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Brazil's accidental president

“Why are young people reacting against political life? Because of the lack of clarity, sincerity, and accountability.”

Fernando Henrique Cardoso speaks to Mayumi Yoshinari for Japanese current affairs magazine Chuo-Koron about leadership and democracy, drug policy reform, and how he ended Brazil’s economic crisis.

Fernando Henrique Cardoso

Photo: Paul Sharp

Introduction

His attractive, gentle smile will make you feel like dropping your guard.

Although best known for successfully solving 50 years of inflation in Brazil, Fernando Henrique Cardoso was originally a sociologist. He appeared in Foreign Policy magazine’s list of Top 100 Global Thinkers in 2005 alongside Noam Chomsky, Umberto Eco and Richard Dawkins.

Brazil: the world’s fifth largest country

With some 200 million inhabitants and covering nearly half of South America, Brazil is the world’s fifth largest country by land mass. Brasilia, the capital city, was constructed in the middle of the country in 1960. Its huge construction costs were a factor behind the country’s inflation.

Following the end of military rule in 1985 and the restoration of civilian government, a new constitution came into effect in 1988. Brazil has enjoyed significant economic growth since then and is now a member of the BRICS, the grouping of the world’s five major emerging economies. In 2012, Brazil was ranked seventh in the world by nominal Gross Domestic Product (GDP). (Japan was third.)

Brazil is a leading producer of soya beans, sugar cane, corn and oranges. It once brought a case to the World Trade Organization (WTO) against the United States, arguing that the US government’s generous subsidies to its cotton farmers was in violation of the international rules and US advocacy of free trade. The WTO agreed.

Although every Brazilian male is conscripted into the military at the age of 18, military expenditure in Brazil is only 1.6 per cent of Gross National Product (GNP) – around half of that in Japan. Brazil has direct elections for the presidency and voting is compulsory. If an eligible voter abstains, they will be fined and barred from obtaining a passport or employment as a civil servant.

More slaves were brought to Brazil than to the United States. Brazil consequently has a higher proportion of mixed-ethnicity inhabitants, who make up 38 per cent of the population while white people make up 55 per cent. Cardoso was born in Rio de Janeiro and is himself of African descent through an African great-great-grandmother and a “mulatto” (a term denoting mixed white and black ancestry) great-grandmother. He explains: “We simply fell in love, had children, and naturally we have become mixed.”

From sociologist to president

An admirer of Marx, Tocqueville, Mannheim and Schumpeter, Cardoso spent time in Chile and France in order to escape the military dictatorship in Brazil and to continue his academic career. As a sociologist, Cardoso advocated dependency theory, which argues that Third World countries on the periphery of the world system can still modernise despite their dependency on developed countries, as long as they do not follow the path of developed countries. Developed countries will always exploit the Third World; the dependency relationship needs to be severed in order to solve this problem.

While visiting New York as foreign minister in 1993, he received a call in the middle of the night inviting him to take office as the next finance minister. Recounting this moment, he said that he thought that his political career was over: he had seen as many as 39 finance ministers fail to fix Brazil’s hyperinflation problem.

However, Cardoso was successful as finance minister, becoming president in 1995 and serving two four-year terms in office. In a poll published upon his departure from office, Cardoso was named by Brazilians as “the best president” in their country’s history.

There were three issues that I really wanted to ask him about: Plano Real ('Real Plan'), the economic plan that successfully solved Brazilian inflation; the paradigm shift on drug policy; and the Bolivarian movement in South America.

This interview took place in Dublin, Ireland in May 2013.


Youth and politics

Chuo-Koron: As a member of The Elders, you have strongly encouraged youth to engage in social and political change through the Elders+Youngers project. In developed countries like Japan, young people have become rather apathetic and cynical towards political and social issues. What is the most effective way to get these young minds involved?

Fernando Henrique Cardoso: I would say, why are young people reacting against political life? Because of the lack of clarity, sincerity, and accountability. That’s the main issue. If you want to ask people – young people, people in general – to be more committed, you have to be committed yourself, and have values, and be capable of explaining what your values are, and justify your behaviour.

I was the president of my country twice – elected and re-elected – and always with the majority vote. Anyhow, it’s an illusion to believe that it’s enough to receive the votes. Every day, you have to, to some extent, regain public opinion because the general sense is that those in power will betray what they propose during the electoral campaign. So you have to prove that you are not betraying the people.

So it’s the leader’s responsibility to always show…

That’s right.

Also, you are the President of the Global Commission on Drug Policy, and you’re trying to change the drug problem from a criminal issue to a health issue. Why is the 'war on drugs' policy called the biggest failure of all world policies in the past forty years? Why is it so important for us to change our perspective on this issue?

I came from Latin America. It’s enough to look at what happened in Colombia before, and now in Mexico. The war on drugs was created in the US by President Reagan and President Bush. They continued to say that prohibition was the solution to the drug question. They made Americans experience that in the past with alcohol, and it was a disaster there, so I don’t know why they are insisting on this failed war.

The point is, if you don’t reduce demand, it’s impossible to take care of the drug question. So you have to make campaigns to show to the people that it’s not good to use drugs, as they did with tobacco. Tobacco was not prohibited or regulated. After several campaigns, now, the use of tobacco is coming down. So why not use the same system in respect to drugs? On the other side, it’s unnecessary to put drug users in jail – drug trafficking people, yes, but not drug users, because in jail, they will learn more about criminality, not less. So, instead of putting drug users in jail, it’s better to offer them health.

There is one country in Europe, Portugal, that made a brave, audacious decision: “let’s decriminalise all kinds of drug users.” Not “let’s legalise,” but “let’s decriminalise.” It’s not a crime, you see? I’m not saying it’s good for our health; it’s bad for our health – every kind of drug, including tobacco, alcohol, marijuana, all of them produce harm. But why put them in jail? So, let’s try to reduce the harm caused by drugs by offering health. That’s my point.

So, it’s the same approach we took with tobacco and alcohol...

Yes.

…And change them into health issues...

Yes, we are proposing a kind of paradigm change: instead of war, health.


'Plano Real'

Chuo-Koron: Now about the 'Plano Real'… Plano Real was an extraordinary economic plan, which worked amazingly well. Within a few months, it solved the inflation problem which had plagued Brazil for fifty years – especially the hyperinflation after the fall of the military dictatorship. May I summarise the Plan like this? The problem of inflation started with printing money to build the capital, Brasilia. After the fall of the military dictatorship, hyperinflation was 2,000 per cent a year. That means that an egg that costs one cruzeiro will cost 2,000 cruzeiros in a year’s time.

Fernando Henrique Cardoso: Prices changed every day!

Yes. After 14 presidents, 39 prime ministers, seven currencies and six economic plans, you finally solved Brazil’s inflation problem as the Financial Minister under Itamar Franco’s presidency.

That’s right.

Since you didn’t know much about economics, you summoned four economic 'Musketeers', including Mr Edmar Bacha, and their idea was to introduce virtual currency…

You explain better than myself! [Laughs.]

I’m checking with you to see whether there are any holes in my explanation. [Laughs.]

So the idea was to introduce a virtual currency – URV, the unit of real value – whose value was set to be approximately equal to one USD. All prices were quoted in two currencies: cruzeiros and URV. And the prices in cruzeiros changed daily, but the URVs were kept stable. And what changed daily was the exchange rate between cruzeiros and URV.

That’s right.

The idea was that people would start thinking in URVs, and stop thinking the prices would always go up. After a few months, people began to see that the prices in URVs were stable. Once that happened, you declared that the virtual currency would become the actual currency of the country, calling it the “Real.” Basically, inflation did stop from that day, and Brazil became a major exporter with 20 million people coming out of poverty. Is that right?

You are absolutely right, but I have to explain how this was possible.

Yes, how did it work?

One thing is the educational programme. In terms of comparison between the URV and the normal currency, what we aimed at was to teach people that it was possible to reason in terms of stability. But behind it, we had to change some practices. Inflation was not caused by people believing that the money would be undermined day by day. Inflation is caused because it comes from disequilibrium with respect to the budget and resources of the country.

“We did austerity, but simultaneously we offered hope, and simultaneously we were decreasing the inflationary system in Brazil.”

So we simultaneously remade the budget, cut government expenses by half, and tried to put the house in order. That is to say, every state, every province, every city was in debt. We proposed that the cities, towns, etc. postpone payments and enlarged the amount of time necessary to pay – but we forced them to pay. Simultaneously, we restricted the abuse of the budget by the federal government; that was the main cause for the government printing money. So, we did that, and on top of that, we showed the population that it would be possible to live in a stable economy.

Normally, the economists would take the dollar as a reference. We decided not to take the dollar, but the URV. Why? Because if the decision would be to take the dollar as a reference, we would be losing the capacity the central bank has to produce more money, because we would be restricted by the dollar. And this could have been an obstacle for Brazilian economic development. So, we had to mind, simultaneously, our preoccupation with inflation, and our preoccupation with recovery of the Brazilian economy – to keep going, to keep growing. It’s like in Europe nowadays. In Europe nowadays, the governments are asking for austerity and only austerity. We did austerity, but simultaneously we offered hope, and simultaneously we were decreasing the inflationary system in Brazil. So this is what we did with the Real problem.

You must have done a lot of campaigns…

Oh, yes!

…To try to teach people what your plan is.

I used to speak on radio and give press conferences and TV conferences almost every day when I was Finance Minister. I’m not an economist; I’m a sociologist. So I put together, as you said, a bright group of young economists. I know, of course, something about economics. But anyhow, my main task was to explain it to the public. And normally, when economists are trying to curb inflation, it is done in secrecy.

My decision was the opposite: let’s say to the population, step by step, let’s announce in advance what will happen, in order to have a kind of pedagogical approach. And this was important. Today, inflation in Brazil is going up six per cent a year. [Laughs.] And in spite of that, not that much, the population is very alert; they know that inflation can start with six per cent and become 100 per cent. So it’s better to take care from the beginning.

How did you find those 'Four Musketeers'? Why did you think it could be a solution to the inflation problem?

You have to have control of the budget. The government cannot be allowed to be indebted for a long time. It also cannot use the people’s money without responsibility. We approve, in Brazil, of fiscal responsibility law. These are the fundamentals of how you can manage with inflation.

But you also have the memory of inflation. So what we did with the URV was to cut the memory of inflation. Everyone was looking at the next day, saying: “well, tomorrow everything will be higher, will cost more,” and “I would like to have more wages, higher salaries.” They were asking for more because there was a kind of continuation. So we also had to cut this. We did, we did.


A trend in South America

Chuo-Koron: Latin American countries are trying to free themselves from imperial control of the US through the Bolivarian movement. Countries like Bolivia, Brazil, Ecuador, Argentina, Paraguay, and Venezuela succeeded in electing leaders from their own ethnic groups, and are trying to lead their nations towards socialistic democracies to tackle poverty and get rid of the International Monetary Fund. President Correa of Ecuador symbolically said, “We don’t mind having a US military base in Manta as long as the US allows our military base in Miami.”

What is your perspective on the Bolivarian movement in Latin America?

Fernando Henrique Cardoso: The Bolivarian movement was more restricted to countries where poverty was very high and where the elites were not looking towards poor people. That was not the case in Brazil. In Brazil, we never had the same approach. For a long time, we were trying to solve poverty problems. So now, this problem has been solved because of the economic situation moving ahead. Also, we don’t have the same anti-American sentiment that exists in Venezuela.

“Brazilians don’t have the sense anymore of depending on decisions made by the US or the EU. We feel that we have our own possibilities, our own resources to make decisions by ourselves.”

Anyhow, if you look at what happened in Bolivia, for instance, the elite group never, never took into consideration that the majority of the population was composed of indigenous people. They just decided not to pay attention. At one point in time, the indigenous people decided to bring about a state of revolt, so it was necessary to change everything. So you cannot generalise Latin America. Even Argentina is not the same. Argentina has a different tradition of more abundant – and also much better – economic possibilities and resources. So I think we cannot say that we are all together moving towards one same direction.

Brazil is in between. Brazil is trying to be simultaneously capable of building an area in South America of progress and peace, and to be more and more independent from the powers located in more developed countries. Now, we don’t have the sense anymore of depending on decisions made by the US or the EU. We feel that we have our own possibilities, our own resources to make decisions by ourselves. Of course, we are asking for cooperation. This is the paradigm we are putting more effort towards – instead of domination, cooperation.

So all Latin American countries are moving towards a sort of union?

Oh, yes. This is an old trend in Latin America to have a kind of atmosphere in which it is favourable to have a common view about different issues. We don’t have the same cultures; it’s different from country to country. I speak Portuguese, I don’t speak Spanish, for instance, but the majority of Latin American countries speak Spanish. But anyhow, in spite of that, we have the sense of belonging to what has been called the 'periphery' of the world capitalist system.

And now, we know that we are moving from the periphery to a more central position. Also, we recognise that nowadays there are networks, much more than blocs of countries. These networks can link different countries across the globe. Brazil cannot be acting as if we are arrogant; we are not arrogant. We know that we need each other, so we are always proposing more cooperation instead of submission, or instead of imposition.


The accidental President of Brazil

Chuo-Koron: In your book, The Accidental President of Brazil, you explain your unscripted and sometimes unwanted political career with humour. What were the biggest difficulties you encountered during your presidency? How did you manage criticisms and disappointments?

Fernando Henrique Cardoso: The most difficult questions during my time were about the inflation and the financial situation, and the fact that Brazil didn’t have enough resources to get out of its external debt, things like that. And that it suffered from the economic and financial crisis – the Russian crisis, the American crisis, the Argentinean crisis… it was a kind of headache all the time. All the time, we had this impossibility of looking ahead with some calm.

So this is now different. Now, Brazil is very good. We have in our reserves about $400 billion – not exactly, but almost. This gave us another perspective.

During my time, it was not like that, so it was difficult to have this. But then, I had to simultaneously take into account the necessity of changing the administration, to improve the different sectors of the Brazilian administration and the government. Also to take into account what I said before, at least to initiate some programmes of cash transfer to look after the poorest parts of the population, also to keep the minimum wage level growing in real terms. All this was very difficult – difficult because there were different perspectives and the apprehension of reality.

And in my country, we have lots of parties. When I was elected, my party, the Social Democratic Party, received 20 per cent of the votes in Congress, so managing the Congress was a tremendous effort – a day-by-day effort. We had to exert leadership with respect to the Congress. To be capable of inspiring the population, you have to be responsible as an administrator. Altogether, it was very difficult.

Fortunately, now in Brazil, we have a democracy, a starting point for everything there. The government is much more accountable, and despite differences in perceptions of political ideologies – for instance, I was succeeded by President Lula, who comes from another party – the main lines have been maintained, because there is a sense that you have to be responsible vis-à-vis policies which are working well.

What are the most important factors in keeping a nation sovereign? Brazil has conscription for every male turning 18, and Brazil mandates voting. Are they significant for maintaining the sovereignty of a nation?

The mandate to govern is by election and re-election in Brazil. Once the president, governors, and mayors have run in a second election, then they have to leave – maybe to come back again, but it’s more rare. What is important in our case is that we have the sense that the elections are correct, are clean. You have institutions that hold elections with electoral justice, which are highly respected.

And you have a separation between the judicial system and the executive branch. It’s true that the president appoints members of the Supreme Court, but as far as that, one person is appointed as a member of the Supreme Court, this person behaves independently from the government. I had been criticised several times by the Supreme Court that I appointed.

Recently, in a very important scandal in Brazil, people appointed by President Lula voted against some of his ministers in one case, which shows that you have independence, which is okay. I think our system is a young democracy, because the recovery of full democracy was in ’88 with the new constitution. But anyhow, these institutions are becoming more and more consolidated in Brazil.

As a member of the Elders, what are you most excited about and concerned about these days?

Well what I’m most excited about, being a member of the Elders, is to see each other – the commitment the Elders have vis-à-vis difficult questions, for instance, including what is occurring in Myanmar, or Zimbabwe, or South Sudan, or Palestine and Israel... These are questions that normally, political leaders don’t pay too much attention to. The Elders, being former political people, involved in practical political issues, have much more capacity to speak in the name of those who are voiceless. This seems to me very important nowadays.

On the other hand, we also have, among the Elders, people like Kofi Annan or Jimmy Carter who have enormous experience in dealing with power; they are well-informed, wise people… Mandela, the founder of The Elders, who cannot be an active member of The Elders anymore, and Archbishop Desmond Tutu… So you put together the experience of these people – most of them are older than 80! I’m 82! With the energy they have, to devote themselves to these difficult causes is a blessing.

What are your favourite books?

Normally, I used to read history books, but also novels.

What kind of books would you recommend to young people?

I wrote a book named A Letter for a Young Person Who Wants to Become a Politician. I think this is the kind of book – this is my sense, being a professor, that would inspire people. That’s why I like biographies, because they inspire independent minds.

President Cardoso, thank you so much.

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