Thus, once Cardoso was in power, the question of dependency and development was turned on its head. As President, Cardoso sought explicitly to make the Brazilian economy as dependent as possible on the multinationals and financial institutions of the core in order to develop the country. But in doing so, he invited multiple contradictions, which as a theoretician he should have foreseen could not but undermine his whole project. The first of these was inexorable rise in Brazil’s trade deficit. Imports surged when protectionist barriers were further dropped in 1994. As Table 1 indicates, Brazilian trade surpluses—still running at $10–15 billion a year in the early nineties—were transformed into substantial deficits, rising to some $8.3 billion by 1997. This deterioration was a direct product of the Plano Real. For while a pegged exchange rate can fight inflation in the short run, it invites disaster in the long run, by undercutting what is already the weak link in the periphery—international competition in manufactures. If an overvalued currency is bane enough for the US or Japan, it spells little short of ruin for Brazil or Argentina. Once the exchange rate is forced up, as sooner or later the peg insures it will be, imports automatically become more competitive, and exports less so. Thus from 1995, when the US was forced to revert to a high dollar, the real could not help but follow it up. The result was to devastate the Brazilian trade balance. In the early 1990s, with the dollar and the cruzeiro low, exports had increased by 50 per cent. But from 1995 to 1999, they barely rose at all.
The combination of a widening trade deficit, and the need to build up foreign reserves to protect the overvalued currency against speculative attacks, required the support of massive inflows of foreign capital. But these in turn led to a dramatic increase in the current-account deficit, which of course included interest payments, repatriation of profits and dividends of the very capital needed to shore up the real. Thus, as Table 1 illustrates, the deficit on the current account soared from $1.7 billion in 1994, when it was 0.3 per cent of GDP, to $33.4 billion in 1998, by which time it was 4.25 per cent of GDP, and required $8.9 billion of Brazil’s reserves to cover the gap between it and net inflows of capital. In 1999, after the collapse of the currency, the deficit hit $25.3 billion, or 4.79 per cent of GDP, the highest level since 1982 when the foreign-debt crisis and the ‘lost decade’ began. In 2000, the deficit was still running at 4.15 per cent of GDP, rising to 4.61 per cent in 2001—rates much higher than in Argentina (3.1 and 1.6 per cent), Chile (1.3 and 1.5 per cent), and Mexico (3.1 and 2.8 per cent).
It had become obvious, in other words, that the more inflows of foreign capital were required to finance the deficits generated by the Plano Real, the larger the deficits themselves became, since foreign capital could not but aggravate the negative balances it financed. The result was ever greater requirements for new inflows, inaugurating another cycle of foreign indebtedness to meet the country’s external financial obligations. Table 1 shows the enormous transfer of resources in the form of interest, amortization, repatriation of profits and dividends that began in 1995, and saw Brazil’s foreign debt increase from $148.2 billion in 1994 to $241.6 billion in 1998—a $100 billion addition during Cardoso’s first term. Of this, $145 billion was owed by a private sector encouraged by the government to borrow abroad, as domestic interest rates remained high in order to increase international reserves and defend the real. If we add the total foreign debt to the stock of FDI, Brazil’s external liabilities today are an incredible $400 billion.
Such an extreme dependence on foreign capital—the current-account deficit and amortization of the debt require more than $50 billion a year—inevitably made the Brazilian economy highly vulnerable to international shocks. For conditions on the world-capital market are obviously determined by the players who do most of the business there, and these are located in the core. Brazil’s access to overseas funding ultimately depended on the demand and supply of capital in the North and, in particular, on the cost of borrowing they set. Movements on financial markets in the centre are so huge that developments in the periphery are dwarfed by them. In practice, this meant that the Brazilian economy was at the mercy of international developments triggered by the opportunities or dangers facing core investors.
The result was a series of ever-worsening domestic crises, following the same inexorable trajectory—flight of foreign capital from Brazil; imposition of super-high interest rates and tougher fiscal austerity to attract it back; collapse of domestic investment and consumer demand, leading to recession; rising unemployment, greater poverty and worsening income distribution. The outcome was to bring about a more or less continuous fall in the growth of domestic demand, to complement the stagnation of overseas demand for the country’s exports. The excruciating pressures to which the Brazilian economy was subjected by its deepening ensnarement in the debt trap ultimately became impossible to endure, and the Plano Real collapsed as Brazil’s fundamental incapacity to determine its access to world capital-markets, no matter what it did, became clear.
Today, as in 1999, establishment analysts blame the present crisis on domestic political constraints—uncertainty as to whether Cardoso can shoe in his lacklustre successor José Serra in the October elections. But its roots lie much deeper, in the fundamental strategy of dependent development adopted during Cardoso’s double presidency. In 1998 and early 1999, international financial markets understood this very well and fled. They were aware of the extreme fragility of Brazil’s financial situation, since the stratospheric interest rates needed to prop up the currency could only lead to a dramatic rise in the servicing costs of the domestic public debt. Investors thus had every reason to fear that the government might be unable to keep up interest payments and be forced to ‘restructure’ (ie: default on) its domestic debt, with knock-on effects on its dollar-denominated debt. Their apprehensions persist today. Whoever wins the election in October 2002 will inherit a grave financial crisis, the fruit of eight years of Cardoso’s ultra-neoliberal mismanagement of the economy.
Notwithstanding the evidence, neoliberal ideologues continue to maintain that the origin of the deficit is fiscal, and Cardoso has clung to the Washington Consensus’s first commandment: fiscal discipline, ‘which typically implies a primary surplus of several percentages of GDP’  —intended, of course, to offset the impact of interest payments on the public deficit and restore the confidence of foreign and domestic investors in the ability of the government to honour its financial obligations. From the beginning, the Plano Real’s ‘other’ anchor was designed to be fiscal: a commitment to slash public expenditures and raise revenues, where necessary by major constitutional amendments—reforms of the civil service and pension systems to cut personnel and retirement benefits, and privatization of strategic state enterprises in the infrastructure and service sectors. Cardoso was able to mobilize Congress to restore creditors’ confidence with these austerity packages after the speculative attacks on the real. But it was only after the collapse of the currency, when the IMF took control of economic policy-making as a condition for the 1998 bail out, that large primary surpluses began to be generated above and beyond IMF targets, through indiscriminate tax increases and cuts in essential public investment, legitimated by a Law of Fiscal Responsibility (May 2000). Taxation jumped from 28 per cent of GDP in 1995 to 34 per cent in 2001, the highest level in Latin America—comparative figures for Argentina are 22–24 per cent, and for Mexico 14–16 per cent.
How far has this denationalization been compensated by a productive modernization of the Brazilian economy? The import-intensive service sector offers one answer. In the late nineties this was the principal magnet for foreign capital—its share of total FDI increasing from 43.4 per cent ($18.4 billion) in 1995 to 76.6 per cent between 1996 and February 2002, or $97.3 billion of the $127 billion invested in Brazil in these years. The typical upshot of the deregulation and privatization of electricity and telecommunications, and the unleashing of a torrent of acquisitions and mergers, was abandonment of local research and development for intra-company technological imports. The bill for capital goods from abroad jumped from $7.5 billion in 1994 to $14.8 billion in 2001, and for intermediate goods from $15.6 to $27.3 billion for the same years. Since Telebras was privatized in 1998, multinationals have been importing 97 per cent of the components required to upgrade Brazil’s antiquated phone system, as the government, to cajole the new owners, backed down from its initial demand that they utilize at least 35 per cent of national products. The price-tag for electronic components alone—especially chips—reached $5 billion in 2000. As one economist has remarked: ‘While the consumption pattern of information technology in the developed countries was diffused in Brazil in the nineties, there was an undeniable regression in production.’ 
The strategy of foreign corporations in Brazil has been perfectly rational; however, it has exposed the error of relying on multinationals to perform the role of leading agents of national development. ECLAC economist Michael Mortimore’s case study of FDI in Brazil’s service sector shows that the major goal of multinationals is usually to gain access to the national market, not to maximize export, let alone employment, and is achieved primarily by purchasing existing assets, not creating new ones. Assessing attempts by Latin American governments to convert FDI into an engine of growth, he concludes: ‘While the objectives of corporate strategies were for the most part met, the growth and development goals of the host countries were not.’ Rubens Ricupero, Secretary-General of UNCTAD, echoes him: ‘the commercial objectives of TNCs and the development objectives of host economies do not necessarily coincide’. 
In the case of the automotive and autoparts industries, Ricupero notes that major national enterprises known for their capacity for technological innovation—Metal Leve, Freios Varga, Cofap—suffered immediate degradation after being sold to multinationals. Here the coefficient of import penetration rose from 8 per cent in 1993 to 25 per cent in 1996. The story has been the same in the telecommunications and computer sectors, where multinationals have largely suspended local research and development and transferred engineers from labs to marketing, production, sales and technical assistance. In these conditions, Ricupero comments, ‘it is not surprising that the coefficient of import penetration jumped from 29 per cent in 1993 to 70 per cent in 1996’. Another study has found that between 1994 and 1997, local production of capital goods fell overall by 10 per cent. Denationalization, in other words, has been accompanied by a real measure of deindustrialization. 
Meanwhile, Brazil’s exports remain concentrated in traditional commodities—agricultural, agroindustrial and mineral—and the country has been unable to increase its share in world-manufacturing exports. A recent UNCTAD study shows that between 1980 and 1997, Brazil’s share in world exports of manufactures remained the same, 0.7 per cent, and, significantly, that its share in world manufacturing value-added (income) fell from 2.9 per cent to 2.7 percent. Comparatively, while Chile and Mexico were able to increase manufacturing exports during the same period, 0.0 to 0.1 per cent and 0.2 to 2.2 per cent, respectively, Chile’s value-added remained the same, 0.2 per cent, and Mexico’s fell from 1.9 to 1.2 per cent.