Brazil: Prospects for Economic Reform and Implications for Relations With the United StatesI
National
This Esumtte lepretenif the views ot rfiv Director uf Cttntiol Intelligence wuh lhe advice and assistance ot the USCommunity
Brazil: Prospects for Economic Reform and Implications for Relations With the United States
tnlo/maiionas cfugust Iused anheprep&it>of> of this (soman.
Ihtntetogmcfin iht ptoertbon ol (his Estimate. Tne Central Intel gence Agency Tne Defense Intsligence Agency Trie Natonal Security Aoencv Tne Bureau o> inieiiiae.nce arc" Research. Oepenmem of State
The Otlce erf Imetkgi
f the Treawy Tne Otlce ol ina DeputySecretary Mr Inieltgenoe, Department, of Energy
ettoptvt&ctting'
The DfDcim olIntaligence.
Oeaaimeni of th*
The Assistant Chiel cfnieligeoce.
Department ot tha Ai Force
This EsttmtK- was tapfottd toioobbcobon Oy lit National Foreign intafigetat Board.
Brazil: Prospects for Economic Reform and Implications for Relations With the United States
Wc judge Ibat President Collar and his leam have achance between non andf acbitwne tbtir bnk goals of controlling Inflation, reducing (he fiscal deficit, and building momttiiiirn inket-oriealed structuralj
Collor should be able lo present public confidence, reIjine.on bis strong leadership, determination, and self-ass uranet| ^ [
Collor "III continue Iucloser biUftral relations, but problems
Key Judgments
President Fernando Collor dc Mcllo hat undertaken ihe mosi ambitious and catcnsivc market-oriented reform pcogram ever implemented in Brazil in an attempt lo Habibie and restructure the economy. Inheriting an economy on Ihe blink of hyperinflation, he has brought price increases down to manageable level* and hit launched measure* to promote efficiency, growth, and economic competition, as well at to root out corrupt km.
We Judge lhat. despite formidable challenges, including ihc mosi recent disruption! In oil supply from the Middle East. Collor and hi* teamctur-ihafl-even chance between now andf meeting the bask stabilization objectives of the economic program and of buildingia implementing long-range structural reform. Specifically,ikely to hold inflationonthly average of aboutercentim step toward price stability. This will be accomplished by an effective monetary policyeduction of ihe fiscal deficitercenterccni ofrespectable thawing, although inert cfcrcem surplus projected by ihc government. Wc-crccni decline in GDPollowedradual upturn in production1 thai will be accompaniedlight increase in job creation, rising exports, and monthly trade surpluses of0 million Uracil will probably reach an agreement with ibe IMF ihi* year and move forward on negotiations with other creditors. Negotiations wilh foreign commercial banks "illomcoiious, bul an Ironing out of differences is possible by
Key Interest groups, hurt by the austerity measures and reordering of tbe economy, can be expeeled lo raise the following challenge!:Labor, facing layoffs ind reduced real income, could becomediinipitve.
Cooperation of business will erode if Collor backslides on fiscal reform, a
key element in bringing downecalcitrant bureaucracy could hinder efficient implementation of
rcfoois.
Brazilian Congress will insist lhat iley player and may bloc* important aspects of the plan.
will use the courts to challenge dements of the program.Several other sectors, including the military and ihe lower daises,
Nonetheless. Collot'k poHiiol strength* oetwcigh hisThrough his strong leaden hip. determination, and self-assurance. Collar willsucceed in preserving ihe public's confidence. Also in his favor arc ibe lackredible alternativeis flan and the diiorganimiga and
bdicve therean-even chance ihui the program will ertoounier difficulties serious enough to provoke cither spiraling inflationrouaeicd downturn. In cither ease. Collar wouldecline in public confidence, encouraging his political opponents and weakening the resolve of his congressional supporters. He would then grudgingly nuke cancel-siom and slow the pace of reform, allowing the economy to muddle through-ihus losing hb best chance to reverse Brazil's eeenoouc fortunes.
s
Collor has made clear his goal of improving relations with the United States and other Western nations as key to modernizing and palling Brazil on the track toember of the First World, and hi has launched several foreign policy initiatives to demonstrate his sincerity. Focusing especially on irade. be has made impressive strides in opening Brazil's economy to market forces, while playing down excessiveand has strongly endorsed the Enterprise for the Americas Initiative. Ho has been accommodating on sensitive bilateral issues, such as lowering impon restrictions and promising pharmaceutical patents, andragmatic approach io environmental, narcotics, and arms trawler issues. We judge lhat progress on Cotlor's economic reform program and some resumption of debt servicing will form the basisestructuring of Brazil'sillion foreign
While over the nextonths we expect bilateral relations locontinueproblems will persist in several areas, such as technologylo US markets, and nuclear safeguards. Brasilia will insistrespond to Colrar's economic reforms byS markets, particularly in the agricultural sector, and toincluding assistance to Brazil's space launch vehicleis also likely to continue differing io some extent with Washington onRound of lhe OATT and the pace of liberalization ofsectors, soch as informatics. Even though Collet has signaledin waiving into force the Treaty offorbidsof nuclear weapons in Latinwill mistfull-scope IAEA safeguards on its nuclear program.!
vl
Contents
Ju dgnnrit*
Cdlor'* Economic Program
Challenges Facing Collor
Classes
Bureioeracy 6
Miliury
Catholic Church 6
Challenges 6
Balance
for (he Ecoaomy Throuih Mid-lWl
and the Money Supply
Fista' Dtticil
Docusuc Product 8
Tnde aod Investment 9
Debt
Scenarios
of Collar's Program for tha United States
TT
Investment
Sifeguards and Piojfcraiion
Salts
and Space Launch Vehicle*
Transfer
Discussion1
Collor'* Economic Program) Wbco he look olHec in March IWO. Fernando Collor jde Mclto. Ihryear-aid former gcicr-nor ol Alagoui. ici outevolutionize ihc economyon ambitious reform program designed to.
Kailliya lion.
Dismantle entrenched and ineffieieat naUii
polkHei.
Rcoriem ihc economy toward efficiency and growth byore eornpciilire.
Rooi oui cerrapiion. [For Collor. Braail't high inflation and economic mat-ilie or* dee afanosl entirelyiimanaieretni. which mulled In perennial publtoiector budget deflc.it, kcouwc governmenthe lack ol foreign Mmpetiilon.cotluiivt pnraie cartels, and antiqtticc
Hii efloru to reform an ccoooniy In crisis and retlorc 'ailh in goternmew will take yean to compteie. Mthc-uh mooedcnte of mission and ureotfy leierroined to achieve rapid gains. Collor beganolitical outsider wiih an economic teamxperience. While his recordale hai generallypositive, wc bet-eve he ha* barely teraiehtd the -rface or the multiple problem, he facet. Over ihr. tealoniht orlime frame of ihi* Eui-rvite-lheCcUor to<ernmeM probablye able to
pe only acme of Ihebiuelei io ck Wcattern of boM initiative,withf which will emerge sense thaiCollorenerating nomomum ia overcoming Bra/il'snd lutadalaadpaliiieali
m ion.w ita
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l*ihclir(*Hi
Itih< period Ml*Mflmd-ml.(wntitodfni-iigi-if
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Cotlor't proi'im coniain the moil sweepingihocl measures and timet oral re for mi ever implemented lo Brazil. To ailaek the root comet of InfUiloo and promote growth, ihc program hat:
rnonib free re on bank account* and government bond holdingi that initially bullied up an estimated HO pcreeri of liquid assets.
Abolished moil subsidy program* for industries aad tpccillc ciporit.
Reduced the gorernmtni fromoimttrict and abomhedederal agencies, while inhially promising prawned reduciiont ofoercent of Uie pabtic-KCior work focec ihb yesr-which could amouii to0 employees.
nc'tirae capital gaint tut cn Financial aucct.ca financial irantaalant. and higfttr taxes oanis.
made tke head ef the federal police responsible for ua collect ran in an aniicorruptlon move.
e- currency and freed ibe exchange rale, although some coatroli on foreign exchange dcalingi stayed in place.
Raited fuel prion and utility charm, proclaiming thai Brazilian* *ould have to pay Ihc real eosl fcr gorenvnent goodi and icrvrcet-
EiUbfohcd go-defcnes Tor privatizing allew key palatum firms-some ISO federal Armsaboutereeot of GDP will be affected.
Eliminated mmt acmianrT barricn. lo be replaced wilh tariffs thai will gradually be reduced.
searfaf
lo redact irnpcdintcau tol
Largely dcindeicd the economy by breaking Ibt jutanmic lltikug* between "age and price In-
The impact ol the shockinflation aadbegun looff. and Collar ii bi<lng difficulty com reeling aagc demands. Moil ftrmsable to gain access to their frouning the flrn lewa!the progran rhTough special prolusions and kopbaici. Although the in* creased liquidity ielped rekindle output,aided, by seasonalbegan to cbrab.
stunned and subdued by Ihe iheer magnitude and botdnesi of Collar'* reforms, have begun io react and ore searching; forto dilute ihi program'! tough* esi measures^
Colloe had relatively few problems warding off initial
- rosic" il attempts to obsiruci the plan, bul ihe legislature began to assert iuclf bylarge pan asaisicd by missteps by Collor and his learn. In that month. Congressresidential decree limiting the powen of regional labor count to grant cost-of-living wage Increases. When (he Supreme Court blocked Conor's effort io circuawcat Congress bya nearly Identical decree, he suffered hii first major political iciback.r-
maH circle cf (railedo)lot hasighlyied and mtcntMlcaUii approach io regulate and implement ihe plan, la ihe Am few months, ihts approach wai accompanied by hasty decisions, sereral policy fligi-ilorn, retractions, and delayatiribuiod to the inexperience of" key economic learnat lima confuwd busmen and labor, prayed into the hands of congrcv ion ji opponents, and reduced public confidence in the plan. Particularly embarrassinghe government was ihe rate with which many firms quickly gained access to moat of their frorcn accounts soon afier ihe prcgrant wai announced. Daroie tbese failings, we tehee CoBor hu suffered It tile tailing damage, although he may reshrJBe the Cabinet after tbe Cctott; e! eel ions.
Political Challenges Fadsg codor
1 legitimacy in Ini aie
Colloe'i quick aod unequivocal commitment* severe economic problems, addressinequities, and fight corruption heltxd himin early luppcci for hit program. At the fins popularly elected president in SO yean, he ten rfuedigh degree of popularity- and legitimacy in Icuncfaing tbe first phase of hii eeoaoanic |
However, popular support for both Collar and hii program has declined significantly* from the eupliuri-of lhe Brit wee hi in office and his polHkal skills will be icucd severely Opposilion political panics, labor umoni, and business grours. which initially wert
In bitah trie Congreas from now until ciriy iWl. *hcn ihtkgnlainrc is seated. Collorfocus on fcmtalliag any ec* tilon by the majority cc-poiiuanrogramroem vie locution of an oppmiion bloc
tXtJ i I aJmg
kj ilaiiw rarararmgaj ia Utp oppnaaau otT Balance after the cnetiio* In OcicnMr. Ccalar ihowkl hart aa easy lint oaimn*ta>rmg iht laracdwtaid rr putting crT cciferation ol he; mriurtifter the new body it -ii it' Wtvvpeet she no en^gren to be fragmented battrong moderate bate thai will permit Conor to connorking, albcti
shifuag, cosiitroa of supper (
Collor also mil have to overcome opgmtition or uneati-nets over hu program by key nutreit group* (cj-eT*
ne Of tne nui oMAculi tasks Collor faces is> lo Veep labor from rebelgaitut hi ccoaomtc rrfeetn program. Martoftrtert; cf Brazil's worl faeet icknownV edged the end fee ecotaoraM refaem bet is iraemt-rg-ly worried aboaitriraiiratnd pnvate-and rnabbc-mtor layoffs Th* men ferccfal effort ta ehal Ic'ncaborai ccet from lhe Sole Workers Central (CUTl the more radical of ire twoabor roups, which ri pronvoriig repeated strike net Km and hopes eventually iore-beted national iirikc The CUT alio ii proteiUng
^
e
3
labor poll
i
reductions ordered by Collor In the public-lectorof the CUT'iiirongcsiit trying io crate CoUor'i laborentral Usee of the election campaign!
mini
confront the reality of Milt highnflation raicj, continaing recession, and Cotlort flrmneu against returning to full wage indeuilon, sirlkc ictlnj it likely to pick up. ai lean for the remainderO, and become more dUruptlve Ta delete labor protein in the private lector thit year. Brasilia it delaying until1 the iniroduc ikon of free eoltecineart while, ihe government It permitting full Inflation compc station for Ihe lowest wage eatnettj
Theounting heavily on the prospect thai, once lie ecoaceny moves upward, firms will begin to rehire aorkers. lessening labor miUnncy. Pi bK-sector employees willpecial problem at long j, planned federal work force cult arc pursued. Collor may be forced to stretch out ditmittalt until1
Lntr Cltnti. Color probably willrying to launch ambitious welfare program* broadly promised during his campaign until the economy it more robust and the badgct picturee already bat announced small-scale, low-cost, but well-pablicifed. program* to demonstrate his icriousncu to Ike loner classes. We believe Ihal auchoupledihe latcctsef the siabUttailort program, will keep tha poor Quietcsni in tht short run as long as Collor moves towardore comprehensive social program.|
BniKiu. By definition,tructural reformsignificant portion of organlnd business, -hlcir hat bccri dominitcd by inward-looking,lectors. But reforms abo offer great opportunity to many other industrial and agricultural lectors capable of competing inter nationally. Iform succeeds, the latter sector* will gain ascendency Vnd provide CeOor with one of bis peincipal conaitu-^neiai.r
The shock measures contained In ihtource of friction with the builecu community, bul wiihbusincsir* hus.ng rcgu-ntd uctcu io lieir blockedoncernturned to Collet's imnstmentaiion of theroader toils- In general,rging Collor to cut public capendiiorts faster and pursue fiscalio order lo redact inflationary pretaurai. If inflation I* HObt'-iicd at currentoKMcn monthly! nr ckclininj jnd theo-sof rcsamed growth,believe ibe business community is likely to maintain in general support for iht reform efbri. Al lhe sidm lime, however, il ii important that Colt* continue itching feedbacke busmen community arid she iomc flexibility in its piecof hberallmijQvoid severe damage to indsstiryj
iht Bureaucracy. Oproaiiion to Collor from thebureaucracy siemi from those whoprior ad mi nisi rations' inicrvcntioautd employees whose jobs Collor has promised to eliminate However, widespread public perception lhat ike bureaucracy is ineffectual. ovetwaffed, and corrupt is obviouslyCollor's favor. While he may continue to meet legal challenges io hii efforts tooui unnecessary government employment, hcarscst liltely to meet nidespread popular oppcahian. j
Tie Military. To date, Collor has tijeceeded io asserting command over the armed forcctandtheir political influence without majorapie minor irritants. Collor appears to have wonreiptct of senior officers because of his assertive, no-aenstnte leadership and visionary determination toa belter, more competitive bVaeil. Loig one of the must vociferous prcponcntiofiiatiH policies, the miliary establishment has aceepted Conor's call for privaiimiton of most suie-owned enterprises because the generals ice no effective alternative Collor has been careful not to demean the military ai anHe probably will continue toolid relationship wiih the high command to offset any potential carping from tbe generals thai lhe armed forces arc being singed out for budget cut! or being ignored
I'r CarsNfe CaareA. Collor alia is concerned about the influence that lhe progressiveCatholic Church exerts on lower-class altitudes. Many progrcs-lit clergy Openly utgedock to support hii presidential opponent. Consequently, Collor probably
nfluence Ihe Church's conservativetoit economic policies and tohem
counter any effort* by the progressists against his
Ctwtliinrionaf CM lint'Serious qucttiont already are being raited about the coniilluuonality of scleral aiptcn of CoUor't ecowtlc plan.8 Constioa irr.pctci ilgmflcanl rcuraintion caecutive power, making lharobable continuing bait lei roundresident wiih authoritarian leitdcncict. Hb order* to fire large numbers of public-lectorhave spurred challenges cn the basil of job security guaranteed under1 Constitution lo tenured civil lervanti. Olher coutl challenge*ccurred againstuempn to dtlndet. wages and limit wage increases. Pertinent negative rulings by tbe court* could undermine lhe admtnbiraiion's plan to break the cycle of inflation, if the government cannotegal way lo eireamitni adverseWc believe that the Presadrat'i dogged deitrmi-nation to overcome obstacle) will enable him to keep tbe legal challenges from derailing key com pone nit of his ecccci&ic program dur.rj the period of Ihu Etti-matcj
Oaollor's political itrtngthi outweigh hii liabilities at he attempts to implement hit multifacti-ed reform program. He is in line with publicin crteriag Bransewtisicn aad hope for the future, and many tee him ai possessing ibe leadership qualities required to meet the challenge of restructuring Bran Is ecoeomy and restoringto lhe govern mem Working iaavor is likely to be lhe diffused nature of criticismehich has focused on specific port* of the pain rather than rejecting it entirely. In our view, Coilce'* task will be to promt these politically disparate groups fromustained camjaign to block Ids reform measure* on an issue*by-liiue
ft
On balance, wc believedetermination andwith Ihc technicaland growing experience of ho team ai well os ihc kKkredible alternative lo hbsucceed in preserving the public'1 confidence and otTtctiint hlidciraciori.|
Prospects for let Economy Throughe ;udge lhat the CouO: leantelter, than .even chance betacen now andsol only ofihe banc tiabiliiaiica objectives of therogram bul also ofense thai ihesireniummplementing tit long-range siracwal re teen goab. In (he process, wc abo believe that ihe government will conilnue to be widely seen as putting Biaiil back on Ibe pathnd cTscuVc economic man-
Wt base tfili Judamant efacceii on the foCowinc promotions: Collor it likely lo hoed inflation down to manages atia monthly ai-cragc ofTmUvc managemeat of the nEancy lugof)edaction of the Steal deficit. Wcabo eseeet Mine iri-onmeniltr key ceeccTK it'ieam.radM. apium from Ihe car*en rcctniaa gctnnuttaaadlighi increase injeb creation,'.oa monthly, bated ft* oinfO per barrel. Although the shock program millon'racuen of GOPe bclirtt that th* sharjiest declint hat already ocearicd and that ouipttt is poised today
We estimate thai the tVaiilian economy can adjusthe rmoargo of Iraqi and Kaantl al tnppues -ilhcwl uiakamia: damage to CoBor't economic reform peo-grir.percent energylciert, and the ecoaonay as ktrgerr wf-eoJU-acd Eiports are divtrsdkd and censei.te ibcnaerceai ofreinged crisn ia ibr Middle Est) and cceitianed dramatic nte in osl prices, however, wouldain inflaiiojiy and reeessioaaty impact on Bra-zTs economy,
te Honey Supply.ayor tlep tomonetifatlan of the budget dcficli, the Central Bank announced in May it will no longer purchase
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governmcnl securities thai Iht market will not buy. The bank is attemptings* orihudoa tools in mange tbeting reiane ratio', utilizingel epcrancei, and buying and sailing foreignboth the toil and ibene nsaiatt are tttU learning We eipeei inlaiuB ladrepkcto* IIagwtt andmbe' breamM co-rraei on attentat} growth. Thereafter. Cdlori task bcrssncl mere cosi-piet at be deciCHi so*wommoeUie higher oil import ecus. We believe that he will allow the state oil companyradual I)asi through the costs In higher prices aad will relai monetary policy only slightly to add liquidityhe system)
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ihe balk of fund, initially fasten now drcolating again aidIncrease! beingradual Kboand in production it likely. In addition, wc. the Central Bank io continue to snowaie to depreelaie in order io ttimnlate exports. Coupled withontinued, confirmed comfort-new to hit plan, auch recovery- thould (it* the basinets comnuindy cnouih confidence to increasepossiWy including the return of tome flight capital. Even though in ihc thoei term ihe recovery it noi expected to he robust, it could form the basis for fatter jrowihl-
ftvrfgn Irate nnd Inicitmeiu. The hike In oil prices caused by the crisis in the Middle East will raise import costs and dampen open sales. In the face of
lasting cat shortages. Brazil can increase domestic cd0 barrels per day and reemphasire its fuel alcohol program, although tt -ill Uke moral montht to reviialirc. If current Oil irarkei ccndlibm porstsi, with oil pricct at aboutbarrel, monthly trade surpluses will probably dip to about STJO million during the remainder0 after averaging about SI billion earlier In the year. Noatihetesi. withatiiy ef Braiirt manufactures, currency devaluations, and the shift of goods into Ihe export market unillxports are likely to grow, cvenioilly rebnllding thc.urplus. Byfndicators confirm our assessment, the climate for foreign investment thould
Ermdli
packagi. Nevertheless.illion foreign commercial debtignificant tharc of bonk loan pcctfoliot and bonkt tlill tec future opportunities in Braiil. Wc bcOt-re an ironing out of dllfercecef It poilttut byrazil will probably ttillet rcpayer to iht Inicr-Ancricae Developmentnd tke World Bank became of Braail't large rcpiymrti com mil menu and lags ia rcccBjig dis-berseenenu from new loan ptcjjreoisJ
frimrriarion. Privaiiealion It getting offlow siaii bul ihe machinery It in place. The governmeni seakd back ihe number of Arms to be0 fromo a, and wc believe tales frtsn these firms will yield ra more lhanillion. Many of the firmi chosen far the firs; series of sates arc profitable, and major liyotTt are not likely to occur. Foreign creditors will be allowed to participate In the program and obtain up soercent of the voting shares, but debt-equity swaps will probably be delayed1 bccatie the Central Bank fears an inflationary*f
"mrfjyoirMi
IrtclaiiiGeO:
Inomplei set of fiscal and monetary con-roli. Collor's team isfoe bee between controlling inflation andebilitatingWhile most Braiiliant support ihe need for reform, all groups arerice. Their willing* nest to continue paving thai price win be determined by iheir confldetee in the future aad their perception of equitable burdemhariog during tbe period of aus-
DtM. The Colic* leim believe* thai achieving aa Jiiccmem with fceeiia creditorsssentialvercame (be international financial community'scserrtmcni ol Braa! resulting from ibe de facte moratorium on debt icoke payments on both ccctatcfclil and official leant begun under tbe Sarncy administration. Although we eipeet an International Monetary Fund (IMF) program to be in place this year, wltbrawl nt at0 million bygreement will be con tingpon progress in talkt with commercial bankt. Braril began token payments to bilateral creditors in July, and wcatii Crab ogr correal to fellow the IMF agreement. Talkt with commercial lendert will be more difficult and confrontational. Braiil will iniitt on debt relief at Icait at tamable at tne Mctico
We eiMmitc tha
We cttimate that, in the fsce of spiialUti saltationrotracted downturn, Collor will try to maintain tbe basic dements of his program. Tbescwhich wcomewhat less-thao-evcn chance of
If:
Budget targets ueie not aefacved because constttu-tlonal challenges successfully blocked effortseduce pitriic-sector eenptoymeat and pro attic par atinial eatcrpriscs; las revenues fell far shortecause of the slack economy, and
figure 7
Foreign Drbt, lflon
alUl. Xfthnll)u.
tar dccaeed u> msncuc ihe resulting ddicit; or
Huge -igr tunciiiwrtf obtained cither ilirough court flw news or congressional action to reindeiagog* in firm pncci tcti^tc ef tad >yjJ.niji.f nesr-rlysenntotsne. nd
Continued ight monetary pohry producedreceiwttl and rising uncmploymcnl
If confidence in Cslkw falters badly, the chances af an i. ongress tacreast. Enn if the newly clcctcd body ifciueoorataeaucan tkdia* is cvtSK evidencemboMcc pouueat
c ibc rcSCCte of Ikt rVcfctdcnt'i
cceigrrsiionsl saansstiaee^
If this iccsnho lakes place, the President probably -ould grwdgiagty decide io make concrasioas. slowing implementation ef las reforms aad rampettng control of the budget. Castor aught reirnpeneand price coemtetavoraryt continue lo stronglyull return lo rethis vouldeturn toney years. He would nrobabl) aiicmpi to regain momentum by nnnourciig ni)or Csbi'.et change' and rene- efforts to implement hii program. Hennr. Collor would prohaMy hoveMing in outside economic cipens cf stalsrc.cnc of has aclbatWy Underiawssliatia. be es3 naiad* be ehst so make less ambition adjustments to the economy but would, no en he leu.ost hn best ckancc of reversing Braiirs cdSOCBK (ortunes.
Implications afle-gramiiedSum Tbe loceeu ofmponarti ta ihc Untied Sulci. Ilit pecsidcntyiht censcl-dstion Of Latin America'a largest and ccuflcriifccalt) rnotlcovritry. Mjrro-c. he hat aucxecctcdatter of raatti La rentalirmg the popnJaitOfTa fatthi rat arc. with kit tvenae to put the ccaumrr baeh aa the path ta fU'ina" tnd nvs-lerw.-sDoa. Heat of Latin Area.-icaa laadrn espousing ctajor rttar-kct-oricaud icvomic reform aa the only way to peonux* uilairad svonoinledettlopmcnl and growth, and hit program comperes favorably with market-orienud rtformi undtruatn elsewhere in ihe tegLoa.
But Collor hai nada it (tsar lhal hit goal ofBrad's ralaifoni wilh tht United Siaiet and other developed countries ta not a* end In itself,1 u( hn oversiill 't objective of modtrnii-ing ihe couniry and carvinglace for Braiil at an influential actor In tha Brti World. Collor ret li ret ihai Braiil has become tncrcatingly ttoltiedaod ntincompotltlve leehaolugically, etptcially ia relation to ibc growing ecortoaaktlon liking place in Eatt Asia and LurepsI *|
With tuch goah in mind, Collor hat launched several 'foreign policy initiolOet lo etmonttratc hii sincerity. Focusing espoclafly on trade, ha hu made imprctshv ttirdaspenceeomy to free market forces and has played down cxccssM nationalism. Collar hu enthusiasticallyesident Bush's Emtrprise for the Asxiicu Iniiiativej
Col tor realised thai, to break the logjam in US-Bra rilian relations, be had to aggressively pursue rapprcachemeni wilh ihe Lslted Slates by showing flexibility on some sensitive bclaicral issues. He hat lowered import restrictions, promised pharmsccuiicai poicnti, andragmatic approach lo environmental, nuclear proliferation, and arms irass-fcr issues. Moreover, heeam have developed good personal rapped with their Washington corner-parlsj-^
Over the net. II months.spect bilateralcontinue to improve Although thebe posilne. tatkaoa son*ercJifcraiaaa and iraasfcr of advancedceasitn-ae to be dCViutaibat Wasn.agton respond to Cottar'sfiscal reform* by allowingand broaderS
aTT. Collar SMtmlcnwehlycorieniighly protectionist trade regie away from noniarifT barriara'lrT tysitm. removing the main roadblocks to improved bi aieral relaiioni. This positive start, hvwsvsr. will be tempered by Ei '. need to auttaii trade surpluseslo bolster tniernaitorul retef.fi and teftke its foreign debt obligation) Brasilia may alto come under heavy pressure by tome domestic inierest groups claiming lhat loo rapid liberalUailon would uaderniine leu ccmpeiiure domestic firms, j *j
However. Brar inn ccenptainti against USpcnieiei resnain keyhe ne-bilateral trade tgendatbe
US Ei port Er'uncemeni Program iEED forear asspnrn sacartas and may lake ihc ieaws in the GATT anksi the United Sulci ditccnliaawaabs-dy BesiH alto will probably press harder for increases inetas on rmpens of vsrtc-as agncunar* predvets,range loiec and protaattd
Although ihe Uniied Stales and Braiilo differ on some important issues at the Uruguay Round of ihe CATT negotiations enters lis finale believe that lasi-miriule bargaining and greater Brazilian otxlbslliy will improve chorees fcr an accommodation wiih Washington. Brasilia will persist, however, in its deicrnstnailoo to maintain provisions for "special and dUTerentiar treatment for developing countries lhat helps protect Briarsand still will attempt in pticc lIsMlsea US initiatives Involving services,l property righti. and investment ui the GaTT.I
s
inroblem]
1
tertian Inrtummi. Wetipeei iheCcKlor nam lo lake ipeeifie itcp*ismantle lha cornplta ict of policse* restricting foreign Mvettmeni. Progress rt must Itktly in areas where the President face* the lean cooitiainii on hi* authority, such atlocal content rcouiienteat* anal rerrto-ring barrier*oyally paymentsthnical leesoreigncrioa* barrier* to ihvewenent inclitcd folds, will continuee a
any politically icntilivc urm* tramfers out of coQcern net lo undercut hi* objective of dra^pg ttoct to Wtnttn indattrtalifed
mini
mad PrcJifittuofi Tift bare
ons ofj in Brazil* patuo Urxr tbe Treaty of TlaiektOa. Oilicmcni is eipectcd on Brant's to-sgiufdngo sign the Nuclear Non-Proliferationollor hu signaled ha may move forward onwtuchbt pieieoce of nucltai wtaports inetin the belief ihal ihiint-breaking rrtc-re would make Biaril atoesr mereand thereby facilitai- in acctas to Western tcch-oejj Color alio haiasicof aVaiiTiprogram, relecina Ita ietrmtioa to piaca hi nsnarat dvJnrta tatairal
onl mow likelyTir.ll Tin treaty'* term* would obligate Braul to negotiate anda full-sMpe IAEA laftauardioot hi of waning Tlaieloleoont
i: ;. r.
tnamr nhtary cdScen copoecl to auttie* upmwr of paraUt nuclear prOfiam facilme* I* tci negotiations ce aafeguard)tyond ihe scope of thia
Arm Salt: Bran I'i armi lalci to Iran, Iraq, ind Libya haveonttntiuui Issue In reUiioni wiih iht Untiediih this cutset of the in. In the Middle East, Collarn embargo ea aim* aalti lo Iraq that wc tweet hum to honor is Iota as ihe IN t* notice* art in peace. Funhcr, wc eiptci Irani lo honor at* perncm aaaataacta thai il willwovt ihe ultmuyral i* Libya Nevertheleu.rsain arms ciportvg COmfun'.n. motivated by ongoing financialies, arto puriue further armi ijHi re other clscmi in the Middle Hail. Collor Ii unukttr to
Irthnoti) Tnntftr. The -fiok Qutatton of US Gov-ernmeni teaitroM over transfer of: -g>
f ibe escut corrcritcviS-
Siui rttai-ari Many ataior Brailllaa aAcra'i. bwst-uss (iKvn>n. and military osrtcen believe ttttere designed to cripple BrarIlian companies thai are potential competitor* of US Armi Tbi* perception has bern strengthened by the long delays Brsaillan companie* have eiperil need in ihili at-timpis io purchaie US high-technology lieiM. such as
I cauirMhjijsuc i
mm.
e etpect Braiilian oflcliilII pren Wasrungton harder to cut thtuwgh theestrictions and bares sera tic reddcr.ng tccesi lo US kagh lankiiokgi Branl'i reltactance to acceptufegssarcl* or ether irrtnalasji cootlltoajor bistertiiatu. |
tWrawM Government funding of environmental troitcii "ill remain dlflcall because of eoMfclltg demands onlight cudgel Nertr the tent. Cdlor appears ici inton addressing environ-menial problems, ind we etpcct continued krapcove-rem in the to lateraln tVt area. Tke Presidentenaunary enncarud atcaii Bra Wicna theaah ba wishes to prc-eni tne appearance cf Brauls being anna lad to by otter aaucrson
istaaa. H* also do res to end delays in
dabtrtcncrn front inioniiteetil Ins* agencies be-
eaase ofnul assurances.
Ca(toi hn stsned snasl ennreninentallybtditt to larga-sealt agr-culiural projects In
the Amaton Basin lhat antra previously suspended under the Saiacy gji-irnrant Moreover, he has all but formally endorsed th* use crfdebl-for-nature
policy reversal- to help in funding environ*
mental
Detp.ic ihc Unproved tone on environmental iuues.ipec. Braiil to confine lo imitt that thecoantricse tier respciiiiolliiy fornvironroblems. Membect of (he Collor learn will urge (he Uniied Slates arid oiler developed
countrict to be more forthcoming on technologythai would modernise Biaall't industry and reduce ecological damage. As II preparesost2 UN Conference on the Environment, Braiil is likely to assume lets nationalistic positions on environmental issues to avoid incumog further international crili-
be
.VarrcriW. The Collor aottrnmtnt hatigher profile rn iht aaiMtsrcotin arena lhan its cveCeeesaee. out devoting mayor resources to Use reobkmirat of ecnacnnM belt-tig htraitag wi) ilt. Wa haraava. however, thai Collar it eon-cu th* bread in-gssci nf nareotaca La Braiil. He probably wtH continuehe need for Braiil so addeaaa tin ariMisa. He will also lake seme concrete aetata to aipasd go-eianteniwide ax unaefforts, includingof the Bianlian armed fureea Nevertheless, ha wll stcadfatily rebuff any tsggirmi by other coucinei Ui deploy foreign military forces iaomestic counter air colics activities.
Original document.
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