6 Years of the Real Plan

Six years having elapsed since Plano Rea^l was launched, the country shows a trend marked by the consolidation of the price- stabilisation process, by the resumption of economic growth and by more solid achievements in the social domain.

THE CONSOLIDATION OF STABILITY

Although Plano Real has proven to be more than a stabilisation plan, the success in the struggle against inflation was its first conquest, one that paved the way for progress in other fields. Taking into account the period from July, 1994, to May, 2000, the average rate of inflation, as measured by the Wide Index of Consumer Prices/IPCA, assessed by the Brazilian Institute for Geography and Statistics — IBGE, has been of but 11.4% per annum, which contrasts with the average of 1,280.9% per annum during the five previous years (1988-1993).

The drastic drop of inflation at the beginning of the Plan and its maintenance at very low levels have practically eliminated one of the main factors of income concentration.

The change in the foreign-exchange policy, in January, 1999, represented a challenge to the maintenance of the process of stabilisation. However, the forecasts of a substantial increase in the rate of inflation and of a generalised recession failed to materialise. At the end of that year, inflation, as measured by consumer-price indexes, did not surpass 10%, a most satisfactory result, particularly if one takes into account the magnitude of the foreign-exchange devaluation (of about 45% during the first twelve months after the adoption of the fluctuating rate of exchange) and the simultaneous occurrence of other factors adverse to stabilisation, especially the increase of over 120% in the prices of imported oil. At the same time, instead of recession, we experienced growth in GDP, though modest, 1% according to the latest estimation by IBGE. These data show that Brazil has overcome the challenges of foreign-exchange devaluation in a better manner, as compared to other countries, such as Korea, Mexico, The Philippines and Indonesia, where deep recession and/or a steep increase in the rate of inflation occurred.

THE RESUMPTION OF GROWTH

One of the most outstanding achievements of Plano Real was to defeat extremely high rates of inflation, and at the same time to ensure significant economic growth during its first four years in force. In fact, from 1994 to 1997, the economy grew at an average annual rate of 3.5%.

The rhythm of growth of the economy decreased as a consequence of the international crises, beyond any doubt amongst the most severe in the second half of the twentieth century, the ones that occurred in 1997 and 1998. Even so, the average growth recorded between 1994 and 1999, of 2.3% of GDP, is significantly higher than the one recorded in the six immediately previous years (1988 to 1993), when GDP expanded, as an average, by only 0.8% per annum.

What is most important, though, is that once the shock waves of the 1997 and 1998 international crises were overcome, growth is back, and on solid grounds. The recovery of the economy consolidated during the first quarter of 2000. From January to April, as compared to the same period last year, industrial production grew by 6.6%, having experienced a vigorous expansion — 19.7% — in the sector of durable goods (automobiles, electric and electronic appliances, etc.). During the same period, a visible decrease in all price indexes was recorded (from January to May the main consumer-price indexes presented the lowest inflation rates since such indexes were established).

One of the propellers of the resumption of economic growth has been the increase in exports, which expanded by 13% in value and by 34% in volume, if compared to the periods before and after the external crises (i.e., the first quarter of 1997 and the first quarter of 2000). The strong expansion in exports of manufactured goods (24% in value and 40% in volume), demonstrates that the foreign-exchange devaluation is producing the outcomes expected. Investments and consumption of the private sector are also growing, fuelled by a greater supply of credit; by the drop in the interest rate, currently at its lowest since the Real was launched and by more trust in the future.

The resumption of growth has its consequences in the creation of jobs. In April a record was attained: the generation of over 850 thousand new jobs during the last twelve months, a figure above the one recorded in May, 1995, at the peak of Plano Real, when the previous record occurred. In this new and promising cycle of job creation, industry is hiring again, thus reinforcing the labour market in the formal sector.

Within this context, the economy should grow by about 4% during 2000, with a consumer-price index considerably lower than the one recorded in 1999. IPCA has been the parameter used for the inflation-target policy, in place after the adoption of the regime of fluctuating rate of exchange. As far as IPCA is concerned, the market projects an inflation very close to the core of the target defined for 2000, i.e., 6%, a rate around which the other consumer-price indexes are expected to remain.

The recovery of the Brazilian economy would not have been possible had it not been for the strong commitment to fiscal austerity (reflected in the growth of the primary surplus from 0% of GDP in 1998 to 3.1% in 1999). Thanks to the firmness of the fiscal policy it was possible to expand the supply of credit within the economy and to reduce the rate of interest. The positive fiscal outcomes were a consequence of the unheard reduction of public expenditure, for a value corresponding to 0.9% of GDP, although there has also been an increase in revenues, corresponding to 0.5% of GDP, between 1999 and 1998.

Economic recovery has been accompanied by two major reforms (the Social Security Reform and the Administrative Reform) and by the Fiscal Accountability Act, the foundations of a new fiscal regime.

The reform of Social Security disarmed a real time bomb, the main factor of fiscal unbalance in Brazil, preventing social-security deficits to proceed in their explosive trend.

In private-sector social security (INSS), the rule for calculating benefits was altered, with the institution of the "social-security factor". According to the new rule, the benefit to be received becomes a function of the value of contributions paid, of the age at retirement and of the expectation in terms of the duration of the benefit. In other words, actuarial criteria were introduced in the social-security system, in order to render it financially balanced as time goes by, thus making sure there will be funds to pay retirement benefits and pensions in the future. Parallel to the Reform, several steps were taken to increase the amount of people paying social-security contributions. Thus, in addition to increasing revenues, the goal is to ensure a basic social insurance for millions of Brazilians who currently do not count on any type of protection of this nature, particularly self-employed workers and domestic labour.

With the Administrative Reform, a new labour regime was adopted for federal civil servants, except for those belonging to careers typical of the State, that is, those that do not exist in private sector. The labour relationship of workers who join public service after the reform will be governed by private-sector contracts (Consolidation of Labour Legislation — CLT). Thus, the retirement benefits of these workers are subjected to the Private Sector Social Security ceiling. This measure, in addition to fighting the deficit of public-sector social security, helps reducing the inequality between the social-security benefits of private and public-sector workers.

The Fiscal Accountability Act sets limits for personnel-related expenditure, for public debt and for other variables of public finance. It mandates public managers to commit themselves to fiscal targets and to report on them. It establishes harsh rules to prevent election-related expenditure from occurring and it imposes discipline to the management of society resources by Government, to prevent immoderate deficits from recurring. For instance, no ruler may create new expenditure to last for more than two years without indicating the source of revenue or without reducing other existing expenses. The Fiscal Accountability Act, which was supported both by Government and by part of the opposition, represents a new code of conduct for public administrators and represents a turning point in the history of public management in Brazil.

SOCIAL DEVELOPMENT

PROGRAMMES FOR UPROOTING POVERTY AND SOCIAL EXCLUSION

In a country with striking inequalities such as Brazil, programmes for uprooting poverty and social exclusion are high priorities.

In the period from 1990 to 1998, 13 million people crossed the poverty line, thus reducing the percentage of the poor population in the country from 43.8% to 32.7% (the equivalent of 50.1 million inhabitants).

The proportion of households without access to basic State services also reduced significantly from 1992 to 1997: those without appropriate water supply services diminished from 25% to 19%; those without sanitary sewage diminished from 48% to 41%; those without electric power diminished from 12% to 7%, and those without garbage collection diminished from 36% to 26%.

Access to land in Brazil also expanded, as a consequence of the implementation, starting in 1995, of the largest agrarian-reform programme of our days. In six years, 400 thousand families have been settled in an area corresponding to twice the territory of Belgium.

The National Programme for Strengthening Family Agriculture (PRONAF), now managed by the Ministry of Agrarian Development, grants credits with favoured interest rates to small family farmers, and to co-operative organisations and agricultural associations. Loans for covering the cost of harvests and for animal-husbandry activities have a maximum limit of R$ 5 thousand. From 1995 to 2000, PRONAF has already benefited 1.5 million families, in over 4 thousand municipalities, with total funds of about R$ 10 billion.

The deep inequalities and the concentration of income are at the root of serious social problems the country still faces, among which highlight criminality and violence. Government endeavours to approve laws that limit trade in weapons and to implement the National Public Security Plan, designed in June, 2000.

This plan, of a most comprehensive scope, encompasses 124 measures, several of which of immediate enforcement. The plan is also to ensure a substantial input of funds to the States and Municipalities, levels of Government having a direct and relevant role in public- security issues and which in fact operate where problems of this description are more acute. This plan is to increase the co-operation among the different bodies involved in the issue, at all levels.

EDUCATION

Government has defined as a priority in its educational policy the expansion of elementary education. With the establishment of the Fund for the Maintenance and Development of Elementary Education and for the Promotion of the Teaching Career (FUNDEF), the distortion translated into the non-existence of a correspondence between the apportionment of funds and the number of students enrolled has been corrected. The apportionment of revenues between the State and its municipalities became proportional to the number of students enrolled. Furthermore, the Fund has defined a minimum expenditure per student/year, which has much favoured poorer States.

Other important transformations were the concentration of responsibility for elementary education on municipalities and of that for secondary education on the States. According to Programme Cash Direct at School, for instance, schools now receive federal funds directly. This measure has eliminated the political manipulation of budgetary appropriations, allowed communities more control over expenditure and encouraged the creation of Parent and Teacher Associations and School Councils, which now manage the funds in partnership with the school management.

The evolution of indicators on education in Brazil shows highly expressive progress:

In 1992, 18.2% of children in the age bracket of seven to fourteen were not at school. In 1999, only 4% were not enrolled. The country is very close to providing universal access to elementary education.

The expansion of elementary education brought about significant growth to the number of enrolments in secondary education: 57.5% from 1994 to 1999.

The rate of illiteracy of the population above fifteen years of age has reduced from 18.3% to 13.8% from 1990 to 1998.

The National Programme for School Textbooks has distributed, free of charge, from 1995 to 1999, over 350 million school text books. Only in 1998, around 110 million school text books were distributed to students of elementary and secondary education.

Programme School TV, established three years ago aimed at providing long-distance training for teachers, accounted for the distribution of a kit (television set, video recorders, tapes and parabolic aerials) to all elementary schools having more than 100 students. Educational programmes reach schools via satellite and cover around one million teachers and 28 million students. Programme School TV currently means much more than the education of teachers, for it operates together with communities, with documentary-film shows open to the population during weekends.

Programme on Information Technology in Education (PROINFO) accounted for putting in place 30 thousand computers and ancillary equipment in over 2000 schools, thus benefiting around 200 thousand students. By 2001, the target is to put in place 100 thousand computers in six thousand schools.

The expansion of enrolments in higher education, starting in 1995, was of about 424 thousand. In 1998, there were over 2.1 million students in higher education, a 28% increase vis-à-vis 1994. The number of students in graduate courses has increased from 43 thousand, in 1994, to 53.9 thousand, in 1999. During the same period, the number of Doctor degrees per year has grown from 2.7 thousand to 4.7 thousand, and the number of scholarships granted increased from 5.867 to 8.009.

The Brazilian research and graduate course system is comparable, in the developing world, only to those of China and India, successful countries in this domain. In 1999, the National Research Council (CNPq) and the Co-Ordination Office for the Development of Higher-Education Personnel (CAPES) granted 77 thousand scholarships, while in 1951, when CNPq was established, the number of scholarships was of only 70.

HEALTH

The Brazilian health care model is going through deep changes. The main expression of these transformations was the establishment of the Unified Health System (SUS), whose main characteristics are: decentralisation, with a single management at each sphere of Government; the regional character; the participation of society and the exercise of social control by means of collegiate levels of decision making, and the funding by the federal, state and municipality levels.

Likewise, the Basic Care Threshold (PAB) has decentralised services, thus virtually eliminating the possibility of political discrimination and making feasible the control of nepotism and other distorted practises. Federal funds are monthly channelled to municipalities, without the interference of any local authority.

Health plans and insurance schemes are now regulated and the National Supplementary Health Agency was created, aimed at controlling and inspecting the sector.

Another major initiative was the emergence on the Brazilian market of the first generic medicines, in January, 2000. Generic medicines are being sold at prices 30 to 55% below those of their brand-name correspondents, with the same therapeutic properties.

The traditional logic, that used to privilege the treatment of diseases only in hospitals is being increasingly replaced by pre-emptive medicine efforts. The following programmes, either created or expanded since 1995, became instruments of this change:

Community Health Agent Programme: people from the communities themselves are trained to disseminate information on basic health care. Currently these agents serve 65 million citizens.

Family Health Programme: started in 1994, this programme ensures care to around 21 million people. From 328 teams, at its very beginning, it has moved to six thousand, in 1999, operating in all regions of the country. During the same period, the number of municipalities served increased from only 55 to two thousand. In 1998, the budget for the two programmes (Community Agents and Family Health) was of R$ 218 million. A year later, it grew to 380 million, with a 74.3% increase. For 2000, there is a forecast of a new increase, this time to R$ 680 million.

Vaccination Programmes: in a single day, every year, in Brazil, around 20 million children are vaccinated against several diseases, amongst which poliomyelitis. From 1996 to 1999, funds for vaccination campaigns moved from R$ 145 million to R$ 270 million, which allows to increase coverage and to use new pre-emptive vaccines against the flu, pneumonia, German measles, measles, hepatitis B, meningitis, diphtheria and tetanus. Nine million people over the age of 65 are vaccinated against the flu every year.

AIDS care: Brazil is singled out by the World Health Organisation as an example, because it maintains one of the best AIDS pre-emption programmes in the world. It is one of the few countries that supply free of charge to infected persons the medicines that delay the progress of HIV. The cost of the programme is high, and has reached R$ 487 million in 1999.

Programme for the Reduction of Infantile Mortality: created in 1995, this programme concentrates actions geared to immunisation, sanitation, nutrition, health care for women and children and the implementation of Programmes Community Agents and Family Health. As a result, from 1990 to 1999, the rate of infantile mortality declined from 50.9 to 36.1 per thousand bornlive: a 29.1% drop in nine years.

Six years after launching Plano Real, Brazil is a better country. It associates sustainable economic growth to social development based upon effective programmes in such areas as education and health. There is still much to be done to build the Brazil of our dreams, with the humane face of more social justice and of a better income distribution. However, progress is already impressive and encouraging. The economy is more solid and dynamic. Society is more demanding and participatory. The State is more entrepreneurial and efficient. Brazil follows the right path.