Cardoso vows to modernize ailing Brazilian economy

Cardoso vows to modernize ailing Brazilian economy

RIO DE JANEIRO, Brazil (AP): In a speech inaugurating his historic second term as president, Fernando Henrique Cardoso vowed on Friday to continue fighting to modernize the Brazilian economy and deal a "death blow" to the nation's social inequality.

"I was chosen by the people to continue to build a stable, modern, open and competitive economy," Cardoso said in the capital Brasilia after being sworn in. "But it doesn't mean much to be the world's eight largest economy if we continue to be first in inequality."

During a 20-minute speech before the national Congress, Cardoso highlighted his administration's successes in transportation, telecommunications and education and reminded legislators that he brought millions of Brazilians into the consumer economy through lower inflation.

"The new Brazil is unfolding before our eyes. We are advancing, competing and adapting in the era of globalization," he said.

Cardoso, 67, a former leftist political exile during Brazil's 1964-1985 military dictatorship, also conceded that unemployment - currently at more than 8 percent - would rise at the beginning of this year and that the Brazilian economy is vulnerable to global instability.

"The problems of others become our problems and our problems directly affect other countries," the president said.

Soon after Cardoso was overwhelmingly re-elected in October, financial instability in Asia and Russia hit Brazil, causing nervous investors to pull out billions and push the country towards the brink of an economic collapse.

But despite the economic troubles, many Brazilians consider their president a miracle worker for stamping out chronic hyperinflation, reducing the staggering 50 percent per month rate in 1994 to less than 2 percent a year in 1998.

Before Cardoso, the second democratically elected president since the end of dictatorship, Brazilians could never count on paying the same monthly sum for such basic necessities as food, rent, utilities and even bus fare. In the past 30 years, the nation has changed its currency seven times.

As financial minister, Cardoso introduced a new currency in 1994 called the Real. As president, he dedicated his first four- year term to reforming the pension system and civil service payrolls and shoring up the country's burgeoning deficit.

But reforms largely languished in Congress and the deficit remained an unsustainable 8 percent of Brazil's gross domestic product.

Despite those setbacks, the former sociology professor slowly converted Brazil into South America's keystone of trade. The Brazilian stock exchange more than doubled and currency reserves swelled from about US$40 billion to more than $70 billion. Billions in direct foreign investment poured in.

The Real created an economic boom as millions of Brazilians joined the consumer ranks since their salaries were no longer eaten up by inflation.

In October, Cardoso announced an austerity program calling for more taxes and higher interest rates and spending cuts of $84 billion from the federal budget over the next three years.

However, cuts in social spending in such areas, as health, education, agrarian reform, low income housing and projects to help the drought-stricken northeast, threaten to jeopardize his promise to improve Brazil's skewed distribution of wealth, already considered the world's worst.

In Brazil, 10 percent of the richest households control 47 percent of the nation's wealth, while the poorest 50 percent earn just 13 percent of the nation's wealth. In the countryside, nearly 20 percent of the population holds 88 percent of the land, while the poorest 40 percent owns just 1 percent.

Cardoso argues that only long-term economic reforms can rid the nation of its dire poverty. "We are fighting inequality with economic stability," he said Friday.

The spartan inaugural ceremony was a far cry from the lavish 1995 inauguration for 6,000 guests, which cost taxpayers $2.5 million. To show concern for the current economic crisis, the government spent just $50,420 (60,000 reals) to fete some 800 guests, who drank Ballantine whiskey seized by customs agents.

This time around, Cardoso rode in a Chevrolet rather than the elegant 1952 Rolls Royce given Brazil by Queen Elizabeth.