Strong Medicine.(Biography)

Antonio Palocci makes a disappointing villain. He is big and whiskered, but the bouncer's build is spoiled by an elfin smile. Like Luiz Inacio Lula da Silva, the Brazilian president he serves, he has a disarming lisp. He talks in a sleepy monotone, as if he hadn't a worry in the world. "God gave me one mouth but two ears," he is fond of saying. "Trust me, I listen better than I speak." Such bons mots and unshakable good humor have won him praise from the trenches of the Brazilian Congress to the aeries of Wall Street. But while the Brazilian Finance minister is an amiable conversationalist, Palocci is something of a Scrooge when it comes to managing his country's money.

That's not a bad thing. Pinching centavos is a rare and recent virtue in Latin America, where both elected and appointed officials have traditionally viewed their mandates as a mission to spend. Too often the job of Finance minister has been to find new money with which to bail out the overextended central government. Inflation? No worry: there was always the mint. Brazil went through seven currencies between 1985 and 1995, and has averaged about one Finance minister a year since 1960. Even under reform-minded former president Fernando Henrique Cardoso (1995-2002), who sponsored a rigid "fiscal responsibility law," public spending rose by 5 percent a year.

That's not likely to happen while Palocci is guarding Brazil's coffers. He's turning out to be a Finance minister with "no" in his vocabulary. Hardly a day goes by without some governor, mayor or even a fellow minister chatting him up for a larger lump of federal largesse. Palocci, a 42-year-old fiscal prude, typically demurs. One of his first measures was to reassure international creditors by raising the country's primary budget surplus (from 3.75 to 4.25 percent of GDP), an effort that required Brasilia to slash $5 billion from an already bare budget.

The new round of belt-tightening has sparked protests from a broad range of critics, including business executives and even Vice President Jose Alencar, who say that Brazil's scorching interest rates--which fell a hair from 26.5 percent to 26 percent last week--are pushing the country toward a recession. But his temperance has won a more pleasant reception in the United States, where on June 20 Lula and Palocci met with George W. Bush. The American president lauded Brazil's fiscal prudence, and so did various pooh-bahs of high finance. "After so many pompous asses in the region, Palocci's a refreshing change," says Arturo Porzecanski, a senior analyst for ABN Amro in New York.

Thanks largely to Palocci's ...