That’s not a bad thing. Pinching centavos is a rare and recent virtue in Latin America, where both elected and appointed officials have traditionally viewed their mandates as a mission to spend. Too often the job of Finance minister has been to find new money with which to bail out the overextended central government. Inflation? No worry: there was always the mint. Brazil went through seven currencies between 1985 and 1995, and has averaged about one Finance minister a year since 1960. Even under reform-minded former president Fernando Henrique Cardoso (1995-2002), who sponsored a rigid “fiscal responsibility law,” public spending rose by 5 percent a year.
That’s not likely to happen while Palocci is guarding Brazil’s coffers. He’s turning out to be a Finance minister with “no” in his vocabulary. Hardly a day goes by without some governor, mayor or even a fellow minister chatting him up for a larger lump of federal largesse. Palocci, a 42-year-old fiscal prude, typically demurs. One of his first measures was to reassure international creditors by raising the country’s primary budget surplus (from 3.75 to 4.25 percent of GDP), an effort that required Brasilia to slash $5 billion from an already bare budget.
The new round of belt-tightening has sparked protests from a broad range of critics, including business executives and even Vice President Jose Alencar, who say that Brazil’s scorching interest rates–which fell a hair from 26.5 percent to 26 percent last week–are pushing the country toward a recession. But his temperance has won a more pleasant reception in the United States, where on June 20 Lula and Palocci met with George W. Bush. The American president lauded Brazil’s fiscal prudence, and so did various pooh-bahs of high finance. “After so many pompous asses in the region, Palocci’s a refreshing change,” says Arturo Porzecanski, a senior analyst for ABN Amro in New York.
Thanks largely to Palocci’s parsimony, say experts, Brazil’s economic forecast is brighter than it was in January, when Lula took office. The real has rallied, and inflation has tumbled to a manageable annual rate of under 8 percent. Exports are soaring, and despite the bearish global economy, the national trade surplus is expected to top $20 billion this year. This time last year Wall Street analysts talked openly of when, not if, Brazil would collapse under the weight of its debts. But Brazilian long-term bonds are no longer considered a major risk, and no one is talking about default anymore.
Little more than a year ago few Brazilians, let alone foreigners, knew who Antonio Palocci Filho was. A physician specializing in public health, he had cut his teeth on regional politics, serving a stint in Congress, and two terms as mayor of Ribeiro Preto, a midsize (population: 550,000) city in So Paulo’s farm belt. As mayor in the early ’90s, the onetime admirer of Marxist theorist Leon Trotsky surprised everyone by becoming a capitalist innovator, selling the city telephone company and sanitation services at a time when privatization was still taboo in Brazil.
Last year, when Lula named Palocci as his campaign manager, the candidate still had credibility problems with the Brazilian establishment. Palocci mingled with CEOs, then helped draft a “Letter to the Brazilian People,” which laid out the terms of the “new” Workers Party. The organization, said the manifesto, was committed to economic stability and responsible accounting. It wasn’t a campaign ploy. “Palocci is the first Finance minister to balance the budget by cutting spending instead of raising taxes,” says Porzecanski.
With his soft-spoken bonhomie, the Finance minister has also helped push key constitutional reforms–of the loss-making pension system, and of the antiquated tax and labor codes–through prickly congressional committees. “Very little happens without his OK,” says Amaury de Souza, a political analyst with the So Paulo-based MCM consultants.
In Latin America, such power has not always been a good thing. It harks back to the dismal ’80s and the dizzy ’90s, when the improvisations of a few uber-ministers–“mad scientists with Ph.D.s,” Porzecanski calls them–drove one nation after the next into hyperinflation, debt reschedulings or economic asphyxiation. Palocci seems determined to avoid such a fate. He likes to say that Brazil is “in intensive care.” For those who agree that strong medicine is needed, what better person to administer it than a likable but tough-minded former doctor who can balance the books?
