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Political Institutions, Policymaking Processes and Policy Outcomes in Brazil

Lee J. Alston

University of Colorado

NBER

Marcus Andr Melo

Universidade Federal de Pernambuco

Bernardo Mueller

Universidade de Braslia

Carlos Pereira

Ensp/Fiocruz

Universidade de So Paulo

Novemmber 30, 2004


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Table of Contents

Political Institutions, Policymaking Processes and Policy Outcomes in Brazil ...........3I. Introduction ...................................................................................................................3II. Dependent Variable: Outer Features of Public Policies........................................4

III. Political Institutions....................................................................................................8III.1 The Constitution ........................................................................................................................... 8III.2 - Executive, Congress, Parties, Committees, Electoral Rules ..................................................... 11III.3 - Judiciary ....................................................................................................................................... 17III.4 Governors .................................................................................................................................... 20III.5 - Public Prosecutors (Ministrio Pblico) ..................................................................................... 22III.6 Regulatory Agencies ................................................................................................................... 26III.8 Bureaucracy ................................................................................................................................ 28

IV Policy Outcomes......................................................................................................31IV.1 Stable and Adaptable ..................................................................................................................... 32

IV.1.1 Macroeconomic Policy and Economic Performance................................................................. 32IV.1.2 Fiscal Responsibility Law (FRL) .............................................................................................. 34

IV.2 Volatile and Unstable Policy ......................................................................................................... 36IV.2.1 Land Reform Policies............................................................................................................. 36IV.2.2 Poverty Alleviation................................................................................................................. 38

IV.3 Rigid or Hard-Wired Policy .......................................................................................................... 41IV.3.1 Health Policy ............................................................................................................................. 41IV.3.2 Education Policy ....................................................................................................................... 43

V Shocks and Recovery ...............................................................................................44V.1 Recovering from a Monetary Shock: The Devaluation of 1999 ................................................. 45V.2 Recovering from a Political Shock: The Election of Lula .......................................................... 48

VI - Conclusion ................................................................................................................53References ........................................................................................................................55Appendix I - A Model of Executive-Legislative Exchange ..........................................63


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Political Institutions, Policymaking Processes and Policy Outcomes in Brazil

I. Introduction

The Brazilian constitution of 1988 defined the political institutions in Brazil and the

powers of the political actors in the policy making process following the end of the militarygovernment in 1985. As a result, we use 1988 as the point of departure for our analysis. InBrazil strong Presidential powers drive the policy making process, though importantlychecked by the constitutionally defined powers of Congress, the Judiciary, Governors ofstates, and theMinisterio Pblico. Policymaking starts with an interaction between thePresident and members of Congress though always in the shadow of the other politicalactors. Importantly, the electoral connection for the President rests on a strong economyand one perceived as satisfying the goals of economic growth, economic opportunity, andthe reduction of poverty. Members of Congress generally care more about redistributinggains to their constituents, e.g., geographical redistribution.

Given the differences in preferences and the relative powers of each, the legislative

and executive branches can both benefit by exploiting the gains from trade. To achieve thegoal of a strong economy, Presidents focus first on fiscal and monetary stability, e.g. therealplan, pension reform and tax reform. To achieve these ends, Presidents have used porkas well as other benefits as the mediums of exchange to members of Congress in return fortheir votes on critical pieces of legislation. A key element in this exchange is the allocationof selected ministerial positions and appointments in the bureaucracy. Given that a largeproportion of the budget is hard-wired with policies such as health and education, once thetrades of pork for policy reform on monetary and fiscal policies have been consummatedthe surplus will be spent on more ideological policies such as land reform and theenvironment. The residual policies electorally impact the President and members ofCongress differently depending on the degree to which they achieve national goals the

President can claim more credit or geographic goals, e.g. poverty reduction in theNortheast - in which case the Deputies and Senators benefit relatively more electorally.The game that we are describing can be viewed as sequential with veto players as

well as external shocks constraining the President and Congress. The constraints from theother political actors and external shocks have budgetary implications, either positive ornegative. We see the policymaking game as one in which the President has an overridingincentive to keep the budget as a percentage of GDP within some target range becausegreatly exceeding the budget to GDP ratio can have serious monetary and fiscal penaltiesimposed through international capital markets. This tendency to strive toward a target rangeof debt to GDP we call the budgetary equilibrium. The dynamics of the policy makinggame yields policy outcomes which we classify as falling into four broad categories:

stable but adaptable; pork; hardwired; and residual.In the next section we describe the outer features of public policies in more detail.In Section III we discuss the political institutions and how they constrain the politicalactors. We discuss the Constitution as a foundational moment from which the President,Congress, Judiciary, Governors,Ministrio Pblicoand the TCU derive their powers. InSection III we will also illustrate how the institutional players enter the game constrainingthe Executive and Congress and provide examples along with systematic evidence on theimpact of the other players on policy outcomes, giving examples and systematic data. In


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Section IV, we use our framework to analyze specific policy outcomes: stable monetarypolicy and the fiscal responsibility law stable but adaptable outcomes; land reform andother social policies volatile outcomes; and health and education policies rigidoutcomes. In Section V, analyze how the Brazilian policy process responded to two shocks:the economic shock associated with devaluation in 1999 and the political shock associated

with the election of Lula. In Section VI we offer some concluding remarks about the overallpolicymaking process in Brazil since 1988.

II. Dependent Variable: Outer Features of Public Policies

The purpose of this paper is not to analyze the details of any specific policy adoptedin Brazil, but rather to explain the outer features of public policies, that is, the commoncharacteristics that systematically permeate those policies. These characteristics arequalities such as stability vs. volatility, flexibility vs. rigidity, coordination vs. coherence,decisiveness vs. resoluteness (Haggard and McCubbins 2001), overall quality andinvestment-related qualities, private vs. public regardedness, and balkanization. Theanalysis of these outer features follows the framework developed in Spiller, Stein andTommasi (2003), Scartascini and Oliveira (2003) and Spiller and Tommasi (2003) in whicha countrys political institutions, together with the features of the specific policy issues arekey determinants of the characteristics of public policies. In the process of producingpolicy, political actors undertake complex inter-temporal transactions that are often besetby political transaction costs. These costs are determined by the countrys politicalinstitutions and by the nature of the policy being considered. The political institutionsdetermine who are the key players, the payoffs to the players, the forum in which theyinteract and the frequency of their interaction. In addition each policy area has its ownfeatures that can increase or reduce those transaction costs, for example regional vs.national, spot vs. long term, complex vs. transparent, etc. In the absence of politicaltransaction costs political actors would always have an incentive to adapt to economic andpolitical shocks in ways that maximize the greatest gain from political exchange, with side-payments compensating those who could otherwise block those changes. However, inpolitical markets, even more so than in economic markets, transaction cost are typicallysignificant (Weingast and Moran, 1987). The higher the political transaction costs the moredifficult it will be to make those side-payments and the more probable that cooperation willnot ensue, leading to sub optimal policies. In other words where political institutions arewell-developed, political actors will be able to cooperate so as to better adapt to economicand political shocks, resulting in policies with positive characteristics, such as stability,adaptability and public regardedness. Where political institutions promote high politicaltransaction costs, cooperation will be more difficult and policies will tend to have moredetrimental qualities, being either too rigid or too volatile, as well as being more privateregarding and incoherent.

In the previous section we introduced the basic game that we argue characterizes theBrazilian political system. In what follows we further elaborate that game focusing on howBrazilian political institutions and the features of various different policy areas map into theouter features of public policies. Then, having presented the dependent variables and ourbasic model of their determinants, we will describe in greater detail each of the players andtheir role in that model.1

1In the Appendix we present a formal model of the framework.


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Starting with the dependent variable we observe that in Brazil the characteristics ofpolicies vary markedly across specific policy issues. We have separated policies into fourcategories according to those characteristics. In the first category are policies that are stableand adaptable to shocks. These are basically macroeconomic policies, such at fiscal andmonetary policies, that is, those with a direct impact on stabilization and economic growth.

The second category involves policies used by the President to provide patronage to otherpolitical actors in exchange for support in approving his agenda of reforms, that is,geographically concentrated transfers or pork. The third category includes policies that,having been hard-wired cannot be easily changed and are consequently rigid and lesssusceptible to economic and political shocks. In Brazil, policies such as education andhealth that have national purpose and important second round effects have been hard-wired.Second round effects refers to the fact that these policies generate important positiveexternalities for society that are realized not in the short term but in future periods. Thusthere is always a temptation for short-sighted policy makers to postpone them in favor ofpolicies in the first category, which is why at some point a consensus was reached toinsulate those expenditures. The final category we term residual policies, which includeissues that are given priority only once the objectives of the policies in the first categoryhave been secured. These are policies related to issues such as security, environment,poverty, land reform, etc. These policies tend to be volatile, oscillating according topolitical shocks, such as when a new President comes to office. In general we expect thatpolicy with a larger ideological component such as land reform and poverty alleviation willbe in this group. But also infrastructure has increasingly been treated as a residual policy. Itis significant to note that Brazil is pushing strongly for expenditures on infrastructure tocount as meeting fiscal targets.

Having described the dependent variable the analytical task is now to show how thesame set of political institutions when mapping across specific policy issues with differentfeatures leads to political transactions that result in public policies with the characteristicsin each of the three categories.2The key features of Brazilian political institutions can beunderstood in terms of separation of power and separation of purpose (Huggard andMcCubbins, 2001). Although the details changed, the Constitution of 1988 maintained thenotion of strong powers for the President inherited from the military dictatorship of 1964-1985.3The details of the political institutions that underlie those powers (decree power,

2Our point of departure is the 1988 Constitution, which defined the current set of political institutions thatdetermines players and their powers. Although we claim that our analysis fits the entire period since 1988,this fit is clearly stronger with the post 1994 period, which includes the two terms of Fernando HenriqueCardoso and the current term of Lula. It is more difficult to see a pattern in the period from 1988 to 1994 asthis involved the final year of the Sarney Presidency (1989), the impeachment of the Collor presidency (1990-1992) and the interim years of Itamar Franco (1992-1993). During this period the new political institutionswere still in the process of being implemented and developed. Nevertheless we argue that our model already

applied to this period as many of the subsequent changes were built on institutional changes that wereestablished at this time, which was also an important period of defining the rules and of learning for the

political players. Therefore our claim that Presidents will have incentives to pursue sensible macroeconomicpolicy is not invalidated by unorthodox behavior in this early period.3This is due to the fact that the transition from military dictatorship to civilian government in 1985 occurredvoluntarily and without rupture so that the Constitution of 1988 was written by Congress with intenseinterference by President Sarney who inherited strong Presidential powers. It is logical that a strong militaryPresident would want to assure that the new Constitution would not reduce those powers. In fact, one of hisgreatest concerns at the time was to be granted by the Constitution an additional year in office, in which hewas successful.


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veto power, legislative rules, budgetary process, etc.) and evidence of their effects will beprovided in the next section. Here we simply state that strong Presidential powers havegenerally allowed the President to initiate, pursue and approve much of his policy agenda.Whereas such a scenario may seem perilous given Latin Americas history with strongPresidents, Brazilian political institutions provide two sets of safeguards against abuse of

those powers. The first is the fact that the electoral connection for the President is such thathe has incentives to pursue sensible macroeconomic policies, as he is seen by the electorateas being responsible for outcomes related to basic issues such a strong economy, economicgrowth and stabilization. Given the strong Presidential powers, failure in these areas cannotbe credibly blamed on other political actors such as Congress or the Judiciary. The secondis the fact that although the separation of powers is clearly biased towards the President,several other political actors with different motivations (separation of purpose) are able tocheck the Presidents actions in different ways. Thus, if an incompetent or ill-intentionedPresident were to come to power, strong Presidentialism would not mean a blank check topursue misguided policy. In section III we will describe in detail the roles played in thisbalance of power by the other main players, that is, Congress, the Judiciary, StateGovernors, theMinistrio Pblico, the bureaucracy and regulatory agencies, showing thatthey can and often do constrain the Presidents actions.

Our contention is that the end result of these interactions is policies with thecharacteristics given in the four categories described above. The President uses his powersto pursue an agenda of stable and adaptable policies and reforms. Because the separation ofpurpose inherent in the political institutions has the President pursuing broad nationalpublic goods, whereas other actors that also have a say in producing legislation, particularlyCongress and to a lesser degree Governors, have more narrow constituencies, there ispotential conflict. However, this conflict is diffused by legislative rules that result in tradesbetween Congress and the President of support for patronage (Alston and Mueller, 2003).The President is able to use his powers to control the legislative agenda and to create astable supporting coalition that enables policy reform.4Any other coalition, not coordinatedby the President would be inherently unstable, as it would not have any enforcementmechanism to ensure compliance and prevent defections. In addition the Presidentpossesses considerable discretion over patronage (such as jobs and individual budgetamendments), which, together with the career incentives of the Congressmen (discussed insection III), lead to well-institutionalized trade of policy support for patronage. Althoughthese exchanges are often seen as being less than legitimate by the press and much ofsociety, they form the basis of Executive-Legislative relations in Brazil, and we argue thatthey lead to high levels of governability that allow important reforms to get accomplished.Furthermore we also argue that this comes at relatively low costs to the Executive aspolitical institutions facilitate the trades (see discussion of individual budget amendments inthe next section) and the patronage that is dispensed is a very small part of the budget(Pereira and Mueller, 2002 and 2003).5

4This is necessary because, as described in section III, Brazilian electoral rules (open list proportionalsystem) induce a multiparty system where the Presidents party will never hold a majority of the seats inCongress.5This notion is contrary to much of the received literature in Brazilian politics that states that the Executivesneed to maintain the support of a coalition leads to high costs (Ames 1995a, 1995b, and 2001).


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The result is that Congress tends to approve much of the policy reforms proposedby the Executive, yet Congress still holds checks on the powers of the President.6It is thisinteraction that determines the qualities of policies in the first and second categoriesdiscussed above, stable macro policies on the one hand and pork on the other. Only wherethe divergence of preferences over specific policy issues between the President and

members of Congress is sufficiently high will it be the case that there will be no gains totrade. That is, the cost of the patronage necessary to approve those reforms is higher thanthe benefits to the President. This may lead to either; i) gridlock over that issue; ii) thePresident dropping the issue or significantly watering it down; or iii) attempts by theExecutive to get around Congress, for example through decree power (discussed in sectionIII) which may then prompt other political actors, such as the Judiciary or MinistrioPblico to intervene. In the next sections we argue and present evidence, however, thatexcept in a few high profile cases, such as pension reform during the Cardoso presidency,and tax reform during Lulas term, the President has generally gotten what he wanted withthese other outcomes being exceptional.

Depending on the success in achieving the top priority policy objectives, thePresident will decide on which and how the residual policies will be pursued. This followsbecause political institutions in effect give the President control over the legislative agendaand because the President will generally want to secure the national macro policies in thefirst place. Thus the residual policies are contingent on there being space in the legislativeagenda as well as budgetary availability. These in turn are affected by both economic andpolitical shocks. In section V we will provide one example of each shock: i) the effect ofthe 1999 devaluation of the real; and ii) the uncertainty resulting from the election of Lulaas President. It will be shown how in each of these cases the budgetary process was used torecover by reducing the execution of the residual policies in the budget. This implies thatmany of these residual policies will be characterized by high volatility. Whenever theeconomic and political conditions are favorable they are given priority and getimplemented. When negative shocks occur they are suspended or put on hold to help securethe first category policies. Residual policies thus have a tendency to oscillate unpredictably.Also, because these policies only produce results in the medium and long term, politicianshave more leeway to pursue their own visions of what is the right thing to do than is thecase with the first category policies, where mistakes are more quickly perceived andpunished by internal and foreign markets. Thus, residual policies with a larger ideologicalcomponent will, ceteris paribus, tend to be more volatile. Additionally, political shockswhere new politicians come to office tend to result in policy reversals.

Given this inherent tendency towards volatility of the residual policies, politicalactors may often choose to hard-wire some policies where it is considered that the volatilitycan be particularly damaging. This is the case particularly of education and health policiesthat are crucial for social and economic well-being, but where nevertheless politicians maybe tempted to withhold resources as their effects are not generally felt in the short term.Thus at some constitutional moment politicians establish impediments to changing thesepolicies by tying the hands of future political actors. This results in rigid policies, which isan advantage when this rigidity constrains opportunistic behavior but at the cost of reducingthe ability to adapt to unforeseen future contingencies.

6This interaction between the President and Congress in Brazil is formally modeled in Alston and Mueller(2003). Sww Melo (2002) for the executives recent success in amending the constitution)


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This section described our basic model of the Brazilian political system. Our modeldescribes the policymaking process and yields hypotheses about the characteristics of thepolicies created. These hypotheses are based upon the mapping of the countrys politicalinstitutions with the features of specific policy issues. Summarizing we expect to findstable and adaptable macro policy accompanied by geographically based transfers and pork,

with hard-wired polices as a constraint and other residual policies being put off untileconomic and political conditions allow them to be implemented without harming the toppriority macro policies. In section IV we provide examples of each of these policies asempirical evidence against which to test the model. Before that, however, the next sectionprovides more detail on the political actors and political institutions so as to give moresubstance to the barebones description of the model in this section.

III. Political Institutions

In this section we provide an overview of Brazilian political institutions and howthey affect the policymaking process. As suggested in Scartascini and Oliveira (2003) thiswill be done by describing (i) the key political actors; (ii) the payoffs for politicalcooperation; (iii) where and how frequently the political actors undertake their exchanges;and (iv) the properties of the arenas in which exchange takes place. We start with ananalysis of the way in which the 1988 Constitution established the current politicalinstitutions and how it has endogenously changed as an important mechanism for providingcommitment for policy reform. Next we describe the powers of the President and ofCongress and analyze how their interaction generates policies and how the electoral andlegislative rules influence the behavior of the President and members of Congress. Finallywe examine a series of other political actors that contribute to shaping the policy makingprocess in many different ways, particularly constraining what the President can do.

III.1 The Constitution

The Constitution of 1988 set the rules of the current political game in Brazil. AConstituent Assembly, convened in 1987 drafted the Constitution. The ConstituentAssembly was set up by conferring special powers to the ordinary Legislature rather thanby holding new elections for the purpose of writing a new constitution. The newconstitution reflects a number of principles long advocated by the opposition:decentralization, transparency, participation, social control and redistribution. Theseprinciples produced a significant transformation in the patterns of policy making andimplementation. In terms of fiscal and intergovernmental relations, the constitutiondevolved administrative autonomy to sub-national governments and mandated a newredistribution of functional responsibilities. In addition it mandated a new regime of taxassignments whereby the states and municipalities were given not only new tax powers butalso managed to secure a larger share of federal tax revenues. The Constitution created newfunds for states and municipiosby mandating automatic transfers of federal money. Theconstitution also mandated the decentralization of public policy in a great number of sectorsranging from health to education to environmental policy. Furthermore, the Constitutionmandated participatory arrangements at distinct levels aimed at social control. The otherinstitutional innovations for social control include an enhanced role for the Tribunais deContas(Court of Accounts), the decentralization of the Judiciary branch and the creation oftheMinistrio Pblico(discussed in details in the remaining of this section).


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Although the new constituent assembly was deeply marked by the desire to breakaway from a long period of authoritarian rule, a number of institutional innovationsrepresented an element of continuity. Although the new Constitution (by virtue of article 2,of the provisional clauses) mandated a plebiscite on the regime and system of government)which was set to take place in 1993, most of its features in fact presupposed a strong

presidency. These include inter aliaa number of prerogatives enjoyed by the executive (i.e.the power to issue medidas provisrias- provisional measures, veto power, power toinitiate new legislation including constitutional amendments, exclusive right to initiate newlegislation in certain areas such as budget and administrative laws, prerogative to establishurgency time limits for voting procedures and bills).

The constitution represented a foundational moment with important path dependentdevelopments. Because it was a unique historical juncture, it incorporated a vast array ofpolitical, social and corporatist demands which were kept silent under centralized militaryrule. As a result, with 250 articles in the main text and additional 75 provisional articles, theconstitution is unusually long and covers many very specific non-constitutional issues ofpolicy. The choice of creating such a wide-ranging and detailed Constitution could also beattributed to the lack of any sort of trust and credibility on politics at that time. Thus, towrite an article within the Constitution meant a safe institutional terrain in which politicalplayers could develop their political transactions with a minimal of certainty that theirarrangements and agreements would be enforced. As a result the Constitution emerged asone with many policy issues hard-wired which meant that changes required constitutionalamendments. It is highly significant that many subsequent reforms under Cardoso impliedde-constitutionalizing issues, i.e. deleting articles from the constitution and subsequently(but not always), legislating about the issue through ordinary laws. The initial high level ofconstitutionalization of public policy produced great rigidity in public policy in general.This has not precluded the Cardoso or Lulas administrations, however, from passing theirreform programs.

The preceding helps explain why the Constitution of 1988 is the most amendedconstitution in the countrys history. Brazils first constitution, passed in 1824 lasted 65years and was amended once, whereas Brazils second constitution which established therepublican form of government lasted from 1891 to 1930 and again was amended onlyonce. The constitution of 1946 lasted 21 years and was amended 27 times. The militaryconstitutions of 1967 and 1969 were amended 26 times in a period of 21 years. By contrast,within 12 years the constitution of 1988 has already been amended 37 times. Between 1988and 2001 (February), 2424 constitutional amendments had been presented to Congress.Under President Lula da Silva, three new constitutional amendments have been passed. Theyearly average amendment rate for the Constitution of 1988 up to the end of 2003 hasreached 3.5. For the period 1992 (when the first amendment was approved) to 2003, theaverage rate of amendment is 4.4 an extremely high rate by any standard.

These rates are all the more significant because changing the constitution requiresapproval in two rounds of vote in each house, by an absolute majority of 3/5. Otherprocedural requirements include the following: the executive are not allowed to change theconstitution by medida provisorianor can it resort to special urgency procedures throughwhich it can unilaterally require a vote on a bill ahead of any other legislature proposals;and the vote has to proceed by roll call, (thus increasing the political costs of approvingunpopular proposals). The political transaction costs of securing legislative approval aretherefore much higher for constitutional amendments than for ordinary legislation. From a


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comparative perspective, however, the requirements for approval of constitutionalamendments are not very strict. Rather, Brazil is on the cluster of countries whereconstitutions are most easily amended (Melo 1998).

In addition to the procedural difficulties, it should be noted that constitutionalizationand de-constitutionalization (i.e. inserting and deleting provisions from the constitution) are

very distinct and asymmetrical political processes. For consitutionalization, collectiveaction problems undermine the ability of public to insert particularistic interests. For de-constitutionalization the opposite holds; withdrawing benefits and rent seeking privilegesfrom the constitution requires overcoming the resistance of organized and sectoralinterests.7Reforms that de-constitutionalize issues generally lead to legislation on the issueor issuing medida provisria.8In this game a lack of trust and the opportunity foropportunistic behavior has precluded some welfare enhancing deals to take place. The lackof trust arose because the executive holds great agenda powers and decree authorities.Many members of Congress saw the deletion of articles from the constitution as amechanism for the executive to unilaterally impose its preferences. In other words de-constitutionalizing is seen by some as equivalent to giving a blank check to the executive.

Many constitutional issues bear directly upon fiscal and financial stability andtherefore put the constitution in the center stage of the political game described earlier.These include, inter alia,the rules defining social security benefits; the provisionsstipulating levels of pay and of hiring and dismissing personnel; the stipulation of areas notopen to foreign ownership; rules defining tax and fiscal matters of sub-nationalgovernments; and central bank independence. Thus, we argue that the political game wedescribe is largely a constitutional change game. Granting constitutional status to certainpolicy areas is an integral part of hard wiring. As discussed in section IV this was thestrategy pursued in the areas of Education and Health. In these cases, hard wiringrepresented a strategy of pre-commitment on the part of the executive and the legislators.

In this game, the Supreme Court plays the role of a veto point because of theinstitution of judicial review in the country. Two instruments can be used by the players inthe judicial review game: the aco direta de inconstitucionalidade-ADIN(a petition fornullyfing a decision or legal norm because assumed inconstitutional) and the aodeclaratria de constitucionalidade(a petition for the confirmation of constitutionality of adecision or legal norm).9Both are to be judged by the Supreme Court (Supremo TribunalFederal). The former can be initiated by President, the congressional parties, attorney-general, the secretariats (mesas) of the Senate, the Chamber of Deputies or of a StateLegislative Assembly, Governors, the Bar Association, trade unions and professionalbodies. The latter can be initiated by the President, the Senate or Chambers secretariats(Mesa) and the Attorney General.

7We hypothesize that this may be the reason why the drafters of the constitution stipulated in its provisionalclause 3, as a precommitment device, that an ad hoc constitutional review process, taking place under specialrules, in a number of joint Chamber/Senate sessions, should take place five years from the date of itsenactment.8The constitutional amendment 7/95 prohibited the practice of using medidas provisriasfor specifying theenabling legislation (regulamentao) for a constitutional article which had been amended as of 1995.9The ADIN was created by the Constitution of 1988 whereas the ao declatria de constitucinalidadewascreated by constitutional amendment 3/93. The latter was a reaction to the large number of ADINs andconsists of a preemptive move on the part of the Executive and its coalition in Congress.


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III.2 - Executive, Congress, Parties, Committees, Electoral Rules

Since redemocratization, and especially after the new constitution of 1988, allelected Presidents have been able to build reasonably stable post-electoral majoritycoalitions within Congress with a high level of governability by means of strong party

discipline of the governing coalition (Figueiredo and Limongi 1999; Pereira and Mueller2003). The only occasion without a stable majority coalition was the period from March1990 to October 1992 under President Collor.10Although none of the elected Presidentsbelonged to a party with a pre-electoral absolute majority of the seats, they have,nevertheless, been able to achieve that congressional support by use of their extensivelegislative and non-legislative powers.

Despite the presence of a decentralized electoral system and a fragmented partysystem, the optimal electoral strategy in the Brazilian legislature has not been concentratedin personal votes, but rather, the party vote in Congress (Figueiredo and Limongi 1999;Pereira 2000; Nicolau 2000). At first glance, this assertion seems paradoxical, given thepremise that legislators are subject to electoral incentives to behave individually. Indeed,Brazilian legislators vote according to their party leaders indication in order to accumulategreater benefits in the congressional arena and thus to strengthen their electoral probabilityof political survival in the local sphere (Pereira and Renno 2003). This claim is alsocorroborated by Amorim Neto and Fabiano Santos (2001) who argue that party disciplinewas above all a function of the Presidents legislative coalition-building strategies based ondispersion of patronage to parties.11

Scholars who analyze the Brazilian political system, especially its electoral rulesand political parties, usually affirm that they provide significant obstacles for the Executiveto approve its agenda, thus creating tremendous governance problems (Mainwaring andScully 1995; Mainwaring and Shugart 1997; Haggard 1995; Haggard and Kaufman 1992;Ames 1995a, 1995b, 2001). For these authors, the electoral rules offer strong incentives forcandidates to develop direct links with their constituency groups rather than mediating suchrelations through political parties. Additionally, this institutional context generatesincentives that lead to a personalized vote, in opposition to voting for political parties, andto a high saliency of constituency pressures in incumbents electoral calculus (Ames 1995,Samuels 2001).

By contrast, a second group of authors has strongly questioned this predominantview. Rather than stress the decentralizing effect of electoral rules, they emphasize theinstitutional rules and structures that centralize the legislative process itself and the powersheld by the Executive (Figueiredo and Limongi 1999, 1997, 1995; Pereira and Mueller2000; Meneguello 1998). These authors attempt to explain how institutional variablesinternal to the decision making process (the distribution of power inside Congress) and theinstitutional legislative and non-legislative powers held by the President (decree and vetopowers, right to introduce new legislation, permission to request urgency time-limit to

10Collor preferred to work through ad hoccoalitions and, perhaps as a consequence of this political choice,he was subsequently impeached.11 In 12 consecutive elections (from 1950 to 1998) for the Brazilian Chamber of Deputies, the great majorityof incumbents (on average 70%) decided to run for reelection and almost 70% of them have been successful,more than most other countries in Latin America (Morgenstern 2002: 416) ,suggesting that it is incorrect toignore static ambition as the main goal among Brazilian legislators.


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certain bills, discretionary power on the budget appropriation, etc.) work as keydeterminants for legislators to behave according to the preferences of party leaders.

We argue that the Brazilian political system can be characterized neither as a purelydecentralized nor as a purely concentrated system (Pereira and Mueller, 2002 and 2004).While some features such as electoral rules, a multiparty system, and federalism act

towards decentralizing the political system, other features such as the internal rules of thedecision-making process in Congress, the constitutional powers of the President, and hiscapacity to selectively distribute political and financial resources (most of them locallyallocated), act towards centralizing it. In fact, the electoral rules provide incentives forpoliticians to behave individually while the internal rules of the Congress, the Presidentspower to legislate, and the centralization of benefits by the President, render legislatorbehavior extremely dependent on loyalty to the party and Presidential preferences. It isclaimed that even a political system with incentives for opposing behaviors, like theBrazilian one, provides equilibrium and stability. However, in this case it is a very dynamicequilibrium that can change from one issue to another. It depends on the capacity of thepresident and his party leaders in offering the appropriate incentives -- political andeconomic benefits that provide the best electoral returns to individual legislators. Thiscombination of these institutional rules is the key for understanding how it is possible forweak political parties in the electoral arena to coexist with strong political parties insideCongress (Pereira and Mueller 2003). Therefore, our view is that there is no contradictionbetween party and individual behavior in the Brazilian political system at the same time. Infact, the former is one of the most important reasons to explain the latter. In other words,the legislators behave according to the preferences of party leaders within Congress so as tohave access to benefits that will increase their individual chance of surviving politically.

Party leaders hold important institutional prerogatives: the ability to appoint andsubstitute at any time members of committees; to add in or withdraw proposals in thelegislative agenda; to decide if a bill will have urgency procedure; to indicate the positionof the party regarding a bill on the floor; and fundamentally, to negotiate with the Executivethe demands of the members of his party. In other words, party leaders are the bridgeslinking individual legislators and the preferences of the Executive. This is why politicalparties are so strong within the legislative arena. It is not rational for legislators to actindividually inside Congress just as it is not rational for the Executive to individuallynegotiate or bargain for support with each member of his coalition on every bill. The role ofintermediary between the Executive and the individual legislators cements the fragile linksbetween voters and representatives in the electoral sphere. Because the Brazilian politicalsystem works as peculiarly as described above, one could observe a false contradictionbetween the personal vote and party vote approaches in the literature. Indeed wemaintain that the two explanations are faces of the same coin. That is, neither the personalvote model nor the party vote model can be totally transferred to the Brazilian case butrather the models are complementary.

The most striking proactive power (which enables Presidents to legislate and toestablish a newstatus quo) in the Brazilian Constitution is the ability of the President tolegislate through provisional decrees (Medidas Provisrias). This institutional deviceallows the President to enact new legislation promptly and without congressional approval.Provisional decrees not only give the President the power to legislate; they also give himinfluence over the congressional agenda. If Congress fails to act on a provisional decreewithin 30 days, it automatically goes to the top of the legislative agenda, displacing issues


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that Congress may have been discussing. According to the Constitution a provisionaldecree should only be used in specific situations, however in practice the executive hasmade indiscriminate use of this device. Not only have a large number of provisionaldecrees been edited in past legislatures, but individual decrees have typically been reediteda large number of times, since Congress rarely challenges them.12The Supreme Court

tolerated this practice as long as Presidents did not try to reintroduce any decree thatCongress had specifically rejected. In Congress, serious disagreements over the extent ofdecree authority were not resolved until September 2001, when, via an accord withPresident Cardoso, Congress amended Article 62 so as to limit Presidents to a single reissueof a lapsed decree. The amendment also reduced constitutional ambiguity by specifying alist of issue-areas in which the executive may not resort to decrees. The partial rollback ofPresidential decree authority in late 2001 has altered the game of executive-legislativerelations, and new patterns have yet to emerge [Pereira, Renno and Power (2005)]

In terms of reactive power, the most common is the veto in the sense that it allowsthe President to defend the status quo by reacting to the legislatures attempt to change it.The most common is thepackage vetowith which the President can reject the wholelegislation sent by Congress. Besides allowing the President to veto entire bills, theBrazilian Constitution also allowspartial vetoes. The President may promulgate the articlesof the bill with which he agrees while, at the same time, vetoing and returning to Congressfor reconsideration only the vetoed portions. The 1988 Constitution makes it relatively easyfor Congress to override a Presidential veto given that it requires only an absolute majorityof the joint chambers. Nevertheless the Brazilian Congress seldom used their veto power.This suggests that a majority of members of Congress benefit from the status quo ascompared to a counterfactual world of multiple parties facing a severe collective actionproblem in the legislative arena.

In addition to provisional decree and veto power, the Brazilian Constitution definessome policy areas where the executive has exclusive power to initiate legislation. Only thePresident can introduce bills concerning budgetary and public administration matters, aswell as bills in an array of other important policy areas. In terms of budgetary law, althoughthe congressional majority has the right of amending the bills that were introduced by thePresident, it can do so only if those amendments are compatible with the multiyear budgetplan elaborated by the executive as well with the law on budgetary guidelines. In addition,Congress may not authorize expenditures that exceed the budgetary revenue. In practicethese rules enable the President to preserve the status quo on budgetary matters simply bynot initiating a bill.

The internal rules of the Deputies Chamber give party leaders at the Steering Body(Mesa Diretora)and Board of Leaders (Colgio de Lderes)central roles in the legislativeprocess and the definition of the committee system. Roughly speaking, it is the prerogativeof party leaders to appoint as well as to substitute at any time a committees members (Art.10). There are no restrictions regarding how long a legislator can be a member of acommittee. There may be some extent of self-selection to committee appointments, but wehave evidence that there is significant interference by party leaders in the process of

12The overall rate of approval of executive bills is high and rejections are rare, only 11 (2.4% of the total) inthe 1995-98 legislature. The opposite is the case for legislature proposals. According to Figueiredo andLimongi (1997), no provisional decree has been rejected since 1992. () Congress stopped considering thedecrees and the executive has reissued them successively.


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appointing and substituting committee members. There has typically existed extensiveturnover of legislators from one committee to another. Legislators change committeesfrequently, not only between years but also within years. Additionally the executive,through party leaders in Congress, stack certain committees with loyal members.

Besides centralizing the decision-making processes inside Congress and allocating

huge executive powers of legislating, the Brazilian political system also allows thePresident to control the distribution of political and financial resources. This providescolossal electoral consequences for those that have the chance of exploiting themappropriately. In Brazil, it is the executive that has exclusive power to initiate the annualbudget. Although legislators have the right to propose individual amendments to the annualbudget, it is the executive, who is entitled to determine which amendment will really beappropriated, making the budget contingent on the amount of available resources in thenational treasury. As shown in Pereira (2000), Pereira and Mueller (2002 and 2004) andAlston and Mueller(2003), the Brazilian President rewards those legislators who most votefor his interests by executing their individual amendments to the annual budget and, at thesame time, punishes those who vote less for his preferences. This is done by selectivelyexecuting their individual amendments (pork barrel policies). By controlling for othervariables that may influence the Executives decision to appropriate a given congressmansamendments, Pereira and Mueller tested whether voting behavior influences that choice.13

The variableAppropriationiis the percentage of all amendments proposed by alegislator and approved in Congress that the Executive actually appropriated. The firstright-hand side variable is Votesi, which measures the percentage of all votes by acongressman that coincided with the position of the Executive. A positive and significantcoefficient for this variable would suggest that the Executive takes into consideration thelegislators voting behavior when deciding which amendments to appropriate. The variableSeniorityiis the number of previous terms a congressman has served in Congress.

14Thefinal variable in the first equation isPositioni, a dummy equal to one if congressman iwasever the president or vice-president of a permanent or a special committee.15The secondequation has Votesias the left-hand side variable and the key explanatory variable isAppropriationi. If its coefficient is positive and significant we can conclude that theExecutive can affect the voting behavior of the congressmen by strategically selectingwhich amendments to appropriate and which to shelve. In order to control for otherdeterminants of voting behavior we includedPositioni, explained above, andConcentrationi, which measures the number of votes received by legislator iin the 1994election in the municipality where the legislator got the most votes divided by the totalnumber of votes for this legislator in all municipalities.16Finally we also control for thecongressmans party affiliation through dummy variables for parties in the left and in thecenter, with the right-wing parties being the left-out category. We also run the second

13 Instrumental variable estimation was used because not only would one expect voting to affect theappropriation of the amendments, but also that a congressman that has had more amendments appropriatedwould, ceteris paribus, tend to vote more favorably with the Executive.14It is included in the first equation so as to control for the effect that experience and a reputation may have inhelping to secure the appropriation of ones amendments.15The purpose of this variable is to control for the possibility that congressmen who have what it takes to holdspecial positions within the legislative hierarchy may also be better at getting their amendments appropriated.16This variable captures the effect of the direct influence the electoral constituencies have on the legislators

pattern of voting inside Congress.


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equation with an interaction term ofAppropriationi and a dummy for members of thecoalition. This will allow us to test whether having marginal amendments appropriatedaffect coalition and opposition members differently.17

Table 1: Relationship between a Legislators Support for the Executive and the

Proportion of the Legislators Amendments that are Appropriated (1995-1998)

Dep. Variable:Appropriation

Dep. Variable:Votes

Dep. Variable:Votes

Constant 13.42***(3.19)

43.43***(2.76)

75.14***(4.51)

Appropriation 0.89***(2.75)

0.80***(2.33)

Approp. x Coalition -0.64***(-4.01)

Votes 0.328***(6.62)

Position -0.559(-0.33)

1.55(0.76)

2.71(1.34)

Concentration 0.18**

(2.25)

0.05

(0.63)Left -29.88***

(-6.31)-53.25***(-7.44)

Center -1.73(-0.85)

-1.23(-0.63)

Seniority 0.038(0.52)

R2 0.10 0.28 0.31N 402 402 402Instrumental variables estimationt-stat. In parentheses; significance 1% ***,5%**, 10% *As shown in Table 1, the key results in the regressions are the positive and

significant coefficients for the voting behavior variable and the amendment appropriationvariable. These coefficients show that even when controlling for other variables that mayaffect the Executives decision whether to appropriate a congressmans amendments, anincrease in the congressmans voting loyalty increases the probability that her amendmentswill be appropriated. In the same manner, the higher the proportion of amendments that acongressman has appropriated, the more she will vote with the Executive. The last columnin Table 1 shows that this effect is larger on members of the opposition (0.80) than onmembers of the coalition (0.80 0.64 = 0.16). This result suggests that for coalitionmembers, who already provide a high level of support, the gain in votes for the Executivefrom a marginal increase in the amendment share appropriated is smaller than the gain invotes that can be had from opposition members. In the third column Concentrationpresents

a positive and statistically significant coefficient in the voting behavior equation, whichindicates that legislators, who received a more concentrated vote distribution in theprevious election, exhibited a higher probability of voting according to presidentialpreferences. This result suggests that these legislators are more dependent on providingpork than those that have a more dispersed electorate. Note however that this effectdisappears when the interaction term is added. As expected, the variable Lefthad a negative

17A similar interaction term on votes in the first equation did not turn out statistically significant.


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and significant coefficient, confirming that those legislators are more likely to vote againstpresidential preferences.18

In the preceding arguments we showed that the legislators who are most successfulin delivering pork barrel politics present a pattern of party behavior inside Congressconsistently favoring the preferences of the president. Nevertheless, to what extent has this

legislative strategy been producing electoral returns? In order to answer this questionPereira and Renno (2003a) ran a logistic regression, using as the dependent variable adummy with the value of 1 for those legislators who ran for re-election and won and avalue of 0 for those legislators who ran for election and lost. The key explanatory variableis the amount of money (pork), in the budget for 1995 to 1998 that originated fromindividual amendments of legislators. The model predicts a positive correlation between re-election and pork. Besides pork, the model also takes into account the variable Namendments, which represents the number of individual amendments approved by thelegislature but not appropriated by the government. We expect a negative coefficient forthis variable indicating that for the legislators, just claiming credit for trying withoutdelivering does not lead to recognition by their constituency: legislators have to conceiveand deliver the pork. The model also estimates the effect of legislators voting behaviorwithin the Chamber on the likelihood of re-election. Votes indicates how many timeseach individual legislator voted with the president during the entire legislature, from 1995to 1998. This variable is a measure of presidential loyalty. Hence, we expected that themore legislators vote for the president, the more they increase their probability of re-election, since the president has enjoyed consistent popular approval during his whole firstterm. Finally, we added another variable, Spends98, which represents the total amount ofmoney each legislator claims to have spent during his/her electoral campaign of 1998, asper his official declaration to the Electoral Court. It is widely believed that the larger theamount of money spent, the greater will be the probability of legislators re-election.19

The key result in the logistic analysis is the coefficient on Pork which is positiveand significant (see Table 2). This means that, ceteris paribus, the greater the amount ofindividual legislator amendments appropriated by the president, the higher will be theprobability of legislators re-election. The marginal effect of the variablePorkis equal to26%. That is, if a legislator with other variables equal to the mean of the floor would haveall individual amendments appropriated, he would have a 26% greater probability of beingreelected than if he did not have any amendments in the final expenditures on budget.

Another important finding was the negative coefficient on N amendments. Thisresult indicates that the greater the number of individual amendments approved (but notappropriated) by the president, the lower is the probability that this legislator will bereelected. In other words, claiming credit is not enough to increase the chances of beingreelected. The money has to be delivered. The marginal effect of having an individualamendment approved but not executed decreases the probability of reelection by 14%.

18Note that the Executives core coalition is in the right.19For a more sophisticated approach, although with similar results, about the determinants of re-election inthe Brazilian 1998 election see Pereira and Renno 2003, and Leoni, Pereira and Renno, 2003. Pereira andRenn (mimeo 2003) demonstrate that the same pattern is also found in the 2002 legislative election. In otherwords, results indicate that pork; all of the electoral variables; and campaign expenditures are explanations ofelectoral success.


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Table 2: Logistic Estimation of Reelection of 1998

Dep. Variable: Reelection CoefficientsConstant .820

(.1317)

Pork 1.123(.0225)**

N Amendments -.075(.0339)**

Spends 98 .208x10-5(.0942)*

Votes .218(.7510)

P-values in parenthesesPercentage of Prediction: 79%Log likelihood: -129.2009

Number of Observations: 288

Our previous results represent strong evidence that the strategy of followingpresidential preferences and the preferences of party leaders succeeds. In short, theBrazilian electoral connection functions well. The regression also indicates that spendingmoney during electoral campaigning also improves the probability of re-election. Anincrease of ten thousands Reais in campaign expenditure, for a legislator with featuresequal to the mean of the floor, increases the probability of reelection by 5%.

An additional result in the regression was the impact of support for the president(Votes). Although the coefficient is positive, it is not significant. This suggests that there isno direct effect of a legislators votes within the Chamber on his probability of beingreelected. The votes matter for the indirect effect they have through pork. Furthermore, theresult suggests that constituencies do not directly constrain their representatives behaviorinside Congress but rather that they are more concerned with the capacity of theirrepresentatives to deliver pork. This leads us to infer that, in the electoral arena, the greatmajority of voters do not care about their representatives legislative behavior overall.Therefore, when legislators are deciding how they should vote on the floor they are lessinclined to take into consideration their constituencys preference because it provides fewbenefits for their future political careers. Instead the strategy of legislators is access thebenefits controlled by party leaders and by the executive. Party leaders have a series ofprerogatives that allow them to reward or punish legislators such as determining committeepositions. This is why political parties are so strong inside the Brazilian Congress, but at thesame time, they are so weak on the electoral arena. Consequently, there is no contradictionbetween expecting legislators to vote according to the preferences of party leaders insideCongress and expecting them to behave personally searching for pork barrel benefits in theelectoral sphere.

III.3 - Judiciary

Eleven judges compose the Court. The President nominates people for life terms,though with compulsory retirement at 70, and the Senate confirms or denies nominations.The composition of the Court has changed very slowly over time; the current Court has a


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judge appointed as far back as 1981. This means that each President typically has thechance to appoint only a small number of judges, which makes it difficult to appoint themedian voter in most issues, thus limiting the influence of the Executive.20

The Constitution of 1988 further enhanced the independence of the Judiciary byestablishing that: (i) the judiciary determines its own annual budget; and (ii) the judicial

courts appoint lower court judges. Both of these rights removed from the other branches ofgovernment potential instruments of control over the Judiciary.21If the structure andprocess of the Supreme Court establish its independence then we should observe instancesin which the Supreme Court directly contradicted the interest of the Executive andCongress. There are a few high profile cases where the Supreme Federal Court ruledagainst the Executive on issues that were of extreme importance to the Executive. These areissues over which there can be no doubt of the Executives preferences and will to prevail,so that if the Judiciary were not truly independent, the Executive would have used its powerto change the Courts decision. The best example of this was the attempt by the FHCgovernment to tax retired workers. The FHC administration envisioned this as an importantcomponent of the solution to the fiscal crisis of the government. The Social Securitysystem in Brazil was seen as one of the main sources of the countrys large internal deficit.Taxing the transfers to retired workers proved highly controversial because it involvedacquired rights and entitlements, and the Executive was only able to pass this measurethrough Congress with much effort (Alston and Mueller, 2003). The Supreme Court,however, declared the measure unconstitutional. This decision enraged the government andits supporters in Congress. Initially, Congress and the President threatened to deal with theSupreme Courts decision by changing the Constitution. The reversal of the pensionreforms also prompted a return to the episodic debate on the need for external control of thejudiciary. This debate revives every time a ruling by the Supreme Court or other parts ofthe judiciary gets in the way of governmental policy.22 Despite its threats to change theConstitution, the FHC government abandoned the idea. The Lula government has justpassed the same pension reform measure through the Congress. Lula dealt with thepotential challenge of the Supreme Court by making exceptions in the pension rules for thejudicial branch and by counting on the three newly appointed members.

There are several other cases that provide evidence of judicial independence. In1997 the Court required the government to increase the wages of the federal civil servantsby 28.86% to compensate losses due to previous economic stabilization programs. This notonly significantly increased the governments wage bill, but demonstrated the Courtsrestraint on the discretion of policy makers. Another example is the role of the courts inland reform policy. The FHC government put land reform high on its lists of priorities,given the pressure provided by the MST (Landless Peasant Movement) and public opinion(Alston, Libecap and Mueller, 1999). The government, through its land reform agency

20FHC appointed only three Supreme Court Justices in 8 years in power, while Lula has already appointedthree in just six months because of a mandatory retirement age of 70. This has been a crucial consideration bythe Lula government in its efforts to pass reform measures similar to those attempted by FHC which theSupreme Court declared unconstitutional.21According to Castro (1997a, pg. 243) the judiciary actively lobbied for these rights during the constitutionalassembly in 1988.22The case for external control is usually made mixing arguments about the judiciarys inefficiency (delays,corruption, impunity, high salaries, etc.) with arguments concerning the political need for the control. For adebate about the issue of external control see Konrad-Adenauer-Stiftung (1999).


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attempted to expropriate unproductive land, a discretionary judgment. Nevertheless, thecourts often thwarted the efforts to expedite the transfer of land from large landowners tolandless peasants. Landowners contested expropriations through the courts, arguing eitherthat their properties were not unproductive, or that the compensation offered by thegovernment was too low. As argued by Alston, Libecap and Mueller (1999) the Court

often ruled against the government on theses cases, not because it was biased in the case ofland reform, but because it viewed the cases legalistically and disapproved not of theobjective of the expropriations, but of the manner in which the government pursued it,violating property rights and due process. For a list and discussion of cases of Executive Supreme Court confrontation involving the previous administrations, 1988 to 1994, seeCastro (1997a).

We also have evidence from a more systematically chosen sample of cases. Castro(1997b) analyzed 1,240 judgments of the Supreme Court in the first semester of 1997. 23Castro classified the cases into three categories: 1) public interests moving against privateinterests; 2) private interests moving against public interest; and 3) others (both privateversus private and public versus public). The Supreme Court ruled in favor of the privateinterest in 75% of the cases when they face the public interest (i.e. government interest).Castro interprets his evidence as indicating clearly that the Supreme Court, even in itsroutine order of business, has ruled against the initiatives of the government, (Castro,1997b, pg.153). It is important to note that most of the private victories entailed tax issues.Still, in considering only public policy issues (i.e. non-tax issues), the court ruled 7 out of31 cases in favor of the private interest. We interpret the evidence as support of assumptionof an independent Supreme Court.

Given the independence of the Supreme Court what can be said about itspreferences and how it can be expected to act? Mueller (2001) analyzed the existence ofcommitment mechanisms for the government in the privatization and regulatory process inBrazil. His working assumption was that the Court can be expected to act in a non-politicaland unbiased manner in concession contracts, ruling closely to the letter of the contracts. 24The evidence is not yet in but the current political debate over tariffs (see our discussion ofregulation below), is clearly taking place in the shadow of the courts.

More generally the biggest problem cited by companies, individuals and judgesthemselves is the systems slowness (Pinheiro, 2000b). Courts at all levels, including theSupreme Court, are typically overloaded with cases, and decisions can take years.Companies often use slowness strategically by taking action that they know will be struckdown but only in the distant future. For the government this type of strategic behavior iseven more appealing as the consequences of actions taken today may be left for futureadministrations. Governments have used the expected delays in court successfully in taxlegislation. If the courts rule against the government, it is future governments who have torebate taxes. In short, delays in courts act as a quick, and cheap emergency means ofgovernment financing.

23In total the Supreme Court analyzed 7,855 cases in that year. The sample includes many different types ofcases; fiscal and tax matters, procedural issues, penal cases, issues regarding monetary correction and

payments, decisions of federal policy, electoral issues, amongst others.24This assumption does not mean that the Brazilian Judiciary functions well in other aspects. Indeed there isevidence that the overall judicial system has a negative impact on the economy. See Pinheiro, A. C. (1997);and Pinheiro, A. C. and C. Cabral (1998).


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Pinheiro (2000b) gives surveys evidence from businessmen, judges and the generalpopulation which shows that the biggest complaint, after slowness, is access of the courts tothe poor. Predictability, on the other hand is not seen as a problem. In labor law, forexample, the decision always favors the employee. Though this is biased and often leads toinjustice, at least employers know the outcome beforehand, which reduces the cost of

litigation and provides incentives for labor legislation to be respected. If the Judiciary hadno autonomy we certainly would view a different picture. Moreover, if the Court were notindependent we would not see Congress and the Executive continually debating judicialreform to reign in the Court.

III.4 Governors

Unlike the other actors discussed in this section, governors do not have anindependent and constitutionally defined power which can directlycounter the nationalexecutive preferences. Governors are not institutionally speaking veto players: theiragreement is not necessary for approval of legislative proposals, nor do they hold powers toreverse legislative decisions. They can however hold indirect influence over policy by theirinfluence.

The Constitution does vest a number of policy domains (e.g. public safety) to thestates which also enjoy tax, fiscal and administrative autonomy.25 The policy preferencesof governors and the executive may diverge in the political game described in the precedingsection. Governors are not primarily concerned with fiscal stability at the national level andthey have a preference for higher federal public spending and geographically concentratedinvestments. Governors are also interested in more social transfers because these can bepresented as state governments spending and local programs. The preferences of governorsand the federal executive conflict basically over fiscal policy.

It is necessary to distinguish two phases in the discussion of the ways governors,and federalism at large, constrain the federal executive. The first phase was transitional andmarked by the rules of the political game not being fully institutionalized. In this periodgovernors derived their power in virtue of the role thy played in the democratic transition.The second phase corresponds to the Cardoso administration when the new constitutionalrules of the game were in place.

Governors derived their powers from two sources. First, as already mentioned theyenjoyed great political power in the 1980s because of the role they played in the democratictransition. In addition, while there is much dispute in the political science literature,governors tend to have some yet declining - influence in the behavior of Federal Deputiesand Senators in Congress. The degree of influence held varies across areas, with issues suchas tax and regional infrastructure, which have important local (i.e. state wide) effects, theissues in which governors play a crucial role. Governors could also play an important roleon the electoral career of legislators at state level. Samuels (2003), for instance, claims thatcongressional candidates act to coordinate their campaigns around gubernatorial candidatesand not a Presidential candidate. That is what he calls gubernatorial coattails effect inwhich the race for governor shapes the race for federal deputy because Brazilian politiciansdo not obtain much of the electoral resources they need from national parties or Presidentialcandidates, but from state-level connections.

25According to the Brazilian Constitution of 1988 (article 25), the prerogatives of the states are residual: theyhave jurisdiction over those areas which are not conferred to the federal government or the municipalities.


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However, we believe that the brokers role attributed to governors and their controlover their states legislative delegations has been greatly exaggerated by the media and bythe literature, especially during Cardosos administration. It is true that Governors canconstrain the Executive in indirect ways but they do not wield veto power in any federalarena. There is no evidence that state loyalties by legislators undermine party lines or

creates trouble for the executive (Cheibub, Figueiredo Limongi 2002). The indirect waysthrough which governors influence policy formation include inter alia lobbying activities inspecific issues affecting states tax policy to their control over specific appointments inthe federal bureaucracy. Governors can also resist the implementation of federal policy,such as when a number of state governors refused to privatize state-owned energy firms.These episodes are unusual and have become even more so because states have become lessand less autonomous and dependent from the federal government.

Second, governors are powerful because the Brazilian Constitution vests the stateswith substantial tax powers. Brazils version of the value added tax the ICMS iscollected by the states and represents the single most important tax in the country. Itaccounted for 1/3 of all of the countrys tax revenue. The Constitution of 1988, in effect,mandated a gradual increase in the states and municipalities share of all public sectorincome. In 1994, the states share had increased by 5% percent and the municipalities by11%. The inter-governmental transfers from the Federal Government to the states increasedsignificantly. The share of the FPE (States revenue share fund) in the revenue generatedfrom the income tax and from the tax on manufactured goods climbed from 14% to 21.5%.

The fiscal decentralization created by the Constitution of 1988 prompted the FederalGovernment to substantially raise taxation by raising the contribuies sociais(socialsecurity and related taxes) which are not shared by the states and municipalities.Furthermore, to bypass the rigidities of the federal budget the Federal Government set up aspecial fund which it could use discretionarily. TheFundo Social de Emergncia (FSE), 26which was renamed several times to become FEF and the current Desvinculao dosRecursos da UnioDRU, approved in 200027, was created by allocating part of therevenue from theIPI (the tax on manufactured goods) and from the personal and corporateincome tax, before they are distributed. As a result this innovation represented a reductionin sub-national resources because these taxes are not shared with the states andmunicipalities.

In addition, the institutional source of the states power has also to do with thestates prerogative to own banks and public enterprises. The state banks were created in the60s as part of the developmentalist strategies pursued by the military government. With thedemocratization of the country in the 80s, the governors became more autonomous from theFederal Government and therefore were able to use the state banks for pork. This includedgranting subsidized loans to the private sector and, more importantly, the financing of stategovernment projects which are fiscally unsound. The State Treasuries also issued bondswhich were purchased by the banks. Thus, during the Sarney, Collor and Itamaradministrations, the states operated under a soft budget constraint because of their abilityto undermine Central Banks supervision. In 1994, prior to the setting up of theprivatization program (PROES), there were 35 state banks. In 2002, there were four smallstate banks. In addition to the state banks, governors control a vast network of sources of

26Constitutional amendment EC 1/96 and Constitutional Revisional Amendment ECR 1/94.27Constitutional amendment EC 27/2000


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pork, ranging from public sector jobs to infrastructural programs and state-ownedenterprises. In the latter, a pattern similar to what occurred in the banking sector can beobserved. Most public utilities companies in energy were privatized leaving governorswithout an important instrument of power. The resources controlled by the states areimportant assets which are instrumental to win elections and they are coveted by the federal

government. In the large states the administrative apparati are large machines which can be,as in So Paulo, even larger than the federal government machine itself.The Federal Government was able to impose the privatization of the banks and

public enterprises, thereby dramatically undercutting the power of governors, due to fiscalproblems facing the states following monetary stabilization. With inflation under control,the state banks lost their principal source of revenue (i.e. floating of financial assets). Onthe other hand, the surge in interest rates caused a rapid deterioration of the fiscal situationof the states. State governments debt reached a peak in 1997, three years after the RealPlan was phased in, when it came to represent a significant part of GDP. The Plan Realrepresented therefore an exogenous shock that undermined the ability of the states to resistthe preferences of the federal executive. The federal government implemented a programaimed at renegotiating the state debts. These included debt swap at favorable conditionswhich was linked to a number of conditionalities.28Prior to 1994, there were severalincentives in the Brazilian fiscal federalism that encouraged states to behave fiscallyirresponsibly. These can be seen in the history of opportunistic behavior by the states andassociated to federal bail outs.

In sum, while it is clear that federalism matters and that governors play an importantrole, the national executive throughout most of the last decade has been able to have itsagenda implemented by recentralizing the political game. This includes passing legislationthat affected adversely the state governors as exemplified in the cases of the FSE, FEFand DRU - and initiating measures that has led to a political recentralization of the country(Melo 2002).29

III.5 - Public Prosecutors (Ministrio Pblico)

In this subsection we describe the role of theMinistrio Pblico MP-(publicprosecutors) as political actors in the policy making process. Although several countrieshave public prosecutors30in Brazil the MP plays a particularly important role in shaping theouter features of public policy. We describe how the political institutions give the MP theindependence, the legal instruments and the resources, which allow it to be an extremelyactive watchdog of the actions of the other political actors. This, together with an intensemotivation to protect society from the misconduct and omission of the other political

28This was accomplished by the Programa de Recuperao Fiscal e Financeira (RFF) and through Law 9496,of 1997. A stock of debts corresponding to 11% of the Brazilian GDP was renegotiated (Mora 2002).29For a contrasting view which argues that resistance from the states and governors undermine much of theCardosos reform efforts see Samuels (2003).30For a database on the organization ofMinisterio Pblicosin the Americas see Base de Datos Polticos delas Amricas. (1998) Designacion del Ministerio Publico. Anlisis comparativo de constituciones de losregmenes presidenciales. [Internet]. Georgetown University y Organizacin de Estados Americanos. En:http://www.georgetown.edu/pdba/Comp/Control/Publico/designacion.html. 15 de enero 2004.


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actors, has made the MP a central figure in the process of making and implementingpolicy.31

TheMinistrio Pblicohas existed in Brazil since 1609 (Macedo Jr. 1999), howeverits role and institutional organization has changed over time as different Constitutions haveredefined its structure. As in most countries, one of its purposes is to prosecute, in the name

of the State, those who commit crimes. However, in Brazil the MP has taken on anadditional role that has lead it to turn much of its attention to the process of public policymaking. These changes started in 1985 when a legal instrument known as the public civilsuit (ao civil pblica) was created, through which the MP could take to court any personor entity for harm done to the environment, consumer rights, or the artistic, cultural,historical, tourist and landscape patrimony of the nation.32It was the 1988 Constitution,however, that amplified the scope of the public civil suits by stating that it is theinstitutional role of theMinistrio Pblicoto promote civil inquiries and public civil suitsfor the protection of public and social patrimony, of the environment and of other diffuseand collective interests.33This apparently innocuous article has in effect allowed the MPto take into their jurisdiction the monitoring of all public policy, for practically any act ofpublic policy making can be construed to affect diffuse and collective interests. What itdid in effect was to stipulate that a series of social conflicts that previously would havebeen mediated only in the political arena could now also be brought to the judicial arena.

Clearly, simply establishing a new role for the MP in the Constitution would beinnocuous was it not accompanied by other provisions that granted the MP the conditionsnecessary to carry out that role. The Constitution did in fact provide those conditions, interms of independence, resources and legal instruments. Whereas before the Constitutionthe MP was part of the Executive power, the new charter made the MP autonomous, notonly in terms of insulation from interference by the other powers but also in term ofbudgets, which are fixed and automatic. The Executives only prerogative is to choose thehead of the federal MP from one of its members at the start of the term, being immovablethereafter.34This independence extends to the level of the individual prosecutors. Theentrance into the career is by public exam open to all citizens with the necessaryqualifications, though exams are difficult and vacancies often remain unfilled. The 1988Constitution establishes that prosecutors cannot be fired, transferred nor have their salariesreduced. In addition each prosecutor is independent within the profession, being immunefrom internal pressure as in effect there is only administrative and not functional hierarchy(Arantes, 1999:90). Salaries are among the highest in the country for public sector jobs andas a consequence they attract highly competent people.

31This more active role played by the MP is recent, as it began with changes introduced in the 1988Constitution and has been evolving since. As such there is very little academic work available on the MP,apart from the very legalistic and biased work done by its own members (frequently dissertations for Master

degrees.) Important exceptions are Arrantes (1999 and 2004).32Public civil suits can be initiated by states, municipalities, public companies and even civil society.However in practice it is mostly the MP that takes the initiative. Other entities have preferred to invoke theMP rather than do so themselves.331988 Constitution art. 129-III.34There is a federal MP and state level MPs in each of the 26 states plus the Federal District. Prosecutors areknown aspromotoresandprocuradores.Promotores, the first stage of the career at the state level, act inspecific municipalities. They can eventually be promoted to stateprocuradoresby seniority and merit. At thefederal level there are onlyprocuradores. At the state level the headprocuradoris chosen by the governorfrom a list of three names voted by all members of the states MP.


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In addition to resources the MP possesses a set of powerful legal and judicialinstruments. The first of these is the Adjustment of Conduct warrant, through which theycan request that an individual, firm or governmental entity cease or change a certainbehavior or be prosecuted. In practice this instrument has been a credible threat as it canimpose significant costs even if the case is struck down in court. The MP also has the right

to request free expert advice from police and other governmental organizations so as toinvestigate a given issue. They can also impose daily fines until certain types of behaviorcease. And most importantly, they can take to court those who harm collective and diffuseinterest through the public actions suits. In practice this has proven a tremendouslyeffective instrument for the prosecutors are highly trained and know how to use the oftentortuous Brazilian judicial system. Even though judges have the final word and often strikedown public civil action suits, many of those being prosecuted find it better to negotiate.

Generous endowments of human and financial resources as well as an effective setof instruments are not enough to explain the new role taken by the MP. There remains theissue of motivation, that is, what this largely independent organization chooses to do withthese endowments. In part the separation of the MP from the Executive meant that the MPwas no longer charged with being the Executives advocate, that is, defending theExecutives interest before the judiciary. This role was ascribed to a new governmentalentity (the Unions General Advocacy) leaving the MP unencumbered to be the advocate ofsociety, defending in particular diffuse and collective interests. Interestingly what evolvedwas a very particular pattern of preferences and motivations in the (mostly young)prosecutors, where they see themselves as playing messianic role in society: defending theweak and defenseless (hyposufficient in their terminology). Importantly for the theme ofthis paper, they see a large part of their role as defending society from government, whothey see as being responsible, by omission and by commission, of many violations againstdiffuse and collective interests. For example, rather than simply prosecuting a polluter, theywill prosecute the environmental agency for allowing the pollution to occur. The reasonsfor this zealotry are difficult to ascertain. It may be due to a self-selection process whereindividuals with that view of the world are more attracted to a job where they can make adifference, or it may be induced by an esprit de corpthat induces most members to adopt acommon vision. A survey by Arantes (1999) with 763 members of the MP shows that theysee the social and political performance of the Executive and Legislature, at all levels andpolitical parties as very poor. In addition they see themselves as the most importantinstitution to defend, broaden and consolidate social rights.

Having described the evolution of the MP it is useful to look at some examples thatillustrate that they can and do affect policy making at federal and local level in Brazil. Thefirst example involves the constitutional provision that a fixed proportion of the federalbudget must be applied to health-related expenditures. This is a typical hard-wiring ofpolicy as discussed in other sections of this paper. In late 2003 it was perceived thatPresident Lulas budgetary proposal for 2004 included in the R$35.8 billion that should bespend on the health, expenditures in sewage and in its anti-poverty program, so that ineffect only R$32.5 billion would reach the actual health system. The congressmen whorepresent the health providers interest in Congress quickly denounced this attempt to getround the constitutional limitation, nevertheless Presidential powers could proba

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