Abstract This paper addresses the social effects of macroeconomic volatility in Brazil, as well as the burdens and challenges it has been imposing on social policies. Volatility is analyzed both in terms of its internal causes and those related to the world economy, as well as in its social effects and on policies aimed at counterbalancing them. The period covered by the analysis extends from 1995 to 2002, and coincides with President Cardoso's two terms. It is marked by increasing economic volatility, as he moved from the first to the second term. To understand this increased volatility the paper looks at its origins and at the macroeconomic policies adopted to counteract it. Volatility is also examined in the context of a new national and international scenario in which three main processes can be identified: economic and financial globalization, the privatization of state companies and foreign trade liberalization. The analysis shows that Cardoso's government made major advances in terms of price stability. It has failed, however, in its attempt to lead the country towards sustained growth, as it relied on misguided macroeconomic policies, particularly its exchange and fiscal policies during the first term which increased the economy's external and domestic vulnerability. After analyzing macroeconomic volatility, the paper moves to its primary focus, the social effects of economic problems and policies, and what has been done to mitigate them. Following this approach, it examines the performance of social indicators of the period. In this respect, the analysis reveals that the government accomplished major advances in education, health and income transfers to the poorest groups, following a sharp increase of the tax burden, which it was able to introduce even in conditions of sluggish growth, in a counter cyclical fashion. In a new international scenario that has overemphasized the role of markets in solving economic and social problems, it was not a surprise that Brazil had to rely on income transfers in order to alleviate the plight of the poorest groups. Poverty conditions found in the country are so severe that it would be naïve to expect that they could be significantly reduced by the interplay of market forces, even in the medium term. The paper also addresses the perspectives for the next government. In the short run, the serious economic scenario inherited by President Lula makes it difficult to implement new and major advances in expanding social expenditures, as the tax burden is coming close to a saturation point and faces increasing opposition. Thus, the situation is such that it requires a renewed attention to the quality of macroeconomic management, in order to improve growth rates and open room for sustainable social policies based on increased tax revenues coming from an expanded tax basis. Given this picture, a thin path has been identified to lead the country in this direction and out the current difficulties, which have recently become less dramatic because of the adjustment presented by the foreign sector accounts, and by the stand adopted by the elected president in announcing policies that have dissipated most fears of their mismanagement. This path involves continuing fiscal discipline by maintaining and even enlarging the primary fiscal surplus, with an eye to bargaining this movement for the market's willingness to accept lower interest rates on the public debt. In the foreign front, an emphasis on export promotion and a new round of import substitution, this time coming with enhanced competitiveness on the part of local producers. In essence, what is sought is to reduce vulnerability and volatility, both from domestic and external sources. Looking at the medium and long term, and taking into account a new national and international scenario created by economic and financial globalization, privatization and trade liberalization, other lessons from the Cardoso period are clear. In particular, they point to less dependence on external finance, more caution with globalization in general, a different course for privatization -including constraints on the use of its resources by the government, a screening of the pricing policies of the privatized sectors and a move towards public offers that democratize ownership of capital property- and an external trade and financial policy explicitly guided by national interests, with selective attention to some Trojan horses offered by globalization -as was the initially easy access to financial globalization- all this consistently sustained by other policies, in particular a realistic exchange rate.