Opinion – Marcos Lisboa: Legacy of the FHC era was undermined

The Fernando Henrique Cardoso administration had its share of mistakes, but it left a legacy of institutional strengthening, innovation in social policy and economic policy organization. Brazil started to have State institutions with organized governance and balances more similar to those of consolidated democracies. That legacy, however, has been undermined for more than a decade.

To try to avoid the usual Fla-Flu, better start by systematizing your mistakes before commenting on some of the advances.

Perhaps the biggest mistake was the process of amending the Constitution that allowed for reelection. There were others, such as the delay in migrating to the floating exchange rate system. This criticism, however, must be relativized in view of the uncertainty, at the time, about the impact that the change would have on inflation, tamed a few years earlier.

The design of regulatory agencies was carried out only partially and paid little attention to the details of the experiences of developed countries, with energy being the most serious.

Institutional advances far outweighed the misunderstandings. Finance Minister, FHC chose a remarkable team, responsibly delegating the implementation of the Real Plan, while taking care of the dialogue with the rest of society, already scorched by many unorthodox proposals that had failed. Elected president, he promoted the contradiction by accepting criticism in an exemplary way, without using the chair of the Presidency to embarrass or retaliate.

Until the 1990s, the Central Bank’s operating rules were lax. The National Monetary Council (CMN) had more than a dozen members, many from the private sector, directly affected by the decisions of the economic team. There were cases, as in the Bresser Plan, of the CMN taking decisions against measures that, a few days later, would be announced by the Ministry of Finance. Institutional disarray did not allow the government’s right hand to know what the left hand was about to do.

With FHC, the Central Bank gradually began to organize its actions and communication with society. Copom was created. Only technicians with a recognized reputation were appointed. Transparent and competitive intervention mechanisms were consolidated, following the procedures of the monetary authorities of developed countries. This process, led by Gustavo Franco, was consolidated during the Arminio Fraga administration, who tidied the house of monetary policy.

In the social area, FHC ensured that his team could innovate in the design of public policies to benefit the most vulnerable and increase the effectiveness of social policy. In higher education, for example, a variable remuneration was created for professors based on performance, in addition to individualized assessment of student learning at the end of graduation.

Ruth Cardoso and Vilmar Faria, with the support of many technicians, transformed the clientelistic actions of previous governments into social policies with impact assessments, registration of the vulnerable and State programs. Thus, Bolsa Escola and other income transfer programs were born, which were later consolidated into Bolsa Família.

The Planalto Palace could do a lot, but it exercised its power carefully. Several instances had to be heard, with openness to divergence. The government intervened in public and private banks that were bankrupt or surrounded by bad deeds, even with strong opposition from interest groups, as in the cases of Banco Econômico, Banerj and Banespa.

A relevant part of the government showed a preference for a shift towards a state model centered on social policy, health and education, leaving most of the business activities to the private sector, under regulation, but without the vices of patrimonialism.

In the 2002 crisis, largely due to the uncertainty about the direction of the economic policy that would be adopted in the Lula administration, the FHC administration took care of the transition, facilitating the work of those who arrived, as in my case, who took over the Secretary of Economic policy. Arminio Fraga, in an article for O Estado de S. Paulo on May 31, was modest when dealing with the legacy of the economic team of which he was a part.

We had full support from those who left power. Public data were organized with transparency and technical competence. We knew where the problems were and we got loads of proposals. Over time, we discovered those responsible for the legacy, such as Amaury Bier and Pedro Parente, who, led by Pedro Malan, took care of public affairs.

The institutional advances of the FHC administration went against the grain of those who believe that to govern is to have the discretion of the old colonels. This legacy, however, has been eroded in the last decade, with the exception of Temer’s economic team, which managed to put some order in the house, reducing subsidies and strengthening the governance of state-owned companies, for example.

Since the late 2000s, governments have expanded the distribution of subsidies and protections to arbitrarily selected companies or sectors. There was a significant increase in tax distortions, benefiting some to the detriment of others, special regimes for certain sectors, such as the chemical industry, and protections against external competition, as in the case of Inovar-Auto. The Executive became more permeable to interest groups.

​Regulatory agencies were weakened and the government began to clumsily intervene in state-owned companies, such as Petrobras, and in certain sectors, such as energy, without paying attention to their harmful side effects. Recently, the amendment of the precatories meant a compulsory extension of debt, a measure of strength typical of the period of high inflation.

The setback was not restricted to the Executive. Congress appropriated a relevant part of the budget’s discretionary resources, and each parliamentarian began to decide, autocratically, who should benefit from his share of the booty.

I’ve written in other columns about these setbacks and their negative impacts on the economy. It was time to rescue a time when there was hope. A new generation like that of FHC and Ruth Cardoso is needed.