BRAZIL'S SARNEY ADMINISTRATION: ECONOMIC STABILIZATION AND DEMOCRACY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP04T00794R000100170001-0
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 29
• Document Creation Date: December 22, 2016
• Document Release Date: May 18, 2011
• Sequence Number: 1
• Publication Date: June 1, 1986
• Content Type: REPORT

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Directorate of
Intelligence
Brazil's Sarney Administration:
Economic Stabilization
and Democracy
ALA 86-10028
June 1986
201
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Directorate of
Intelligence
and Democracy
Brazil's Sarney Administration:
Economic Stabilization
An Intelligence Assessment
Analysis,
This paper was prepared by
Comments and queries are welcome and may be
directed to the Chief, South American Division, ALA,
coordinated with the Directorate of Operations.
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ALA 86-10028
June 1986
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Brazil's Sarney Administration:
Economic Stabilization
and Democracy
Key Judgments Brazil's relatively smooth transition to civilian rule under the year-old
Information available administration of President Jose Sarney has served broad US interests in
as of 28 April 1986 furthering the democratization process in Latin America and in maintain-
was used in this report.
ing the stability of the region's most populous and economically powerful
state. Thrust unexpectedly into the presidency after the death in April
1985 of President-elect Tancredo Neves and lacking Neves's stature and
national political base, President Sarney has, nevertheless, succeeded so far
in holding together a disparate governing coalition, maintaining military
backing, and pursuing economic policies that last year helped Brazil
register the world's highest GNP growth rate.
With his political base strengthened by the results of last November's
municipal elections, an increasingly self-confident Sarney has recently
abandoned his low-key style and begun to use more freely the considerable
authority of the Brazilian presidency to gain control over an inflation rate
that had soared to an annualized monthly rate of more than 400 percent.
He made his boldest move in February by announcing an unprecedented
economic program that includes currency reform, a temporary wage and
price freeze, and gradual elimination of Brazil's pervasive indexation
system.
To date, the emergency program has enjoyed strong popular support and
has succeeded in squeezing monthly inflation to near zero. We believe the
Sarney administration will maintain rigorous controls over prices for most
or all of this year and, consequently, probably will depress average inflation
for 1986 to about 75 percent. In our view, the program also will slow
economic growth this year 4 to 5 percent by restraining wages and
discouraging new private investment.
Brazil is likely to improve its ability to service its $100 billion foreign debt
by registering another $12-13 billion trade surplus this year, in part
because of surging coffee revenues and sharply falling oil expenditures.
Also, a recent restructuring of 1985 and 1986 bank debt coupled with
declining interest rates will reduce debt servicing costs substantially.
We believe economic achievements of this order will allow Sarney to retain
the support of the centrist political majority and the military while keeping
the left off balance, particularly Leonel Brizola, the Governor of Rio de Ja-
neiro and a presidential aspirant. As a consequence, we expect Sarney to
Secret
ALA 86-10028
June 1986
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emerge strengthened from the key gubernatorial and congressional elec-
tions this fall and to play a crucial role in the drafting of a new constitution
in 1987 that is to reshape Brazil's political system.
Sarney's political fortunes, however, will remain hostage to the health of
the economy, which could still weaken as the result of any one of several
factors. Governmental fiscal vacillation in the face of interest group
pressures, for example, could lead to continued expansion of the public
deficit and the monetary aggregates, not only rendering impotent the
emergency program but triggering resurgent inflation. Under deteriorating
economic conditions, leftist groups probably would stir social discontent,
make considerable gains in the congressional elections, and prompt a
reaction from Brazilian conservatives that eventually would lead to a
highly polarized environment. On balance, however, we believe that such a
souring of events will not occur and that Sarney will continue to preside
over a fairly smooth transition process.
We expect a politically and economically secure Sarney administration to
strive to maintain reasonably harmonious relations with the United States,
although some frictions will undoubtedly continue even under the best of
circumstances over trade, foreign investment, and debt policies. For the
most part, his administration should continue to be moderately sympathet-
ic-though not acquiescent-to US concerns on arms sales to pariah states
such as Libya, narcotics control, and blunting Cuban and Soviet adventur-
ism in South America. If the economy unexpectedly weakened and
Sarney's political position deteriorated, however, he might take policy
positions inimical to US interests, becoming more confrontational on debt
policy-particularly if there was a concomitant rise in US interest rates or
a spate of protectionist legislation-and less cooperative with US foreign
policy initiatives.
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Key Judgments
Sarney Strengthens Political Standing
Emerging From Neves's Shadow
1
A Return to Rapid Economic Growth
3
Inflation Surges
5
Political Consequences
6
Sarney's Response
6
Economic Shock Treatment
7
Near-Term Challenges
7
Avoiding Pitfalls in the Economic Plan
7
Keeping the Left in the Wings
8
Cultivating the Military
9
Outlook
9
Implications for the United States
12
Biographies of Key Personalities
15
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Brazil's Sarney Administration:
Economic Stabilization
and Democracy
The untimely death of the immensely popular
President-elect Tancredo Neves presented both prob-
lems and opportunities for his successor, Jose Sarney.
While Neves's demise initially created considerable
anxiety within both civilian and military circles, it
dampened popular expectations and probably gave
Sarney greater maneuverability and a longer "honey-
moon" than Neves would have had. By increasingly
assertive use of his presidential authority and adroit
political maneuvering, Sarney was able to keep the
transition on track and begin constructing a popular
base for his government.
In our view, Sarney, however, faces greater challenges
in his second year in office than in the first. Guberna-
torial and congressional elections in November will
test the strength of the governing coalition parties.
Sarney's ability to implement successfully his recently
announced economic stabilization package in the face
of interest group resistance and to balance competing
political elements will be a key factor in ensuring the
election of moderates. The political atmosphere will
heat up even more as the new congress-also empow-
ered to act as a constituent assembly-begins drafting
the new constitution in early 1987. Apart from the
overall task of reshaping the political system, the
assembly also will be responsible for setting the date
for Brazil's first direct presidential election.'
This paper provides our first comprehensive assess-
ment of the prospects for Brazil's civilian government
over the next year. It is the first of several papers
designed to follow the complex political and economic
developments in the redemocratization of Latin
According to the present constitution promulgated under the
military regime, Sarney is to serve a six-year term. During the
presidential campaign in 1984, however, the late Tancredo Neves
and Sarney stated their preference for a four-year term. Sarney
publicly has reiterated this stance but stated that, ultimately, the
America's largest country.r
Sarney Strengthens Political Standing
Emerging From Neves's Shadow
Sarney faced an uphill struggle for public and politi-
cal acceptance when he assumed the presidency on 21
April 1985. According to the US Embassy, the lead-
ers of the Brazilian Democratic Movement Party
(PMDB) had accepted Sarney as the vice-presidential
candidate at Neves's behest, but distrusted Sarney 25X1
because of his former membership in the old military
government party, the Democratic Social Party
(PDS). Moreover, the military and the PDS disliked
him for having left their party to help form the
Liberal Front Party (PFL) and joining Neves's Demo-
cratic Alliance. Finally, Sarney was a politician whose
experience and backing was confined primarily to the
"backward" northeast, and he lacked Neves's nation-
al prestige, recognition, and popularity.
Upon taking office, Sarney immediately moved to
bolster his political backing. He invoked Tancredo's
memory to appeal for the support of the governing
Democratic Alliance in order to present the image of
a unified civilian government. US Embassy reports
indicate Sarney also continued Neves's practice of
consulting with politicians ranging from the left of
center to conservatives to prevent infighting and 25X1
damage to the image of civilian leaders in the weeks
following the President-elect's death.
Throughout 1985 Sarney moved purposely to retain
military backing
He withstood pressure from some radical
leftist groups to hold widespread investigations into
human rights abuses under the military regime, made
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Brazil's Major Political Parties
The Governing Coalition
The Brazilian Democratic Movement Party (PMDB),
the majority partner in the governing coalition, is the
country's largest party, claiming 2.2 million members
nationwide. Formed in 1981 from the conservative
Popular Party and the Brazilian Democratic Move-
ment-the official opposition party to the military
government-the PMDB's heterogeneous member-
ship runs the ideological gamut from conservative to
Marxist. The PMDB's 217 delegates in the lower
house of Congress--out of total membership of
479-include approximately 60 leftists who have
pushed Ulysses Guimaraes, president of the Chamber
and leader of the party, to distance the party from
President Sarney.
The Liberal Front (PFL)-the minority party in the
coalition-is more homogeneous, center right with a
base of support in Brazil's northeast. The PFL was
founded in 1984 by Sarney and a number of promi-
nent defectors from the military-backed Social Dem-
ocratic Party (PDS) who left to join Tancredo Neves's
Democratic Alliance. US Embassy reporting indi-
cates the PFL has a number of prominent likely
presidential aspirants, but a weak grassroots mem-
bership.
Other Center-Right Parties
Social Democratic Party (PDS)-Although it still
controls some 95 seats in the Chamber of Deputies,
the party is largely discredited because of its role in
the military government and may disappear as its
most prominent members defect to other parties.
recently attracted a number of prominent conserva-
tive businessmen, academics, and politicians who
advocate frugality and honesty in government as well
as an IMF-oriented economic policy.
Leftist Parties
The Democratic Labor Party (PDT), as illustrated by
the results of the November 1985 municipal elections,
is expanding its influence outside of its political base
in Rio. Founded in 1980 and controlled by Rio de
Janeiro state Governor Leonel Brizola, the PDT is
the second-largest party in numbers of elected office-
holders nationwide and the fourth largest in Con-
gress. Although in the past the party has reflected
Brizola's militant leftist views, US Embassy and
press reports indicate the Governor is beginning to
remold the PDT's image along the lines of a center-
left, West European social democratic party, which
he hopes will win the support of moderates for his
presidential campaign.
The Workers Party (PT) was founded in 1980 with
the backing of unions in the industrial city of Sao
Paulo. An umbrella group of Marxist parties headed
by the charismatic labor leader, Lula da Silva, the
PT has increased its membership significantly in the
past year. The PT, which claims 320,000 supporters
nationwide, supports labor militancy to improve
worker living standards and has called numerous
strikes through its labor arm, the CUT. Although a
number of the PT's component groups are dyed-in-
the-wool Marxists, the party is taking a moderate,
pragmatic approach publicly.
Brazilian Labor Party (PTB)-Founded in 1945 by
the late President Getulio Vargas, the PTB has
waxed and waned as a political force since his death
in 1954. His daughter revived the party in 1980 and
led it until her death in 1984. Until this May when he
quit the party, Janio Quadros used the PTB as his
personal political vehicle, winning the Sao Paulo
mayoralty in November 1985. Although still small in
numbers, it has an active, large youth wing and has
Brazil's Communist parties are small, but active and
ideologically coherent. The largest is the Brazilian
Communist Party (PCB), which follows Moscow's
line and claims to have increased its membership
from 6,000 to 27,000 since Sarney took office,
While some
violent strikes and land seizures.
members of the PCB advocate violence, the leaders
have decided that the party will continue to work
peacefully and through democratic channels. The
Communist Party of Brazil (PC do B) has some 5,000
to 8,000 members, and is more militant, espousing
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high-profile appearances at military ceremonies, and
heeded military advice to go slowly on reestablishing
diplomatic ties to Cuba and resuming large-scale
arms sales to Libya.
Although Neves had promised to cooperate with
Brazil's foreign creditors, the Sarney government
sought to bolster its popular standing by taking a
much tougher stand in its relations with the IMF and
the banks. According to 1985 polls, most educated
Brazilians believed the implementation of IMF pre-
scriptions would prevent expected living standard
improvements. US Embassy sources reported Sarney
feared that acceding to IMF requirements for prompt
and deep cuts in public spending would produce a
recession and a political backlash. Accordingly, Brasi-
lia announced in late 1985 that it would no longer
seek a formal agreement with the Fund, and would
proceed with its own more gradual economic adjust-
ment program tailored to domestic political realities.
Sarney also sought to capitalize on the wave of public
support for political change by moving rapidly to
implement the political liberalization measures prom-
ised by Neves. By May he had pushed through
Congress bills providing for direct presidential elec-
tions and a constitutional assembly, legalizing the
banned leftist political parties, and authorizing demo-
cratic municipal elections. The US Embassy reports
that the administration also granted labor more au-
tonomy in negotiating with employers and began
integrating the Congress more effectively into the
policymaking process by consulting frequently with
key congressional leaders on important legislation.
Largely because of these steps, Sarney's public ap-
proval ratings in opinion polls exceeded 60 percent
during much of the year, according to the US
Embassy.
A Return to Rapid Economic Growth
By far the most important element in Sarney's strate-
gy to establish his presidential standing was the high
priority he assigned to economic policies aimed at
restoring rapid growth and redressing long-neglected
socioeconomic inequities-the so-called social debt-
both highly popular goals in Brazil. To stimulate
domestic demand, the administration permitted large
real wage increases and substantially increased public
spending, particularly on health, education, food, and
housing. Furthermore, the government maintained
rapid monetary growth in an attempt to lower domes-
tic interest rates. According to the US Embassy,
industrial employment grew some 5 percent in 1985
while the gross domestic product rose more than 8
percent-the highest rate in the world last year.
The administration's decision to soft-pedal stabiliza-
tion in deference to politically popular rapid growth 25X1
did nothing to curb the triple-digit inflation rate-
prices rose 234 percent last year compared to 225
percent in 1984. Brazilian economists report that the
surge would have been considerably higher had it not
been for use of price controls and other artificial
restraints. As the public-sector deficit soared to a
record high following two successive years of sharp
decline, institutional reforms languished. Sarney
made little progress in trimming the overgrown and
inefficient state-owned corporations, he chose not to
tamper with the politically sensitive indexation sys- 25X1
tem-whereby wages, rents, and the value of govern-
ment securities and other instruments have been
periodically adjusted to compensate for past infla-
tion-and he deferred plans to complete a much-
needed budget reform.
Despite these stimulative policies, Brasilia maintained
a strong foreign payments position, mainly because of
its successful import-substitution program. Official
statistics show a second successive annual trade sur-
plus exceeding $12 billion last year. Although the
government continued its aggressive currency devalu-
ation policy, exports fell some 5 percent to $25.6
billion because of lower commodity prices and slowed
growth in the OECD. An exhaustive US Embassy
analysis indicates, however, that the moderate drop in
foreign sales was largely offset by a $1.1 billion cut in
oil imports as domestic crude production jumped 20
percent to 563,000 barrels per day average during
1985.1 The resulting large trade surplus and falling
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The Municipal Elections: Old and New Politics
The municipal elections in November 1985-the first
elections under civilian rule presented outside ob-
servers with a kaleidoscopic view of the transitional
nature of politics in Brazil. Old and new political
styles, symbols, figures, parties, and ideologies inter-
mingled in a complex manner that mirrored the
country's socioeconomic development-rapidly mod-
ernizing, yet tradition bound in many respects.
The governing coalition, the Democratic Alliance,
turned in a mixed performance in the campaigns. The
senior partner, the Brazilian Democratic Movement
Party (PMDB), won a majority of the municipal-
ities-116 out of 160-but lost in Rio de Janeiro,
Porto Alegre, and Sao Paulo. The defeat in Sao
Paulo of the PMDB standard bearer, Fernando Hen-
rique Cardoso, effectively dashed the prospects of the
party's principal presidential hopeful, opening the
,field to a host of other key party figures. The setback
led to a renewal of bitter infighting of the sort that
has frequently threatened to split the party. The
coalition's minority partner, the Liberal Front Party
(PFL), performed poorly, failing to capture even a
single mayoralty.
The two principal leftist parties, the Democratic
Workers Party (PDT) and the Workers Party (PT),
fared well in the elections. Led by the leftist Governor
of Rio de Janeiro, Leonel Brizola, the PDT succeeded
in expanding its base outside Rio by winning the
important city of Porto Alegre and even some north-
eastern cities. The PT was able to move out of its
home base of Sao Paulo, winning several rural
municipalities nearby and even capturing the impor-
tant northeastern city of Fortaleza.
Press reports about the local campaigning highlight-
ed the persistence of traditional personalistic politics.
Politicians continued to improve their prospects of
winning office by becoming the proteges of more
powerful individuals, best illustrated by the electoral
assistance provided by Brizola to candidates outside
Rio state. In Sao Paulo, a coalition of disparate
interest groups tied themselves to the old style, and
often demagogic, populist politician Janio Quadros.
In the northeast, moreover, prominent individuals
and families frequently outweighed parties in deliver-
ing votes.
At the same time, political commentators were
cheered by signs during the elections that Brazil is
developing a modern political party system. At pre-
sent, Brazil has over 30 legalized parties, although
many are likely to disappear. Nevertheless, the larg-
est parties are thriving and have begun to utilize
modern electioneering techniques, including polling,
sophisticated media campaigns, and use of US politi-
cal consulting firms to campaign for office. For the
first time, many parties hammered out coherent,
pragmatic platforms to win voters.
In the November municipal elections, according to
press and Embassy reporting, the electorate focused
on a range of issues that the new civilian politicians
will have to act on to retain popular support. Press
and Embassy reporting indicate that voters signaled
their impatience with government redtape, corruption,
and inefficiency by rejecting incumbents in many
cities. In our view, the prominent emphasis given to
such issues as social reform and honest government
augur additional changes in Brazil's patrimonial
political system.
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interest rates permitted Brasilia to cover its interest
payments on foreign debt, to refrain from seeking new
money from commercial banks, and to hold its inter-
national reserves at more than $11 billion.
An Electoral Windfall
In the November 1985 elections, the first nationwide
test at the polls since he took office, Sarney chose to
place the continuing consolidation of his own position
above partisan interests. With offices in 160 munici-
palities up for grabs, the President opted not to
campaign for the parties in his coalition, but instead
to stand above the contest and identify himself with
the election as another democratic advance. Sarney
reasoned, in our judgment, that this approach would
ensure that he would not personally suffer from any
party losses, but would profit from the elections
having taken place, regardless of outcome.
Not only did this strategy prove correct, but the
President also benefited from the mixed electoral
performance of the PMDB. US Embassy and press
reports indicate that, until the election, Sarney had
been facing increasing difficulties with the PMDB
congressional bloc-the largest in Congress. Led by
the dominant Sao Paulo faction, PMDB congressmen
not only had balked at backing the administration's
legislation, but on some occasions had openly ob-
structed the President's legislative initiatives. The
Embassy and political commentators indicated, how-
ever, that the defeat of the PMDB mayoral candidate
on its home turf in Sao Paulo by the populist ex-
President Janio Quadros, represented a setback for
the party's dominant faction.
the poor electoral showing by the old military govern-
ment party also led many of its members to switch to
the PFL and the PMDB, thus bolstering the centrist
and conservative elements in the governing coalition.
Inflation Surges
At the beginning of 1986, Sarney's political strategy
appeared to us to be succeeding on all fronts except
one: inflationary pressures that had accumulated over
the months of expansionary policies had begun to
swell out of control and evoke strong public concern.
Monthly inflation accelerated to a more than 400-
percent annual rate between November 1985 and
February of this year as expanding domestic demand, 25X1
drought-induced food shortages, and diminishing ex-
cess industrial capacity overwhelmed the govern-
ment's patchwork inflation-fighting measures. =
increasingly serious price
distortions in the economy and faltering public confi-
dence in Sarney.
Growing pessimism about inflation and a tightening
financial squeeze caused many domestic and foreign
private-sector firms in Brazil to defer plans for invest-
ment despite near-capacity utilization rates, accord-
ing to the US Embassy. The weakened financial
position of the private sector reportedly stemmed from
high interest rates, rising labor costs, price controls,
and increased corporate taxation. The Embassy also
noted that, for the first time since 1971, remittances
of profits and dividends by multinational corporations
in Brazil exceeded new foreign direct investment
flows, further intensifying the investment squeeze.
quell growing inflationary pressures.
Brazil also encountered difficulty obtaining a mul-
tiyear rescheduling agreement from its foreign credi-
tors. Although Brazil's bank advisory committee ten-
tatively agreed last January to reschedule debt due in
1985, to roll over 1986 principal, and to maintain
short-term credit lines without a formal IMF agree-
ment, it sought additional policy assurances from the
government before finalizing the accord. The banks
wanted the government both to guarantee repayment
of foreign obligations owed by three failed private
Brazilian banks and to make stronger adjustments to
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Figure 2
Brazil: Economic Indicators,
1981-85
Real GDP Growth
Percent
Monetary Base Growth
Percent
Current Account Deficit
Percent of GDP
Inflation
Percent
Public-Sector Borrowing
Percent of GDP
Foreign Debt
Percent of GDP
85- 0
Political Consequences
The US Embassy reported that rising inflation-
particularly the announcement of a record monthly
price increase in January of this year-sent shock-
waves through the country. President Sarney came
under increasing political pressure from the diverse
elements in the governing coalition to take action. The
left wing of the PMDB stepped up its attacks on
Sarney's economic policies, accusing the President of
not doing enough to bring about economic and social
change, according to the US Embassy. While not as
sharply critical of Sarney, the moderate politicians in
the PMDB and the PFL became increasingly con-
cerned about the damage accelerating inflation could
have on their prospects in the congressional and
gubernatorial elections scheduled for November 1986.
The leftist opposition and labor also moved to exploit
the political opportunity. Convinced that inflation was
undermining Sarney's popularity, presidential hopeful
Leonel Brizola decided to move ahead with his cam-
paign to press for a direct presidential election this
year, Brazil-
ian labor served notice that it would take a more
militant stance when, in January, the most aggressive
labor confederation, the Unified Workers Central
(CUT), announced its intention to launch a series of
strikes pushing for increased salaries and benefits.
Increased Political Assertiveness
Sarney's response to these challenges was a dramatic
shift in both style and policy. Feeling less beholden to
the governing coalition, Sarney abandoned his
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low-key governing style and began in early 1986 to
exercise more freely the considerable authority of the
Brazilian presidency, using federal troops to stop a
disruptive truckers' strike in January, for example.
More important, he reshaped the Cabinet to make it
more politically conservative and personally loyal, and
reorganized the presidential staff to make it more
effective, especially in dealing with Congress. Work-
ing primarily behind the scenes, he adeptly soothed
the bruised egos of PMDB leaders who were angry at
his Cabinet shifts and headed off their defection from
his government.
Economic Shock Treatment
On the economic policy front, Sarney declared war on
inflation; the opening round was signaled by the
administration's announcement at the end of January
of a major reform of the federal budget process and
the conduct of monetary policy. A major effect of the
reform was to eliminate the longstanding open line of
credit, known as the conta de movimento, that the
central bank had made available to the Bank of
Brazil-a large government-owned commercial
bank-to finance the government's various commod-
ity and credit subsidy programs. Under the reform,
control over such Bank of Brazil expenditures has
shifted to the Treasury, whose budget is required by
law to be in surplus or balance. The reform strength-
ened considerably the ability of the Finance Minis-
ter-who oversees Treasury affairs-to control the
execution of the federal budget process and limit
increases in the money supply.
Sarney launched his main attack on inflation on
28 February when he announced the implementation
of a bold new emergency program, dubbed the Tropi-
cal Plan, which he asserted would eliminate inflation
without precipitating another recession. According to
the decree law, the program gradually ends the
pervasive indexation system that has been the major
impediment to conventional efforts to reduce inflation
for more than 20 years. With indexation abolished,
the administration also hopes to encourage investors
to shift their resources from financial speculation to
economically productive enterprises. The program
also features a new "cruzado" currency, a fixed
cruzado-dollar exchange rate, and a temporary-but
comprehensive-wage and price freeze. To appease
labor, Brasilia promised a wage adjustment when
increases in costs of living reach 20 percent, and
established a new unemployment insurance scheme.
At the outset, the Tropical Plan stopped inflation in
its tracks, at least temporarily-inflation was
squeezed to near zero in both March and April-and
the plan gained widespread popular backing. Further-
more, by this action, President Sarney has established
his political control, addressed the economic concerns
of the PMDB, and, for the present at least, undercut
his leftist critics.
Sarney's assertive approach to dealing with Brazil's
economic difficulties and party politics has done much
to dispel the image of insecurity and indecisiveness he
projected during his initial months in office. Develop-
ments in several key areas, however, will test both
Sarney's ability to build on his recent success and his
mettle as a national leader over the long haul.
Avoiding Pitfalls in the Economic Plan
Hewing to the Tropical Plan in the face of slowing
economic growth will test Sarney's political nerves.
The US Embassy notes that domestic demand is
subsiding as a result of defused inflationary expecta-
tions and languishing wages. Meanwhile, continuing
uncertainty in the business community-especially
regarding the duration of the price freeze-is discour-
aging new private investment at a time when capital
expansion will be necessary to sustain industrial
growth. Nor do we believe that the public sector is
likely to find itself in a strong enough financial
position to pick up the slack. Furthermore, the domes-
tic banking sector has seen its profits nosedive as a
result of deindexation and may be in a weakened
position to finance Brazil's industrial recovery. With
economic growth already racked by the effects of the
drought in the south on agriculture, various compo-
nents of the economic plan threaten to slow growth
significantly.
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The US Embassy reported that Brasilia's public-
sector deficit and borrowing requirements last year
exceeded 25 percent of GDP for the first time.
Domestic capital markets were required to fund the
deficit since the government chose to forego new
foreign commercial bank loans. By the end of the
year, official statistics indicate the government's do-
mestic debt reached more than $30 billion and, in the
view of growing numbers of Brazilian economists, is
now as serious a financial problem as the foreign
debt. We concur with their analysis that the size of
the domestic debt, the nominal value of which was
indexed to inflation, was a major impediment to
effective fiscal and monetary management. For exam-
ple, the continued large public-sector borrowing need-
ed to pay the growing cost of domestic debt servic-
ing-in addition to funding rising military, social,
and investment appropriations-had pushed up real
interest rates to about 20 percent in Brazil's financial
markets, and limited credit available to the private
business sector.
Under these circumstances, opposition to the program
is likely to grow, especially on the part of labor. We
believe that by late summer not only the more radical
CUT but also the moderate CGT are likely to press
the government more vigorously for real wage in-
creases even if the new package has succeeded in
slashing inflation.
For the stabilization program to quash inflation effec-
tively, in our judgment, Brasilia will have to back up
its wage and price freezes and deindexation measures
with more vigorous budgetary and monetary adjust-
ments. We believe the administration will need con-
siderable courage to slash the public-sector deficit in
the face of pressures from the state corporations and
other interest groups in a major election year. For
example, the armed services continue to press for
sizable hikes in military appropriations, and Electro-
bras-the state-owned electric power company-
wants to augment its spending considerably this year
to expand the electrical transmission grid. Further-
more, we believe Sarney will face pressure from the
middle-to-lower income classes to redress social ineq-
uities through increased budgetary allocations. Presi-
dent Sarney, for example, approved an agrarian re-
form plan late last year aimed at redistributing land
to 1.4 million families over four years, and he needs to
assure adequate financial banking-the government
estimates $6 billion-for the program to avoid stirring
rural unrest among these small subsistence farmers.
Keeping the Left in the Wings
The opposition left remains poised to capitalize on any
economic and political difficulties that may beset the
President during the year. In particular, the left is
looking to exploit in the upcoming congressional and
gubernatorial elections any drop in Sarney's populari-
ty resulting from the administration's inability to
ensure that the emergency program slashes inflation
but avoids recession. The leftist groups also hope to
take advantage of divisive competition among their
centrist and conservative adversaries-such as is oc-
curring in the gubernatorial race in Sao Paulo-to
score electoral gains in key areas. For the most part,
the leftist parties-ranging from center left to radical
Marxist-have avoided violent tactics and are intent
on rebuilding their party structures in preparation for
the November elections.
In our view, Brizola is still Sarney's most formidable
opponent on the left.
Brizola continues to court leftist-leaning members of
the PMDB who are dissatisfied with the growing
influence of more conservative elements in the coali-
tion and the Cabinet, according to the US Embassy.
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While diminished inflation and continued growth will
be his most effective allies in keeping the left in check,
the steps Sarney takes on the political and social
fronts will also be important. To counter Brizola's
efforts to unify the leftist opposition and lure away the
left wing of the PMDB, for example, Sarney will have
to maintain a moderately nationalistic stance on the
debt issue as well as continue to demonstrate his
commitment, if only primarily symbolic, to agrarian,
judicial, social, and political party reform. Moreover,
Sarney will increasingly have to utilize the resources
and prestige of his office, particularly in stumping for
the congressional and gubernatorial aspirants of the
Democratic Alliance, to maintain a strong moderate
and conservative base of support.
Cultivating the Military
Even though most senior officers apparently want to
concentrate on improving professional skills, the mili-
tary as an institution still wields considerable political
influence and is likely to make its influence felt on
issues it regards as vital to its own integrity and to
Brazil's stability. The armed forces are the principal
proponents of the unsafeguarded nuclear program and
are likely to weigh in with President Sarney on key
aspects of foreign relations, such as ties to the Soviet
Bloc and arms sales to Libya or Iran.
The US Embassy
reports that senior officers are fearful that the conven-
tion would attempt to alter their traditional right to
intervene to protect national security and the constitu-
tional order-a likely result if the assembly were
leftist dominated.
We believe Sarney will have to remain sensitive to the
military's preoccupations and concerns. While he may
attempt to persuade the armed forces to exercise
restraint in arms appropriations requests to control
the government deficit, for the most part he will have
to back increased funding for military force modern-
ization as well as the nuclear program. Moreover, it
will be important for him to continue to cultivate close
personal relationships with key military officers-
especially Army Minister Pires Goncalves-and take
their advice on internal security matters and key
foreign policy issues. Finally, Sarney will have to
lobby actively among politicians of all political stripes
to make sure that the constituent assembly does not
attempt to alter the constitutional role of the military.
Given what we have seen of Sarney to date, we are
reasonably confident that he will be able to maintain
a stable transition in the period ahead, notwithstand-
ing various economic and political challenges. On the
all-important economic front, we believe Sarney prob-
ably will cut inflation sharply this year with his
stabilization program and reap substantial political
gain. We believe Sarney will maintain rigorous price
controls for all or most of 1986 because steps to clamp
a tight lid on fiscal spending and credit expansion will
be politically difficult in this important election year.
Despite the sharp acceleration of prices in January
and February, we project that the program will cut
the annual inflation rate to about 75 percent by the
end of the year. We believe this would keep Sarney's
popular approval rating high and help secure the
acquiescence of labor and business to the wage and
price controls. We expect economic growth to slow as
a result of the program's wage restraints and contin-
ued investor uncertainty under the price control envi-
ronment. Nevertheless, we believe the momentum of
last year's robust recovery should enable Brazil to
record a politically acceptable 4-to-5-percent real
economic growth rate in 1986.
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Oil
Nonoil
Also helping Sarney's standing in 1986, in our view, is
the likelihood of another large external trade sur-
plus-about $12.5 billion-that will boost reserves
and prevent relations with creditors over the foreign
debt from becoming a significant campaign issue.
Exports probably will rise to $26.5 billion as a recent
price boom aids coffee earnings and sales of manufac-
tured goods benefit from continued OECD growth
and the decline of the US dollar. At the same time, a
$1.5 billion drop in foreign oil purchases-primarily
reflecting slumping world petroleum prices-probably
will keep overall imports close to $14 billion, despite
expected large acquisitions of foreign grain to offset
drought-inflicted crop losses. The resulting trade sur-
plus and the recent agreement to roll over debt to
commercial banks until 1987 will enable Brazil to
meet easily its scheduled $9.1 billion in interest
payments and to balance its current accounts.
In the absence of serious economic difficulties that
would serve as an opposition rallying point, we believe
neither the left nor labor will pose a direct threat to
Sarney.
longstanding enmities between labor leader Lula and
Brizola are undermining the chances of an alliance
between Brazil's two leading leftist parties. Moreover,
the two major labor confederations are presently
engaged in a bitter struggle for dominance of the
labor movement. In this context, labor will probably
be unable to mount large-scale strike activity in the
face of Sarney's apparent determination to use his
considerable legal authority to prevent violent or
economically disruptive labor strife or expensive set-
tlements. Finally, the US Embassy reports that oppo-
sition in most political circles-even in the Brazilian
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Brazil's Strategy With International Creditors
US Embassy I (sources indicate
that Brazilian officials are emphasizing that it is
politically impossible to restructure commercial bank
debt on the basis of aformal IMF agreement in 1986.
Brasilia may continue to probe creditor governments
and banks for new arrangements that could lead to a
multiyear debt rescheduling agreement but without
preconditions of a formal IMF program.
the government believes it is in a
strong economic bargaining position to obtain such
concessions from creditors because of its impressive
trade performance, its plans not to seek new loans in
1986, and recent US support for greater flexibility on
the debt management. Meanwhile, Brasilia will con-
tinue to value its own credit standing with the banks
by meeting all interest payments when they come due,
and to refrain from participating in any radical
regional initiatives directed at creditors.
Although Brazil is prepared to "go it alone" in 1986,
we do not judge this policy as portending a permanent
financial break. Instead, we believe Brazil may be
more receptive to an IMF standby, or an enhanced
monitoring agreement, after the November 1986 elec-
tions, depending on the outcome. The Sarney admin-
istration may also feel that if its recently announced
emergency stabilization program succeeds by the end
of the year in dramatically reducing inflation, the
IMF will become willing to exact less onerous condi-
tions from Brazil for a new agreement. In any event,
according to the US Embassy, the Sarney government
understands that some form of IMF accord will be
essential to persuade foreign banks to extend addi-
Communist Party (PCB)
~o a November presidential election
shorten his term.
We expect Sarney will retain the backing of the
any moves by Sarney to limit increases in arms
Barring the unexpected in the economy or on the
political front, we believe Sarney will play a crucial
role in the constituent assembly scheduled to begin
writing a new constitution in February 1987. Capital-
izing on a public perception that he is an effective
president, Sarney will probably be instrumental in the
election next November of moderate candidates to the
Congress that will also function as the constitutional
assembly. He will probably also exercise his consider-
able influence behind the scenes in setting the agenda
for constitutional debates over a parliamentary as
against a presidential system, and a federal as against
a centralized government.
The Downside Risk
Despite Sarney's early successes and his recently
demonstrated decisiveness, we cannot discount the
possibility that he may suffer serious economic and
political reverses in the coming year. Increased pres-
sure from special interest groups or more intense labor
agitation, for example, could cause Sarney to hesitate
in trimming the bloated public sector and keeping
money expansion in check. This would lead to a spurt
in inflation, in our view, which would erode public
confidence in the administration and foster social
unrest. Likewise, unforeseen adverse developments in
the world economy such as a substantial increase in
protectionist measures, slumping commodity prices,
or weakness in the international banking system
would make it difficult for the government to continue
sustaining economic expansion with the same effects.
Under such conditions, we believe that Sarney would
come under heavy pressure from both the political left
and right to strike out in new policy directions. The
PMDB leadership, fearful of losing seats to the left in
the congressional elections, would press him to move
to more populist economic policies, including the
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military senior command.
most officers are very supportive of the government's
economic package, and thus will probably accede to
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adoption of radical and confrontational debt mea-
sures. Alternatively, conservative business and politi-
cal groups would push him to fall back on the now
discredited authoritarian tradition of the military
presidents to decree tougher and less popular policies,
a course that would cause his centrist support to
evanesce. In our view, Sarney would probably attempt
to strike a middle course: he would take a confronta-
tional stance on the foreign debt and on trade and
foreign investment policies to defend his left flank
while maintaining the stabilization measures to con-
trol inflation in order to keep conservative and centrist
backers.
We believe resurgent inflation, a renewed recession,
and a decline in Sarney's prestige would significantly
affect the conduct of the constituent assembly. It is
possible that delegates would shorten Sarney's term
and hold a presidential election in mid-1987. More
likely is the possibility that leftist and conservative
forces would engage in bitter infighting leading to a
deadlock over the future of political reforms. With an
evaporating political base and eroding public prestige,
Sarney would have great difficulty breaking such a
deadlock.
Attaching a fairly low probability to such a souring
chain of events and anticipating that President Sarney
will in fact firm his political and economic footing, we
believe he will strive to maintain generally harmoni-
ous relations with the United States. Continued bilat-
eral frictions on trade and investment issues are
unavoidable given Brazil's growing competition with
the United States in world markets and the persisting
"statist" aspects of its economy. According to the US
Embassy, Brasilia is grateful for President Reagan's
rejection of Congressional pressures to impose major
import barriers against textiles and footwear, but is
wary of prospective US steps to limit imports of
alcohol and other key Brazilian products.
Brazil's trade surplus with the United States will
probably remain large, and, therefore, troublesome to
Washington. Brasilia's gradual trade liberalization
over the past year has provided increased opportuni-
ties for US exporters, but current import restrictions
will probably not be quickly dismantled because of
perceived vulnerability to foreign payments problems.
For example, we believe nationalism and pressures
from vested interest groups will make Brazilian con-
cessions on computer industry restrictions difficult
and laborious. Although Brazil's continuing unwill-
ingness to seek an IMF program will also continue to
be a source of friction with Washington, we believe
Sarney will maintain moderate foreign debt policies
and attempt to remain in good standing with the
international financial community.
We believe a politically and economically secure
Sarney administration would generally be sympathet-
ic to US concerns on noneconomic issues. We believe
Sarney would be more sympathetic to US positions on
arms sales
and narcotics.
Also, Sarney will continue to share US concerns
about Soviet and Cuban adventurism in the region.
Bilateral strains will persist, however, over the weap-
ons potential in Brazil's nuclear development
program.
If President Sarney's position slips because of a
deteriorating economy and growing political opposi-
tion, as posited in the downside risks scenario, he
would be more inclined toward policy positions inimi-
cal to US interests. This would be especially true if
economic problems are perceived by Brazilians as
traceable to the United States, such as renewed
foreign exchange problems stemming from a major
resurgence of US interest rates or a spate of protec-
tionist legislation in Washington.
Brasilia already may have contingency
plans for unilaterally limiting debt servicing payments
along the lines traced by Peru. The general deteriora-
tion of bilateral relations that would probably follow
would adversely affect Brazil's current positions on
arms sales to countries such as Libya, the control of
narcotics in the Amazon, and cooperation on nuclear
policy.
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Foreign Policy Under the Civilians
debt.
To date, foreign policy under the Sarney administra-
tion has been characterized by the same hallmarks
that came to distinguish it under the military govern-
ment; it has been pragmatic, noninterventionist, low-
key, and aimed above all at securing economic advan-
tagefor Brazil. While the Foreign Ministry continues
its Third World orientation, Sarney himself is more
attuned to preserving good ties to the West, notwith-
standing his nationalistic public stance on foreign
protect its economic ties throughout the region.
On the basis of US Embassy reporting, however, we
believe the thrust in foreign policy will begin to shift
slightly. For example, administration officials pub-
licly emphasize Brazil's commitment to fostering
democracy and improved multilateral and bilateral
relations among Latin American states. The most
significant action in this regard was the meeting in
December 1985, the first since 1961, between the
Brazilian and Argentine Presidents. The two coun-
tries issued a joint declaration outlining areas for
economic and political cooperation as well as an
agreement on nuclear cooperation. Brazil's increased
interest in hemispheric matters, however, is unlikely
to portend major involvement in Central America.
Although Brazil has joined the Contadora support
group, we believe that this is an issue on which
Brasilia intends to keep a low profile, mainly to
The transition from military to civilian rule has
brought a slight thaw in relations with the Soviet
Bloc. The friendlier tone of relations with the Soviets
is best illustrated by Foreign Minister Setubal's visit
to Moscow last December, the first since 1961.
Although the Foreign Minister was cordial, Moscow
did not break any major ground in expanding bilater-
al links, manifest by the absence of ceremonies
announcing major new accords. Instead, we concur
with US Embassy reports that the trip was more
symbolic than substantive, reflecting Brasilia's suspi-
ciousness toward Soviet motives in South America.
The Sarney administration has been much cooler to
Cuba than to the USSR.
Sarney has delayed reestablishing diplomatic rela-
tions with Havana, commercial ties are minimal
The US Embassy reports, howev-
er, that Sarney intends to restore ties to Castro
sometime prior to the November elections to curry
favor with the leftist wing of the PMDB. In our view,
however, he will probably restrict the size of the
Cuban mission and have its activities monitored
closely.
The Sarney administration responded warmly, how-
ever, to China's efforts to intensify bilateral ties. The
US Embassy reports that Brasilia apparently has
concluded it can have bilateral trade and technologi-
cal programs without fearing Chinese intervention in
domestic affairs or negative reaction from its most
important trading partner, the United States. In late
October and early November, the Chinese Prime
Minister paid a visit to Brazil that was followed
closely by Brazil's domestic press. During the visit,
Brasilia and Beijing established a consultative com-
mission, signed new cultural and educational cooper-
ation agreements, exchanged military attaches, and
laid the groundwork for future technological and
scientific accords.
In our view, the Sarney administration will continue
to expand ties where it believes the country can derive
economic advantages, largely through increased
trade, especially arms sales. In this regard, we believe
Brasilia will continue cultivating relations with the
Middle Eastern countries; in the wake of the US
attacks on Libya, however, the Sarney administration
is likely to adopt a low-key approach in its Libyan
policy. Fearful of offending the United States, it is
unlikely to engage in arms deals or undertake any
other high-profile policy initiatives with Tripoli.
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Moreover, such a deterioration would present the
Soviet Union and Cuba with new opportunities to
court Brasilia.
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Appendix
Biographies of Key Personalities
Jose Sarney Costa
President
Jose Sarney is a low-key, discreet, consensus-seeking politician who has
emerged from a period of caretaker rule as an "accidental" President and
established his own style, staff, and program. No longer constrained by
earlier accusations that he was usurping the power given by the electorate
to Tancredo Neves, he is free to confront both the opportunities and pitfalls
now facing his leadership.
Although Sarney is a generally conservative politician who supported
military governments for 20 years and has been accused of always
acquiescing to authoritarian rule, he has on several occasions since his
student days shown an independent, liberal bent.
Sarney received his law degree in
1953. In the mid-1950s, by then a member of Congress and a leader of the
National Democratic Union party, Sarney was an advocate of development
programs tied to social reforms.
Sarney's long period of support for military rule began in 1964, and in
1965 he realized a longtime dream-winning election as Governor of
Maranhao-with the backing of military President Humberto Castello
Branco. Nonetheless, while Governor, Sarney publicly protested the na-
tional "institutional act," which gave the military sweeping powers.
Although Sarney's defiance provoked some uneasiness about him in the
military, he did not appear to suffer politically: his administration (widely
described later as one of the most efficient in the state's history) continued
to receive full cooperation from federal agencies.
Sarney resigned the governorship in 1970 to run (successfully) for the
Senate as a candidate of the PDS, by then the government party. His
independence surfaced again in early 1984, when he broke with that party,
of which he was then chairman. That summer he officially joined Neves's
Brazilian Democratic Movement Party (PMDB) and was nominated for
the vice-presidency.
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Sarney, who says his first love is poetry, has regularly published works of
prose and poetry since his teens. He has ties to literary circles and is a
member of the prestigious Brazilian Academy of Letters.
Chief, Civilian Household of the Presidency
A close friend of President Jose Sarney's, Marco Maciel has emerged as
Sarney's right-hand man since moving in February from the post of
Minister of Education to his current position. Granted greater powers and
responsibilities than were enjoyed by his predecessor in the Civilian
Household, Maciel is at the center of all presidential activity, according to
the US Embassy. His duties, which range from advising the President to
coordinating all government actions, have earned him the nicknames
"Premier" and "Superminister" in press articles. A founding member of
the PFL party, Maciel has well-known aspirations to be president himself
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Sarney administration.
A tireless worker who apparently needs little food or sleep, he has a
reputation as the hardest working member of the Cabinet. According to
US diplomats, Maciel appears to have taken on himself the task of keeping
the Democratic Alliance together and ensuring a smooth and effective
the Senate. He is 45 years old.
A lawyer and former professor, Maciel has served in the Pernambuco State
legislature (1966-70) and the federal Chamber of Deputies (1970-79). A
protege of military President (1974-79) Ernesto Geisel, he was appointed
by Geisel as President of the Chamber of Deputies in 1976 and as
Governor of Pernambuco in 1979. From 1982 until he was appointed
Minister of Education by President-elect Tancredo Neves, Maciel served in
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Minister of the Army
A close adviser to President Jose Sarney, Gen. Leonidas Pires Goncalves,
65, is the most influential of the three armed services Cabinet ministers.
Generally considered a liberal in the Brazilian military, he is a staunch
proponent of the detachment of the armed forces from the political process
and a strong supporter of democracy. He has, nonetheless, been an
effective advocate of military interests and has secured substantial funds
for military training, maintenance, and modernization in a period of tight
budgets. Openly anti-Communist, he has recommended postponing the
reopening of Brazilian-Cuban relations.
Active in politics since at least the military takeover of 1964 (he served as
aide-de-camp to the first of Brazil's military presidents), Leonidas has
accumulated high-level political allies over the years. At one time, he was
considered a possible military successor to President Joao Figueiredo. He
was the Army's youngest brigadier general and second-youngest division
general (three stars). Leonidas is favorably disposed toward the United
States and has been cooperative with US defense officials.
Dilson Domingos Funaro
Minister of Finance
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Dilson Funaro is a respected Sao Paulo industrialist who has served in both
the public and private sectors. A friend of President Jose Sarney, he is also
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confidence, say US diplo
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Funaro is an assertive Finance Minister who 25X1
s closeness to Sarney to expand his influence over
g in Brazil. Funaro
continues to work hard and enjoy Sarney's
Funaro, 52 years old, is founder and owner of Trol S.A. Industria e
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1970s Funaro held high-level economic positions in the Sao Paulo govern-
ment. For five months before becoming Finance Minister in August 1985,
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Ulysses Guimaraes
President, Chamber of Deputies
One of the most respected politicians in Brazil, Ulysses Guimaraes, 69, has
been active in politics since the 1940s and is founder and president of the
Brazilian Democratic Movement Party (PMDB), the majority member of
the ruling Democratic Alliance coalition. As President of the Chamber of
Deputies, he is next in line to succeed President Jose Sarney.
Relations between Sarney and Guimaraes have been strained. We suspect
Sarney may believe that Guimaraes, who has had designs on the presiden-
cy in the past, is preparing another bid.
The
party's defeat in Sao Paulo, Guimaraes's political base, has further eroded
the ties between the two men. According to Embassy officers, Guimaraes
was disappointed with his lack of influence in the February 1986 Cabinet
changes.
Throughout the period of military rule, Guimaraes was a leading opposi-
tion spokesman. He waged a vigorous but unsuccessful campaign as the
opposition candidate for president in 1973, referring to himself then as the
"anti candidate," whose job it was to protest against Brazil's authoritarian
system. According to US diplomats, Guimaraes wanted to be the PMDB
candidate in 1985 but bowed out when it became clear that his lifelong
friend, Tancredo Neves, was the only opposition candidate who could
defeat the government nominee. He reportedly turned down Neves's later
offer of a Cabinet post, preferring instead to keep the PMDB leadership.
He was elected President of the Chamber of Deputies in March 1985.
Governor, Rio de Janeiro State
Veteran leftwing politician Leonel Brizola, 64 years old, once exiled for his
radical politics, is today Governor of Rio de Janeiro state and his country's
most prominent leftist leader. Brizola, who has long harbored presidential
ambitions, regards President Jose Sarney's administration as a transitional
government, report US diplomats.
Brizola began his political career with the socialist Brazilian Workers
Party, headed for many years by his brother-in-law, Joao Goulart. Brizola
gained popularity by organizing peasant leagues and championing the 25X1
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home state (1959-63), he supported efforts by Goulart, then President of
Brazil, to strengthen his presidential authority. Both men began to lose
popularity, however, amid criticism of their leftist politics and corruption.
In 1964, after Goulart's overthrow in a military coup, Brizola fled to
Uruguay. Because of his involvement there in political activity, he was
deported in 1977. He then lived in the United States until his return to
Brazil in 1979, following a general amnesty. He subsequently founded the
Democratic Labor Party (PDT), and he was elected Governor of Rio de Ja-
neiro in 1982.
Luis Ignacio Lula da Silva
President, Marxist Workers Party
Militant trade union leader turned radical leftist politician, Luis Lula da
Silva is one of his country's best known labor spokesmen. Although he has
been active in union affairs for nearly two decades, he has not held a
formal union post since 1980. In that year the government removed him
from the leadership of the San Bernardo do Campo Metalworkers Union
following his instigation in 1979 and 1980 of strikes that paralyzed a large
area of Sao Paulo.
Since losing his union position, Lula has turned to labor-oriented political
activities.. He has been president of the Marxist Workers Party (PT) since
founding it in 1980. That small, Sao Paulo-based party has since split into
several factions, some of which advocate the violent overthrow of the
government. Lula's own fiery, socialist rhetoric has become even more
extreme in recent months: in a press interview in December 1985 he said he
would favor armed struggle if his party were kept from power by the use of
arms. He has said on other occasions that he would like to strengthen ties
to the USSR, and he visited East Germany this year.
Despite recent PT electoral successes-the party made a good showing in
the November 1985 mayoral elections-Lula's performance as party head
has generally supported the claim that he is more effective as a labor leader
than a politician. For example, he fared badly in a bid for the governorship
of Sao Paulo in 1982, losing areas where he had been assumed to have
strong support. In 1984 and 1985 he failed to prevent a split in the PT over
whether to support Tancredo Neves's Democratic Alliance.
Lula, now about 40 years old, began factory work at 14. A lathe operator,
he first joined a union in 1968. He was elected president of the Sao
Bernardo do Campo Metalworkers Union in 1977. He burst on the national
scene in 1978, when he set off the nation's first major strikes in a decade.
That activity led to his removal from an active union role in 1980.
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Janio Quadros
Mayor, Sao Paulo
The eccentric and unpredictable Janio Quadros, a fiery populist and
former President, made a political comeback in winning the November
1985 Sao Paulo mayoral race. That upset victory came nearly 25 years
after he had abruptly and without explanation resigned the presidency
after only eight months in office-an action that was widely blamed for
touching off three years of political turmoil followed by 20 years of
military rule.
In his heyday in the 1950s, Quadros's populism focused on the frustration
of the lower classes with the Brazilian establishment. He adopted a little
broom as a campaign symbol, pledging to "sweep away" corruption and
mismanagement. Although he resurrected the broom in last fall's cam-
paign, he directed his sweeping at street crime and Communism. That
shrewd reading of popular sentiment, report US diplomats, not only
captured the vote of the working class but also added some crucial
conservative, business support.
Quadros was catapulted to national attention while serving as mayor of
Sao Paulo and then governor of Sao Paulo state in the mid-1950s. His re-
form approach and generally efficient administration increased his popu-
larity, and he was elected President in 1961. His resignation from that post
came in the wake of congressional resistance to an economic austerity
program he had requested and the general unpopularity of some of his
"moral housecleaning" measures (he prohibited weekday horseracing and
the wearing of bikinis). He then remained mostly out of politics until
joining the PTB in 1980. In 1982 he made an unsuccessful try for the Sao
Paulo governorship, his last significant political outing until 1985.
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