Party animal.

Fernando Henrique Cardoso was the first president ever re-elected democratically in Brazil. He bade Brasilia farewell in January 2003, leaving the country deep in debt--at nearly 60% of GDP--highly taxed, and downwardly mobile. His Social Democratic Party (PSDB) suffered at the ballot box as a result, losing the Congress. Nevertheless, Cardoso is considered to be emblematic of the type of leader Brazil wishes to showcase: worldly, intelligent, socially liberal and tolerant. LATIN TRADE Correspondent Kenneth Rapoza spoke with Cardoso about development policy, labor and the race against President Luiz Inacio Lula da Silva in 2006.

Brazil has grown beyond all expectations in 2004, but real incomes are down. Is that because the job market has become more integrated into the global economy?

[In 2003] we had a negative rate of growth, so that didn't help the job market. Also, it's not just that we are integrating into the world market, which is a reason, too. It's also because we have a new government and when you start a new government it's normal that they don't have the knowledge of how to take care of the poor and social problems right away, and so lots of time is spent reorganizing a bunch of social programs. If you look at the long term, income has been increasing for poor people since the year 1970 up to now.

Really? Government numbers suggest otherwise in the 1990s, at least. Your administration has been blamed for current high taxes, too. Why raise taxes?

We were obliged to increase taxes--and with this current government it has increased even more--because we have a fiscal crisis. You have to pay debts and so that's the reason for increasing taxes. It's not good. It's a tremendous burden on the Brazilian economy, but you have no alternative. Otherwise, the banks will stop financing us. It's not that the state is expanding; it's because of a huge foreign and domestic debt.

What could you have done to alleviate the debt burden in Brazil under your watch?

Debt exploded in the '90s because we cleaned up the financial situation. In practice, what we did was just make clear what already existed on the books but had always been covered up and ignored. It wasn't all new debt. We just decided to recognize previous debt and organize the whole system to pay that down.

There's lots of talk this year about the informal economy growing faster than the formal sector. Any changes coming on that front?

We have a very old-fashioned social legislation system. The burden for the businessman to register workers is very high, so informality, as you know, becomes a way to escape from the burden of labor taxes. Legislative changes must be made before this goes away. But I think that the global trend goes towards informality as the labor supply outweighs demand.

Argentina has been closing its borders to some Brazilian-made products, like refrigerators. What does that say about the future of Mercosur?

Argentina decided it wanted to compete with Brazil on industrial terms. It's not tariffs between these two countries but the lack of investment in Argentina's economy that's causing the problem. So they have to increase domestic investment before they can open up again and then we can reorganize the borders of Mercosul. This is going to take some time.

What do you think is Brazil's biggest social crisis today?

Unemployment. The Brazilian state is in better shape than it was 10 years ago to deal with poverty, but in today's terms, the country has been better off in this regard than it is now. You just don't have enough impetus to create more jobs in Brazil.

Can the Social Democrats take back the presidency in 2006?

We are in good shape to. The last municipal elections [October 2004] showed that the party is in a very powerful position.

Who in your party can beat Lula?

Oh, we have several. Geraldo Alckmin, the governor of Sao Paulo; Aecio Neves, the governor of Minas Gerais. We've got plenty of nationally recognized senators. PSDB is the only party that has more than just one candidate. We have four or five candidates. It's a tremendous advantage.