Brazil trumpets a turnaround
Rio de Janeiro
On the brink of economic disaster just a year ago, Brazil has staged a dramatic turnabout. The comeback, aided by falling oil prices and interest rates, was engineered by a team of economic thinkers who reject International Monetary Fund austerity in tackling inflation and balance-of-payments problems.
Brazil has not rejected austerity altogether, however. It has clamped a lid on government investment. But the nub of its strategy has been to stimulate the economy first by easing wage restraints and only then to freeze prices and wages.
The new policy, dubbed the ``cruzado'' plan after the currency unit introduced to replace the discredited cruzeiro, is only a few months old, but it has already produced profound economic, social, and political results. For example:
Inflation has been stopped in its tracks, with the consumer price index actually falling in both March and April.
Interest costs have declined.
Government tax revenues are up, and the increase for the year could wipe out the government's operating deficit, a move the IMF would applaud.
The trade surplus, thanks chiefly to the drop in Brazil's oil import bill, is growing and should easily pass last year's record total.
Meanwhile, production is up. Auto- and appliancemakers are having a hard time meeting delivery schedules, and purchasers must pay premiums if they want to avoid waiting. One reason for the upturn is that financial speculation has all but disappeared with the end of inflation, when gains on the money market ran 1 percent to 20 percent a month. Many savers are converting funds into goods.
The cruzado plan has had an impact on politics, making the government of President Jos'e Sarney eminently popular. Sharing in the popularity is Finance Minister Dilson Funaro, under whose direction the plan was hatched.
The new economic leadership hails from two main sources: a group of economists associated with the United Nations' Latin American Economic Council and a circle of Brazilian businessmen dubious of the benefits of foreign capital.
All of the government's efforts might have come to naught, however, without public support. Consumers have turned themselves into price watchdogs, forcing retailers to observe government price guidelines. Thousands of cars carry bumper stickers with the symbol of the cruzado and the statement: ``I believe.''
``You can sense the sincerity of the people in government now,'' says Bernardo Dutra, a Rio stationer. ``They're not there to line their own pockets.''
``With the support it is getting from the people, the new plan has got to work,'' echoes Fatima Ribeiro, a secretary with a wage-earning husband and four children.
Besides careful planning and good timing (the worst of Brazil's balance-of-payments ills were over and the economy was already expanding), boldness was required of its authors. With inflation reaching 235 percent last year, it took political courage to do away with automatic adjustment of prices and wages.
Brazil has by no means solved all its problems. Insufficient investment during the price freeze could lead to inflation. Public interest in enforcing price controls could flag. Farmers want easier credit, and labor is chafing from wage restraints.
The government, however, can import food and other products to counter shortages and keep prices in line. And major creditors such as the World Bank almost certainly will continue to carry Brazil, since its financial picture is improving.