With the first round of general elections in Brazil being held on Sunday the presidential campaign is being dominated by one issue - the economy.

Brazil has been hit particularly hard by the knock-on effects of the Asian and Russian crises, and with billions of dollars flooding out of the country, the government of President Fernando Henrique Cardoso is struggling to avoid a currency devaluation.

The austerity measures which the authorities have taken, including high interest rates and public spending cuts, are being bitterly criticised by the main left-wing opposition candidate, Luiz Inacio Lula da Silva. He says the country is too dependent on foreign capital.

Presidential supporters keep the flag flying

It is rare for a sitting president to try to win re-election by promising more austerity, but that is exactly what President Cardoso is doing.

Mr Cardoso, who has been at the helm of the world's eighth largest economy for the past four years, is engaged in a desperate race against time to guarantee the stability of the Brazilian currency, the real.

He launched the real when he was finance minister four years ago and inflation was more than 2,000% a year.

The new currency brought stability to the economy and won Mr Cardoso the presidency in 1994.

Real doubts

But in order to maintain the real's value, the government depended crucially on large in-flows of foreign capital, and in the past two months, those have dried up.

In order to restore confidence among investors, the president is promising drastic cuts in Brazil's large budget deficit if he wins the election.

But, according to Mr Cardoso, the economic reforms do not depend on him alone.

He wants state governors to re-negotiate their fiscal relationship with the federal authorities, and he is calling on Congressmen to vote through a series of constitutional reforms which would also help cut spending.

Opposite solutions

For the main opposition candidate, Lula da Silva, the president has got his priorities the wrong way round.

He says that many of Brazil's problems are caused by the chokingly high interest rates which the government is using to keep foreign capital in the country.

Instead, according to Mr da Silva, Brazil should concentrate on internal production, raising import tariffs and imposing stiffer capital controls.