Fernando Henrique Cardoso, former finance minister and author of Brazil's economic stabilization plan, has won a first-round victory in this month's presidential elections. His come-from-behind win - he turned a 20-point deficit into a 20-plus advantage - shows the power of a successful inflation- fighting plan in Brazil.

The focus now turns to a more important, and more difficult, issue: structural reforms, including constitutional changes, to ensure the inflation- fighting plan is sustainable.Mr. Cardoso faces a major battle on that score from the bloated bureaucracy, the largest political force in Brazil's fragmented system. But there's good reason to believe that, having received an electoral mandate, he will win that battle.

Indeed, much of the success of the economic reforms depends on changing the constitution. Without it, temporary legislation allowing for a balanced budget will expire, prompting a return to the days of deficits and inflation.

Constitutional changes also hold the key to unlocking the current shackles on private investment (and, in some cases, on privatization) in state- controlled sectors such as oil, electricity generation and telecommunications. One encouraging sign is that 70 percent of the population is in favor of the constitutional reforms.

It was the economic stabilization plan, however, that won the election for Mr. Cardoso. That plan enabled the government to balance its budget by retaining tax revenues that otherwise would have been shared with the states. It also established an inflation-free currency, the real, to be backed by more than $40 billion in foreign exchange reserves and by strict limits on expansion of the money supply.

Mr. Cardoso rode this program all the way to the presidential palace. Indeed, his victory over Workers Party candidate Luiz Ignacio Lula da Silva can be attributed to two factors related to the plan. First, it reduced inflation from monthly rates of 50 percent to less than 2 percent. Second, and more importantly, after five failed plans in the last eight years, Brazilians have begun to believe in the longer-term viability of the new, low-inflation currency.

Mr. da Silva meanwhile, stumbled when he criticized the successful plan as an election ploy. When he finally changed his tack, promising to keep the plan in place and improve on it, Mr. da Silva still failed to offer an economic agenda of his own.

Mr. Cardoso has won the first battle in a larger war. But winning the confidence of the electorate was a much easier task than convincing the congress, dominated by parochial interests, to vote for constitutional reforms.

Without changes to the 1988 constitution, the balanced budget, the foundation of the current plan, is unlikely to last beyond 1996. A return to large fiscal deficits portends, almost with 100 percent certainty, a return to high inflation, widening income disparities and overall economic uncertainty. Mr. Cardoso now is expected to announce a series of constitutional reforms aimed at ensuring the medium-term sustainability of the real plan.

But why, only six months after a similar attempt at constitutional overhaul failed, is the likelihood of these changes actually taking place any better? There are several reasons for optimism.

First, by winning a majority of the vote in the first round, Mr. Cardoso enters office with a mandate to seek these structural changes. The new president has, perhaps, a six-month window of opportunity with which to achieve the necessary changes in the constitution.

Second, Mr. Cardoso realizes that his victory over Mr. da Silva is not a vote for radical change. Unlike the first attempt at constitutional reform, in which 26,000 amendments were considered, Mr. Cardoso will pursue changes only in those areas most vital to the success of the economic plan: social security, labor, fiscal transfers and privatization.

Finally, Mr. Cardoso will seek to build on his current electoral alliance, consisting of his own Social Democrats and two other parties. Together, the three parties hold only 195 of the 513 seats in the lower house. Moreover, that alliance is only electoral; Mr. Cardoso must ensure the group becomes the foundation of a legislative bloc as well.

With 40 parties in existence, the political process in Brazil is fragmented and reforms are easily susceptible to opposition lobbying. Ideally, the incoming president would like to form a super party to solidify the country's political system and restore governability to Brazil. Short of that, given his strong mandate, Mr. Cardoso should be able to scrape together the necessary votes to pass major reforms.

The new president's policy agenda can be divided into three areas. First, he will continue the current real plan in order to contain price pressures. Second, he will seek constitutional changes that provide for the plan's long- term viability.

Finally, the new president will spend roughly $115 billion over the course of his four-year term on economic development projects. His aim is to eliminate the transportation bottlenecks that often make Brazilian goods prohibitively expensive to export. He also wants to import more capital goods to modernize the country's industrial base.

The Brazilian economy is a picture of contrasts: a dynamic private sector operating amid a bloated, inefficient public sector. State funds aimed at infrastructure development often are squandered on pork barrel projects and graft.

But on the plus side, the outlook is good for continued low inflation and for constitutional reform. Together with the continued success of the real stabilization plan, those factors should enable the Brazilian stock market to rise slightly by year-end and accelerate in 1995. And despite high prices for state-owned firms such as Telebras, Electrobras and Petrobras, privatization and/or relaxation of restrictions on private investment in these areas will boost competitiveness and growth.

In short, Mr. Cardoso's election signals the beginning of Brazil's best chance yet to realize its potential as a world economic powerhouse.

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