reference to their articulation with foreign policy. In this connection, it must be noted that one of the main characteristics of the Brazilian transitions has been the lack of an appropriate internal-external link, that is, the lack of a coherent and proactive foreign policy that would negotiate and craft international arrangements suitable to ongoing internal political and economic changes.

Brazilian foreign policy was dominated by the legacy of Barao do Rio Branco from the early decades of the 20th century to the 1970s. Rio Branco was the Brazilian Minister of Foreign Relations from 1902 to 1912. As the main diplomatic authority, he exerted an important and long-lasting influence on Brazilian foreign policy. Indeed, Rio Branco reoriented Brazil's international relations by shifting the focus of foreign policy from Europe and England to the USA (Storrs, 1973: 102-69). Thus, he built a foreign policy tradition of a "Special Relationship" with the USA. Rio Branco's "Special Relationship" policy paradigm remained the gist of Brazil's international relations until the so-called "globalist paradigm" emerged from its roots in the "Independent Foreign Policy" of the Quadros and Goulart administrations (1961-64). Although the 1964 military coup brought internal political and ideological factors that abruptly pushed Brazil's foreign policy back into the tracks of the older "Americanist" paradigm set by Rio Branco, the competing "globalist" paradigm continued to develop after 1967 into an alternative policy framework. This framework gradually came to be clearly articulated and strongly supported by prominent members of the Brazilian diplomatic community (Lima, 1994: 34-40). The "globalist paradigm" embodied both a critique of the "Americanist," "Special Relationship" foreign policy legacy and also the critique developed by the Economic Commission for Latin America and the Caribbean (ECLAC), especially by Raul Prebisch, which argued that prevailing international economic practices were detrimental to the Latin American economies. The "globalist paradigm" therefore emerged as a comprehensively articulated external-sector counterpart to the internal policies of the "developmentalist state" in time to buttress President Geisel's "Second National Development Plan." This plan included as a central objective the pursuit of firm diplomatic action in multilateral bodies in order to craft international conditions favorable to national industrial growth (Lima, 1994: 36-7).

Given this orientation in foreign policy, efforts were made in the area of international trade policy to secure special treatment for less developed countries (LDCs) in the GATT negotiations, as well as through the United Nations Conference on Trade and Development (UNCTAD) arrangements (Abreu, 1996). The "globalist paradigm" also insisted that the prevailing world order tended to "freeze" asymmetric power relations and that Brazil should resist international policy that placed restrictions on access to "sensitive" technologies. Lastly, the "globalist paradigm" also emphasized the need for Brazil to build ties and partnerships with a wide range of countries. "Frozen" international power asymmetries and the comparative political isolation of Brazil demanded agile diplomatic action in the forging of new partnerships with third world countries in Africa and the Middle East, and especially with neighboring nations. The globalist paradigm also called for diplomatic efforts to reject international regimes that would institute control over technologies (Lima, 1994).


In the 1970s and 1980s, the international economic environment underwent profound changes: the oil shocks; the American interest rate increase; the Latin American debt crisis; the internationalization of the banking industry; the adoption by less developed countries of the practices of "new protectionism"; the emergence of "new themes" in multilateral trade policy as an American-led response to tackle "free-rider" problems in world trade; and the rise of concern with "strategic trade policy" (which is based on nontariff barriers such as technical regulations and indirect state incentives to production and commerce). Thus, just as the Brazilian foreign policy framework gained consistency and enough momentum to complement effectively the internal policy of national industrial growth, world economic and political conditions changed dramatically.

Indeed, by 1989 Brazil's internal and external political and economic conditions were as follows. At the internal level, Brazilians were experiencing: * A recently completed transition to democracy * A new constitution that was adopted in 1988 ? An emergence of "new checks and balances" ? A growing civic and economic interest pluralism * A legacy of "developmentalist" policies geared toward import substitution * A "globalist" foreign policy ? A subjecting of "economic populism" to political fragmentation, and ? Growing rates of inflation.

Meanwhile, important transitions were taking place in a changing international environment characterized by: * The end of the cold war * The change of emphasis in multilateral trade policy, pushed by the USA and

reflected in the GATr agreements in the new areas of Trade-Related Aspects of Intellectual Property Rights (TRIPS), Trade-Related Investment Measures (TRIMS), and so on, in an attempt to override the practices of "new protectionism" undertaken by several countries, and

* The introduction, under American guidance and as a reaction to imbalances brought by recession and the debt crisis among LDcs, of the use of "structural adjustment conditionalities" in the provision of international financial aid, with distressing social and political consequences in recipient countries.

It was under these conditions that a strongly plebiscitarian election took place in 1989 and Fernando Collor de Mello (1990-92) was chosen as the second civilian president (and the first chosen by direct popular vote) since the transition to democracy in 1985. Collor de Mello was elected as a leader with strong popular appeal and weak historical links to established political groups. As an outsider with regard to all the major political parties, he opposed the left-wing candidate, Lula, who was perceived as a threat by the middle class.

It remains a crucial fact that Collor shunned both economic populism and the new checks and balances. Collor, therefore, did not engage in negotiations and did not seek to introduce reforms by means of adversarial political procedures. In adopting an imperial presidential style, he boldly promised to 'kill the tiger of inflation with a single bullet.' His stabilization plan was extremely daring and included freezing the bank deposits of all Brazilians for a protracted period.

Collor made no important attempts to work through adversarial political procedures, nor to develop a consistently structured and novel way to make

476


"political use of economic policy." Instead, he tried to rely solely on his charismatic appeal to the people, through what can be called "liberal plebiscitarianism." This political strategy, however, would cost him dear. In less than two years Collor was accused of participating in corrupt practices and was subjected to impeachment procedures. In 1992, he was forced to resign because of the likely impeachment he would suffer.

Notwithstanding his resignation, Collor still had the time to adopt reforms that would prepare the ground for the emergence of "economic pragmatism" under Fernando Henrique Cardoso. In a self-assured and imperial style, Collor opened important rifts in the institutional structure by introducing reforms that would change the way in which the state and the economy interacted. As Almeida (1996: 217) put it, "Collor's agenda for the first time associated the fight against inflation with reforms aimed at changing the patterns of state intervention in the economy." These reforms, with their longer-term consequences, concentrated mainly on two areas: trade liberalization and the privatization of public-sector enterprises (Almeida, 1996: 217). Moreover, important changes were also introduced in the conduct of foreign policy, by accelerating and broadening regional diplomatic initiatives.

The inflationary impacts of the expenditures of state-sector enterprises had already been a matter of official concern during the last years of the military regime. Under PresidentJoao Batista Figueiredo (1979-85) modest initiatives had been adopted in order to privatize state-owned enterprises. Collor established a much more ambitious privatization program, which was intended to "reduce the public deficit, increase the efficiency of the state, and to promote the democratization of capital, as well as the modernization and competitiveness of the economy" (Almeida, 1996: 218). By means of his reforms, Collor broadened and accelerated privatization of the state sector and established a privatization schedule that was not discontinued by his successor, President Itamar Franco (1992-94).

In the area of trade policy, Collor also introduced drastic changes. He discarded the whole protectionist orientation of globalist foreign policy by introducing sudden and sweeping liberalization of foreign trade. This liberalization was intended to curb inflation, as well as to improve the competitiveness of Brazilian industry. On the multilateral and bilateral fronts, the pursuit of less contentious lines of action was expected to ease the way for the attainment of better deals in the negotiation of the foreign debt (see Abreu, 1997: 348). The trade liberalization reforms were adopted without internal political negotiations with the Brazilian Congress or interest groups, and also without external political negotiation in multilateral bodies that could have provided needed economic opportunities for Brazilian interests. Collor's strategy was seen as a radical move that instituted broad liberalization but without gaining a corresponding tangible advantage from foreign competitors, including the USA. The president's sweeping commercial liberalization was indeed severely criticized by Brazilian diplomats who were aligned with the "globalist" view of foreign policy (see, for example, Batista, 1993).

Collor also accelerated and expanded the regional integration policy. The building of closer ties with neighboring economies was a point stressed by the "globalist" stance on foreign policy. Under President Jose Sarney (1985-89) the development of a "regional" foreign policy took the form of the Iguacu Declaration and the Treaty for Integration, Cooperation and Development, both


jointly signed by Brazil and Argentina in 1985 and 1988 respectively. At that point in time, however, regional integration was still regarded as a cautious move, a limited and long-term undertaking. Integration between the two countries was scheduled to take place over a 10-year time-span, and only later would the creation of a common market be considered. Collor dramatically accelerated and expanded this process. Integration and the development of a "common market" were rescheduled to occur within four years and were expanded to include Uruguay and Paraguay. The aim of Collor's administration in accelerating regional integration was to use this mechanism to reinforce liberalizing policies.

Thus, in these three areas (privatization, trade liberalization, and regional integration) Collor's reforms were fast enough and radical enough to make deep changes which could not be easily or quickly reversed in the future. However, Collor did not attempt to negotiate his reforms internally through adversarial political procedures. He did not heed the emergence of the "new checks and balances," nor did he develop an internal policy mechanism that would replace "economic populism." Moreover, Collor failed to control inflation and to articulate a comprehensive foreign policy that would craft a position in international relations which would favor sustained national growth and secure significant internal popular support. This is what Fernando Henrique Cardoso (1995-98 and 1999-2002) sought to accomplish.

(VI) Politics and Policy-Making Under Cardoso

Cardoso was elected in 1995 as the fourth civilian president since the end of the military regime. But he benefited from the fact that he had been appointed to the key position of Minister of the Economy under President Itamar Franco (1992-94). He was able to adopt a clever stabilization plan which became the cornerstone of policy-making and political strategies under his government.

As indicated by Almeida (1996: 220-1), during the military regime (1964-85) there was a broad consensus among all political groups, including the pro- democracy leaders, with respect to the policy-making model. All relevant political forces favored state-led strategies of development. The opposition, however, criticized economic policies adopted by the military governments because they were premised on wage repression as a precondition for growth. Pro-democracy groups therefore strongly insisted that economic policy should be able to "Fight inflation without penalizing the poor, reactivate economic growth, renegotiate the external debt, and establish democratic institutions" (Almeida, 1996: 220). These were the essential claims of the Democratic Alliance, a center-left coalition that negotiated the 1985 transition to democracy with the authoritarian leaders.

This broad consensus, however, was eroded in the mid-1980s in the face of repeated failures by governments to control inflation. In particular, the spectacular fiasco of the so-called "Cruzado Plan" under President Jose Sarney (1985-89) contributed to the emergence of a professedly new perspective on economic policy-making. This was called the "pragmatic approach" to economic policy-making (Almeida, 1996: 222). This "pragmatic approach" criticized "economic populism" and the inability of governments to address the so-called "inertial component" of inflation.

Indeed, economic populism had fueled inflation which, in the Brazilian case, had acquired a strong "psychological" dimension. This was the "inertial component" of inflation, that is, the generalized propensity of economic actors

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FARO DE CASTRO & VALLADAO DE CARVALHO: Globalization and Political Transitions

TABLE 4. Brazilian stabilization plans, 1979-1991

1) First Delfim Plan (1979)

2) Second Delfim Plan (1981)

3) Third Delfim Plan (1983)

4) Dorelles Plan (1985)

5) Cruzado Plan (1986) 6) Bresser Plan (1987)

7) Summer Plan (1987)

8) "Rice and Beans" Plan (1988)

9) First Collor Plan (1990)

10) Second Collor Plan (1991)

Source- Pereira (1992), pp. 141-144

constantly and automatically to adjust prices in anticipation of future inflation on the basis of past inflation. The "inertial component" of inflation was a direct legacy of economic populism and its use of monetary correction. The idea was that the Brazilian middle class had become accustomed to playing the inflationary game (Oliveira, 1996: 26-8) by reaping the benefits of monetary correction, while the much larger, poor underclass had to experience heavy losses through what was called the "inflationary tax": the poor almost literally had to eat up their meager incomes in immediate consumption and were thus unable to benefit from monetary correction.

Since 1979 the Brazilian authorities had attempted to control inflationary trends through several "stabilization plans." From Defim Neto's first plan in 1979 until the ousting in 1992 of the second civilian president after the military regime (Collor de Mello) there were 10 plans for monetary stabilization (Pereira, 1992). A list of such plans is provided in Table 4. Yet, all such plans were remarkably unsuccessful in dealing with the "inertial component" of Brazilian inflation. Thus, after the experience of 10 unsuccessful stabilization plans, it seemed that no remedies were available to overcome the detrimental impact of hyperinflation on society and politics, which affected all social groups.

While left-wing politicians such as Lula still clung to old populist formulas, Cardoso cleared the political front by working out compromises with the conservative political groups of the Partido da Frente Liberal (PFL) and the Partido Trabalhista Brasileiro (PTB) and adopted his Piano Real. This plan comprised emergency reforms in areas of fiscal and monetary policy and several other long- term reforms. The emergency reforms had the aim of eliminating the "inertial component" of inflation, without outside help and without the use of repressive measures such as price controls, while the longer-term reforms were meant to introduce changes in the structure of policy-making that could render monetary stabilization more lasting. In the description offered by Oliveira (1996), Cardoso's stabilization plan was organized in four major "phases," as indicated in Table 5.

From a political point of view, the main characteristic of Cardoso's Piano Real was the establishment of a two-level policy-making structure. Thus, in Cardoso's plan, monetary and exchange-rate policy remained insulated from political

479


TABLE 5. "Plano Real"-implementation phases

Phase 1 - Emergency fiscal adjustment (1993): a) Immediate Action Program [Programa de Acao Imediata-PAI]--emergency

cuts in expenses; rescheduling of debts of states and municipalities; enhancement of administrative control on state-owned banks; reorganization of the privatization program.

b) Emergency Social Fund [Fundo Social de Emergencia-FSE]-discretionary spending power over a portion of budgetary resources was obtained from Congress.

Phase 2 - Emergency monetary reforms (1994): a) Referential Value Index [Unidade Referencial de Valor] (Feb., 1994)-

unification of monetary correction in a single "superindex" for synchronization of price adjustments.

b) Real as new currency (Jul., 1994)-change of the national currency from "Cruzeiro Real" to "Real."

Phase 3 - Longer-term monetary reforms (as ofJul., 1994): a) Tight monetary policy-stern control of monetary expansion. b) Exchange rate alignment-exchange rate flexible parity with the USD.

Phase 4 - Structural reforms (as ofJul., 1994): a) Trade liberalization and regional integration-continued from past governments

and used to curb internal price increases. b) Privatization-continued from past governments. c) Deregulation-cut back in "red tape" regulations. d) Constitutional reforms-allow for private investment in utility and service

sectors (energy, telecommunications etc.) hitherto legally characterized as requiring "national" capital or as "state monopolies."

Source: adapted from Oliveira (1996).

negotiation, whereas non-monetary reforms would be widely open to adversarial

political procedures, including revitalized federalism. Insulation and a streamlined staff were secured to "core" bureaucratic areas, such as in the National Monetary Council, and in areas of policy-making that were deemed crucial to the success of monetary stability.

In the past, the National Monetary Council had had a comparatively large membership, including representatives from several bureaucracies and from the

private sector. In 1994, shortly after Cardoso's inauguration, the membership of the National Monetary Council was reduced to the smallest size in its history: from 1994 until 2002 only the Minister of the Economy, the Minister of Planing and the President of the Central Bank had seats in the council (Souza and Castro, 1995). The variation in the size of the membership of the National Monetary Council is shown in Table 6.

The political power of the "core" economic staff was also greatly enhanced by the centralization of budget-management procedures (Loureiro and Abrucio, 1999). Using extensive negotiation as a means of incorporating the "new checks and balances" into the politics conducted by the federal executive was thus counterbalanced by insulating key areas of economic policy-making and by subordinating the policy-making ability of cabinet politicians to the discretion of the "core" economic staff, who wielded the "power of the purse" (Loureiro and Abrucio, 1999).

480


TABLE 6. Membership in the National Monetary Council of Brazil (1964-1994)

Year Number of Members

1964 11 1967 10 1969 14 1972 15 1990 17 1994-present 3

Source: Souza & Castro (1995)

Thus, Cardoso was able to make "political use of economic policy" that was distinguished by the enlarged ability it offered to defend monetary stability derived from colossal increases in the interest rate. In this respect, Cardoso's strategy was therefore:

* To pre-empt the veto power of conservative groups in congressional politics by setting up an alliance with them after the elections (specifically between Cardoso's party, the Partido Social Democratico Brasileiro (PSDB), and the PFL and the PTB)11

* To take advantage of the increase in popularity brought by the dramatic drop in the inflation rate that was attained through the ingenious emergency reforms and the consequent suppression of the "inflationary tax"

* To sustain low rates of inflation by coordinating a flexible exchange-rate- alignment policy with a commercial liberalization policy that allowed for the entrenchment of some special interests, such as those of the automobile industry

* To trade "exploding inflation rates" for "steep interest rates," notwithstanding the resultant astronomical swelling of the public debt, and

* To incorporate extensive and protracted negotiations for the non-monetary portions of the plan under the auspices of the electoral and governing coalition.

Cardoso thus actually abandoned "economic populism," which had characterized much policy-making in the past, and developed "economic pragmatism." In contrast to "economic populism," "economic pragmatism" gives emphasis to monetary stability and external constraints, even at the expense of growth, increased employment, and the redistribution of income. In sum, Cardoso took advantage of the rifts that had been opened by Collor in the policy legacies of the "developmentalist state" and proceeded with the expansion of pro-market reforms. Yet, unlike Collor, Cardoso (1) did develop a manageable policy-making structure by which he could pursue "economic pragmatism" and (2) did incorporate the "new checks and balances" in his political strategy. While Collor had used only the "stick" of his imperial politics, Cardoso used both the "carrot" of extensive wheelings and dealings in the context of the new checks and balances and also the "stick" of skyrocketing interest rates and a gigantic public debt. Thus, a crucial portion of the disruptive energies that were once entangled in the practices of patronage, clientelism, and co-optation of the old corporatist framework and that were partially captured in "economic populism" and its inflationary side effects were now steered into the "management" of the public debt. This was compounded at the external level with enhanced credibility before


the international financial community, including the IMF and the World Bank, and at the internal level by negotiations (under the watchful eye of the electoral and governing coalition) with interest groups for the approval of the reforms of "phase four" of the plan. These reforms included privatization and the opening of markets in the utility and service sectors (energy, telecommunications, and so on), which were previously closed to private or foreign investment. Periodic renewal with the congress of a discretionary spending power over a portion of the budget (the Fundo Social de Emergencia or FSE, later called Fundo de Estabilizacao Fiscal or FEF) and extensive negotiations with parties, politicians, state governors, and interest groups, combined with firm handling of fiscal and monetary policy through the "core" economic staff in a manner concerted with international aid

agencies, above all the IMF and the World Bank, allowed Cardoso to stay the course and even be re-elected in 1998.

(VII) Lula in Power: Economic Pragmatism with a Hulman Face

Despite Cardoso's noticeable achievement of monetary stabilization during his first term in office from 1995 to 1998, as demonstrated by the sharp drop in inflation after 1994 (see Figure 1), by the end of his second term (1999-2002) it had become apparent that his main policy initiatives were ineffective in four major respects. First, Cardoso's policies failed to foster enough economic growth. In the

period from 1995 to 2002, average annual growth was 2.3 percent. Second, unemployment remained relatively high, rising above 7 percent during 2002 (see Figure 2). Third, under extremely high interest rates,12 the public debt grew to

unprecedented magnitudes, approaching 60 percent of gross domestic product (GDP) by late 2002 (see Figure 3). This meant that huge amounts of valuable resources had to be constantly allocated to debt servicing. Lastly, notwithstanding improvements in health and education, Cardoso's policies were unable to reduce extreme poverty in Brazil (see Barros et al., 2000).

7,5

7

6,5 r

6 t ' nil-

5,5 ' -

*

5 , .11 r *.

4,5 '

4- - _ . -

3,5 .

3 94 65 96 97 98 99 00 01 02

FIGURE 2. Year-end unemployment rate (1994-2002) Source: Boletim do Banco Central do Brasil,January, 2003-<http://www.bacen.gov.br> visited 15 January 2003

482

FARO DE CASTRO & VALLADAO DE CARVALHO: Globalization and Political Transitions

70,0 l' : .:-

60,0 j I,' - , I

40,0

30,0

20,0

30,0

10,0

3. Brazilian public sector debt as a percentage of the P (2001-2002)

FIGURE 3. Brazilian public sector debt as a percentage of the GDP (2001-2002) Source: Boletim do Banco Central do Brasil, January, 2003-<http://www.bacen.gov.br> visited 15 January 2003

Taking advantage of these vulnerabilities in Cardoso's policy record, Luiz Inacio Lula da Silva13 of the Partido dos Trabalhadores (PT) campaigned strongly during the elections of 2002. In his campaign, Lula stressed the continuing state of poverty and destitution of the Brazilian people and criticized Cardoso's policies as "neoliberal" and unfair to the great majority of citizens. Lula also argued that Cardoso's policies were bad for economic growth and thus for economic and social development. Lula was therefore able to exploit what was perhaps the centerpiece and most successful motto of his campaign rhetoric: his promise to eliminate hunger from Brazilian society under his proposed "Zero Hunger" program.

However, as compared to previous campaigns in which he had participated, Lula significantly rounded off his discourse in order to make it more widely appealing to the middle class and to local and international business. Thus, during his campaign in 2002, Lula strongly insisted that his policies would definitely not undermine monetary stability. Moreover, with an eye on international investors, Lula also stated emphatically that his government would not violate existing contracts. Lastly, building on the tradition of the PT in fostering grassroots activism, Lula stressed that he would lead the formation of an inclusive "Social Contract," which would bring together groups from the business community and the labor unions, in order to hammer out plans capable of accommodating diverse interests in areas such as tax policy and social security that would be conducive to social development and economic growth. In fact, in 2002, Lula was able to project an image of himself as an able politician of popular extraction with a heartfelt moral concern for the have-nots. But he was also able to avoid being perceived as a left-wing radical. This campaign strategy won him a massive victory in which he rounded up more than 52 million votes, some 61.27 percent of more than 86 million votes (Tribunal Superior Eleitoral, 2003).

483


Lula's new rhetoric also reflected the decisive political leadership of a faction known as "Articulacao" within the PT. Articulacao, which had acquired a hegemonic role in the PT since 1995, was distinguished by its comparatively moderate positions on ideological and policy issues.1 This faction upheld the view that, at the ideological level, the PT should evolve from its original radicalism and move closer to society as a whole. This more moderate orientation of Articulacao, combined with poor economic growth under Cardoso's government, also paved the way for the development of an alliance of the PT with business sectors. This alliance resulted in the choice of a business leader in the textile industry (significantly, a sector which experienced economic hardship under Cardoso) as a candidate for the vice-presidency.15

Lula was quick to reform the government machinery as soon as he took office. Under the banner of the "Zero Hunger" program, and holding fast to his campaign promises of correcting social injustice, Lula created several first-rank, high-profile administrative posts in social policy areas, such as the Extraordinary Ministry of Food Security and the Fight Against Hunger, the Special Secretary of the Social and Economic Development Council, the Special Secretary for Women's Rights, the Special Secretary for Human Rights, and the Ministry of Social Assistance and Promotion.16

Yet, despite his clear drive to fight hunger and poverty, Lula also appointed an economic staff that had left behind all ideological commitment to old populist ideas and that now followed the moderate view of Articulacao. Thus, Lula's Minister of the Economy, Antonio Palocci, could stress in his inaugural speech that "for many decades we have been unmistakably one of the most unequal countries in the world" (O Estado de Sdo Paulo, 2003). But he also insisted that, although there had been much recent speculation as to the possible adoption of "unconventional measures" by the new government, the president and the economic staff held the firm conviction that it would be necessary to maintain sound principles of economic policy, including "fiscal restraint, the control of inflation and a free exchange market" (O Estado de Sdo Paulo, 2003). This meant that, under Lula, economic policy would essentially follow the model of "economic pragmatism" adopted under Cardoso, but adding to it a renewed effort to correct social injustice by adopting a strategy of extensive negotiations with political parties and social groups. Thus, the PT'S evolution, Lula's campaign, and the beginning of his government all pointed in the direction of the emergence of a modified version of economic pragmatism, resulting in a policy style that can be described as "economic pragmatism with a human face."

This humanized version of economic pragmatism was also distinguished from the policies adopted under Cardoso with respect to the internal-external link. Thus, Lula's political strategy also pursued a renewal of foreign policy.

Indeed, on the international front, three main events may be indicated as signs of innovation. First, given the failure of structural adjustment policies in Argentina, Lula was favored by the relative loss of credibility of the kinds of reforms advocated by agencies such as the IMF and the World Bank. He benefited from the fact that these agencies promptly offered to support what seemed to be Lula's creative policy plans, including the "Zero Hunger" program.

Second, Lula moved to become a leading figure in the formation of the so- called "Friends for Venezuela" mediation group, which provided a springboard from which Brazilian presidential diplomacy could try to acquire a protagonist role in South American politics. Third, by appointing Celso Amorim as Minister of

484


Foreign Policy, a diplomat who shared his concerns about social development, Lula embraced the chance of a general change in Brazilian diplomatic strategies.

Cardoso's foreign policy had been in part characterized by a loose fit between several of the president's official speeches, which were often critical of globalization, and practices at the concrete policy level. Concrete policies generally conformed to globalization, since they combined (1) a pragmatic loyalty to structural adjustment policies under the "core" economic staff coordinated by the Ministry of the Economy and (2) a diplomatic stance that placed great emphasis on technocratically oriented, multilateral trade negotiations and conflict resolution conducted under the World Trade Organization (wro), while allowing the institution building of Mercosur to lose some of its steam.17

The diplomatic strategy of placing special emphasis on multilateral negotiations under the WTO was stressed by Celso Lafer, who was appointed Brazilian Minister of Foreign Relations in January 2001. Under Lafer's predecessor, Ambassador Luiz Felipe Lampreia (1995-2000), it had already become clear that the old "globalist" perspective was no longer believed to generate an effective foreign policy framework. It was recognized that "The times of isolationism and of self-sufficiency are bygone[s]" (Lampreia, 1998: 8). But there was no clear and decisive focus on a new direction for foreign policy that could be articulated under a new policy paradigm.

According to Lafer, multilateralism was "the only hope" and "the best guarantee that globalization will promote the common good" (2002: 239). Lafer upheld the notion that it was "imperative to inject renewed vigor in the WTO" and that "with the aim of strengthening the multilateral system of trade, we need, first, to secure due implementation to the agreements of the Uruguay Round" (2002: 239).

Amorim's views on international relations differ from those characteristic of Lafer. In his inaugural speech, Amorim stated that "Under the government of Lula, South America will be our priority" (MRE, 2003). He also declared that Brazilian foreign policy would be oriented to "recover the vitality and dynamism" of Mercosur (MRE, 2003). Amorim also called for more "flexibility for investments and social and environmental policies" in the WTO (O Estado de Sdo Paulo, 2002).

The insistence on concentrating efforts on arid technocratic negotiations and conflict resolution under the WTO without a clear commitment to values linked to social and economic development was, therefore, largely abandoned. In sum, the shift to "economic pragmatism with a human face" seems to be accompanied by an effort to renew foreign policy so that it may become an adequate external support for domestic aspirations of social and economic development.

(VIII) Concluding Remarks

Our article has discussed political transitions in Brazil in the context of globalization. We have focused on transformations in state structures and policy legacies that have, in our view, influenced internal responses to a changing international environment. We have stressed that the legacy of the "developmentalist model" of policy-making was important to shoring up resistance to change in the 1970s and 1980s. We have also indicated that the management of macroeconomic policy combined with the broader political process was an important dimension of the transitions. While "economic populism" developed from the 1960s onward and provided new instruments to governments under the military regime, the growth of inflation determined the rise of "economic pragmatism." However,


persistently slow growth and a relatively poor record in social policies prepared the ground for the emergence of "economic pragmatism with a human face." We have also focused on the role of foreign policy and its initial failures to afford

timely articulation of the internal-external link, a situation that seems to have

changed at the beginning of the 21st century. Our conclusion is that the transitions in Brazil had a double character. On the

one hand, they were characterized by the development of resistances to the swift

adaptation of domestic policies to changing economic conditions in the international environment. On the other hand, in the long run such resistances have led to the establishment of institutional structures and policy changes that have opened up new possibilities for the construction of a more pluralistic democratic order that may aspire to overcome extreme social injustice at the local level and to adopt a more active role in hemispheric and international affairs.

Notes

1. Cardoso was elected president of Brazil in 1994 and was re-elected in 1998. He remained in office from 1995 to 2002.

2. The translations appearing in the present article are by Marcus Faro de Castro. 3. Cardoso's statements came as a response to the publication by the American

government of a report which pointed to insufficient achievements by the Brazilian government with respect to the protection of human rights, which included, in Washington's view, poor performance in the promotion of social justice (us Department of State, 2000).

4. These were administrative panels functioning under the supervision of the Ministry of Labor. Such administrative panels evolved to become incorporated as a division of the judicial branch in the 1940s.

5. Some authors have described the impact of expansionary monetary and fiscal policies in Latin America, referring to this as "economic populism" (see Dorbush and Edwards, 1991). Generally speaking, this literature highlights the fact that "economic populism" hinders redistribution aimed at overcoming poverty (see, for example, Cardoso and Helwege, 1991). However, the connections between politics and economic policy in contemporary societies have also been addressed from other perspectives. Hirschman (1985), for example, points to the "positive" political uses of inflation.

6. On the internationalization of economics and its emergence as a distinct field of expertise in Brazil, see Loureiro (1997).

7. Some examples are the Movement for Amnesty (1977-78), the Feminist Movement (1975-82), the Movement Against the High Cost of Living (Custo de Vida-Carestia, 1974-80), the National Confederation of Neighborhood Residents (1982), and the National Union of High-School Students (Uniao Nacional de Estudantes Secundaristas). Several of these have remained active and developed links with political parties, as in the case of the Movement of Landless Peasants (Movimento dos Sem- Terra) which was formed in 1979.

8. Examples include the National Movement of Homeless Children (Movimento Nacional dos Meninos e Meninas de Rua), the Natives' Movement (Movimento dos indios), the Movement of Persons Indebted to the National Housing System, the National Movement for the Reform of Education, and so forth.

9. For example, the movements known as I Love Rio (Viva Rio) and I Love Sao Paulo (Viva Sao Paulo) were concerned with urban development, security, and the quality of life in those metropolitan regions and the movement called Ethics in Politics organized against President Collor de Mello in 1992, while there also existed the so-called Movement Against Urban Development in Historical Districts, the National Movement Against State Reforms, as well as Citizens Action for Life and Against Hunger and Destitution (Agao da Cidadania contra a Fome, a Miseria, pela Vida) in 1993-96.


10. Although the formal powers of the congress were expanded under the 1988 Constitution, the empirical verification of the consequences of this constitutional change has been a subject of debate (see Figueiredo and Limongi, 1995; Santos, 1997).

11. The PFL and the PTB are conservative parties, while the PSDB is a center party. 12. Per annum short-term interest rates averaged 18 percent in 2001 and 2002 (Banco

Central do Brasil, 2003). 13. The nickname "Lula" was legally added to his original name (Luiz Inacio da Silva). 14. The leadership of Articulacao became prominent at the tenth general meeting of the

PT, convened in August 1995. This meeting electedJose Dirceu as president of the party. Jose Dirceu became secretary to the president in Lula's government. See Velasquez and Costa (2001).

15. This was SenatorJose de Alencar of the Partido Liberal (PL). The alliance was approved by the PT in March 2002.

16. These administrative posts were introduced in addition to the more traditional social policy ministries in the areas of culture, health, education, sports, and so on.

17. According to Vaz, from 1996-97 onward Mercosur was made to become "distant from the goal of construction of a common project of development and transformation of production that guided the process by which it emerged and the first years of its evolution" (2001: 48).

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Biographical Notes

MARCUS FARO DE CASTRO is Professor of Law and International Relations at the

University of Brasilia, Brazil. He is the author of De Westphalia a Seattle: A Teoria das Rela?jes Internacionais em Transicdo (From Westphalia to Seattle: International Relations Theory in Transition) and Latin America and the Future of International

Development Assistance. ADDRESS: Universidade de Brasilia, Faculdade de Direito,


Campus Universitirio Darcy Ribeiro, Asa Norte, 70910-900, Brasilia-DF, Brasil [email: [email protected]].

MARIA IZABEL VALLADAO DE CARVALHO is Professor of International Relations at the

Department of International Relations of the University of Brasilia. She has published on political parties and Brazilian foreign policy, including Crise ou Falencia: os Partidos Politicos Ontem e Hoje (Crisis or Failure?: Political Parties, Yesterday and Today) and O Itamaraty, a Politica Externa e os Empresdrios (Itamaraty, Foreign Policy, and Brazilian Business). ADDRESS: Universidade de Brasilia, Departamento de Relacoes Internacionais, Campus Universitario Darcy Ribeiro, Asa Norte, 70910-900, Brasilia-DF, Brasil [email: [email protected]].

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