Forty years ago, Albert Hirschman, in the context of Chilean society, theorized that inflation may be regarded as "a substitute for civil war."62 Conflicts over the percentage of national income to which different groups are entitled are resolved by inflating the size of the economic pie so that each group receives an apparently larger slice. Inflation permits governments to temporize and gain additional room for social maneuvering during disruptive periods.
Brazil has been a chronically inflationary society. One of the reasons for the 1964 military takeover was the inability of the Goulart regime to control inflation, which reached a record high of 91.7 percent in 1994. Unfortunately, the return of civilian government in 1985 produced unprecedented levels of hyperinflation that made the Goulart era look like monetary stability.63
The 1988 Constitution assured exacerbation of Brazil's inflationary problems. Members of the Assembly simply acquiesced in the demands of the various socio-economic groups with little or no concern about whether Brazil could afford to fund the constitutional mandates and entitlements. Even worse, they drafted a straightjacket upon the powers to tax and spend that made it virtually impossible to control the federal government's huge budgetary deficits. The Constitution has hindered reduction of major sources of expenditures, such as cutting bloated government payrolls and overly generous retirement benefits, or privatizing public sector monopolies. It also forced major increases in fiscal transfers to the state and local governments and mandated significant increases in governmental expenditures. It forgave monetary correction payments of small private firms and farmers on loans from banks and financial institutions contracted between 1986 and 1987. For good reason President Sarney warned the Assembly that adoption of the Constitution would aggravate Brazil's desperate fiscal crisis, but his warning was ignored.
By the end of Sarney's presidential term in early 1990, Brazil was in the middle of the worst inflationary crisis in its history. The domestic debt doubled between 1988 and 1989. When Collor de Mello assumed the presidency, the inflation rate had reached an astonishing monthly rate of 84 percent. Although Collor's draconian but hare-brained plan reduced inflation drastically by freezing everyone's bank accounts for 18 months, throwing the country into a severe recession, the accumulated inflation for 1990 still reached 1,447 percent. The Collor Plan rapidly collapsed because it failed to address the underlying causes of the inflation. By 1992, the inflation rate had climbed back to 1,158 percent. Collor had hoped to persuade Congress to enact a huge constitutional reform package dealing with administrative, fiscal, and civil service reform. But he was ultimately frustrated by a Congress with strong ties "to well-organized groups with vested interests in preserving aspects of the constitution that institutionalized fiscal chaos."64
Several attempts to control inflation by Collor's successor, Itamar Franco, were unsuccessful. The inflation rate reached 2,489 percent in 1993. Brazil was unable to control inflation successfully until July 1994, when then Finance Minister Fernando Henrique Cardoso introduced the Plano Real. At that time, inflation was running at 50 percent a month, and the country was in a serious economic crisis. Chile's impressive success with a free market economy, as well as Argentina's successful stabilization and privatization programs, contrasted sharply with Brazil's track record of spiraling inflation, economic stagnation, and growing urban violence. Congress finally relented and enacted a critical constitutional amendment creating an Emergency Fund that reallocated tax funds to the Federal Government. The success of the Plano Real propelled Cardoso into the presidency in the 1994 elections.
Amending the Brazilian Constitution is only moderately difficult. Approval requires two successive votes by at least three-fifths of each house of Congress. No further ratification is required by the states or the people.65
Unlike his predecessors, President Cardoso had considerable success in negotiating with Congress to enact a series of amendments that have dismantled important features of the 1988 Constitution. As of October 2007, Congress has enacted 61 amendments, and many proposed amendments are presently in the pipeline. Indeed, Congress has become an ambulatory constituent assembly. From time to time, Congress appears to recognize that certain fiscal features of the Constitution make Brazil ungovernable. Rather than permanently amend those provisions, however, Congress prefers to make temporary changes. Thus, the Emergency Fund, which enabled the Federal Government to reduce the amount of tax revenues it must transfer to state and local governments, has been extended for brief periods by a series of constitutional amendments.66 Four constitutional amendments have extended the Tax on Financial Transactions, formerly called the Provisional Assessment on the Movement or Transfer of Securities, Credits or Rights of a Financial Nature.67 A constitutional amendment adopted in 2000 resolved a budgetary crisis by unlinking mandated spending with respect to one-fifth of the budgetary resources but only until 2003, when another amendment extended this period until 2007.68
During Cardoso's two terms and the first year of Da Silva's presidency, Congress also enacted amendments removing significant constitutional obstacles to reducing budgetary deficits by reforms of social security and elimination of expensive retirement benefits, placing caps on compensation of all governmental employees, permitting the firing of tenured civil servants, and elimination of certain government monopolies and most restrictions on foreign investment.69 As a consequence of these amendments, many of the inflationary, statist and nationalist features of the 1988 Constitution have been dismantled. Moreover, much of the fiscal chaos has been avoided, at least temporarily. Timothy Power has noted the supreme irony: "Most of the political capital in 1987-1988 was spent in the making of a new constitution: in the 1990s, most of the political capital was spent trying to unmake the same document."70
The Provisional Measure--The Anti-democratic Drafting Blunder That Facilitated Governability
The framers sought to concentrate law-making powers in the Congress. Because the most abused authoritarian institution was the decree-law, the 1988 Constitution deprives the president of the power to issue any. On the other hand, in recognition of the historic tendency of the Executive to initiate legislation in Brazil, Article 62 authorizes the president to issue provisional measures with the force of law whenever he deems urgent and relevant. The drafters copied the provisional measure from the Italian Constitution assuming that Brazil was adopting a parliamentary system of government. When the form of government reverted from a parliamentary to a presidential system, the Assembly committed a colossal blunder by failing to delete the provisional measure from Draft B.
The provisional measure quickly became a critical device for avoiding legislative paralysis. Until recently Brazilian presidents were able to issue provisional measures with the force of law on any subject, thus expanding the breadth of their power to enact law by decree well beyond the military constitutions.71 The only constraint on the president was that he had to submit provisional measures immediately to Congress and, if not converted into law within 30 days, the measures were void ab initio. But Brazil is the land of the jeito. Brazilian presidents quickly invented a technique for bypassing this constraint. The Executive regularly reissued provisional measures, sometimes as many as eighty or ninety times, until Congress ultimately enacted them into law or rejected them. The Executive also added a clause validating all acts performed in reliance on prior provisional measures.72 Abuse of the provisional measure was not curtailed until promulgation of Amendment No. 32 on September 11, 2001.73 Nevertheless, Brazilian presidents continue to misuse the provisional measure to initiate ordinary rather than emergency legislation.