Brazilian fiscal institutions: The Cardoso reforms, 1995-2002

This paper looks at Brazil’s fiscal policy during the two administrations of President Fernando Henrique Cardoso: 1995-1998 and 1998-2002. It stresses that the authorities’ austere attitude was as important as institutional and structural reform for the fiscal adjustment that followed the 1998-1999 crisis. The principal cause of the fiscal deterioration in 1995-1998 was the reduction in the primary balance rather than the increase in the interest burden, while the fiscal adjustment in 1999-2002 was largely due to increased revenues, as primary public expenditure by the federal government continued to grow in real terms. We consider the outlook for fiscal sustainability and conclude that, to preserve the country’s hard-won fiscal discipline, the austere fiscal attitude shown recently by the authorities should be permanently embedded into fiscal institutions.