The outlook for 1999 is grim. Brazil is facing a deep recession and a return of inflation; continuing volatility in the value of its currency; a political cat fight over fiscal reform legislation in Congress; acute stress in the relationship between the federal government and the states; the risk of defaults on state and federal government debt as well as in the private sector; and astronomic and unsustainable inter

Fernando Henrique Cardoso, who was first elected to the presidency in October 1994, had sought his second term on the basis of the real plan's success. Now all was ashes. Having been reelected to the presidency only three months before with over 50 percent of the vote, Cardoso saw his approval rating in the polls drop below 22 percent by the end of January 1999.

The formidable changes Brazil was experiencing with urbanization, greater political participation, and wider access to education and to the media and technology were simultaneously giving a voice to increasingly larger sectors of the Brazilian population. And as new voices emerged in the more pluralistic environment of the mid1980s and 1990s, the political game became even more complicated and more ideological, with newly independent unions, religious groups, indigenous movements, women's organizations, environmental activists, a powerful and more critical press, and a formidable movement of landless rural workers all energizing civil society and challenging the old oligarchic style of decision making and political representation.

More quietly, Olivio Dutra, the governor of Rio Grande do Sul, Brazil's second largest state in economic terms, who is a member of the opposition Worker's Party, obtained an injunction from the Supreme Court allowing him to place his debt to the federal government in escrow and avoid being declared "in arrears," which would trigger the impoundment of federal transfers to his state. Thus, when all the governors except Franco met with Cardoso at the end of February, the president was obliged to recognize that their situation was precarious and needed federal support.

The current account deficit reached almost $35 billion for 1998 despite the $9.32 billion initial payment from the IMF package. Brazil's external financing needs in 1999 are estimated to be in the region of $52 billion. With the second tranche of $9 billion due in March 1999, this will mean that almost 44 percent of the IMF package has already been committed.

But interest, more than percentages, was a key to the escalating crisis. The burden of debt quickly attained unsustainable levels. Yet because of the global crisis of liquidity and the risks it posed, the fiction that all was well in Brazil needed to be sustained, and it was-at least until the global system could be inoculated against the potential impact of a Brazilian crash and President Cardoso was safely reelected.

The intractability of social security reform encapsulates the problems of expenditures and special interest mandates. To give but two sensitive and politically explosive examples: The military contributes R$100 million to social security annually, while military benefits cost R$7.2 billion. In the city of Sao Paulo, pensions absorb two-fifths of the public safety budget. The military police of the city alone have 35,000 pensioners, one for every two men on active duty. With 53 serving colonels, the city supports 100 retired colonels collecting pensions.

The Brazilian population's anger that the real plan had collapsed is not difficult to explain. Brazil's recent history is littered with failed economic programs and abandoned currencies. Brazilians had hoped against all hope that this time the real was for real. Even its name was now an affront. And Brazil had had more than its fair share of political disappointments as well.

During the height of the panic in January, President Cardoso, borrowing from Winston Churchill's famous wartime exhortation, spoke of the need for "blood, sweat, and tears." Later, it became apparent that Brazilian banks had made more profit in January than had the whole Brazilian banking system over the previous year. Elio Gaspari, the Brazilian political columnist, pointed out that not only had President Cardoso forgotten to add Sir Winston's call to "hard work," but that he could also have evoked another Churchillianism to explain what had happened that month in Brazi

Some common words found in the essay are:
President Cardoso, Latin America's, Sao Paulo, Cardoso February, Latin American, Insecurity Public, President Cardoso's, Carlos Magalhaes, Madrid Lisbon, Wall Street, president cardoso, social security, federal government, 1988 constitution, real plan, sao paulo, public debt, rural workers, itamar franco, wall street, restrain capital flight, central bank president, social political rights, landless rural workers, successful congressional candidates,
Approximate Word count = 5173
Approximate Pages = 21 (250 words per page double spaced)