In Brazil, heartening economic signs after decade of uncertainty
Sao Paulo, Brazil
For the first time in ages, businessmen in Brazil say they see economic improvement on the horizon. That horizon may be as many as five years down the road, but the fact that it's visible at all is heartening, after a decade of uncertainty about Brazil, whose $300 billion gross domestic product puts it among the top 10 economies in the capitalist world.
Gloom has long been part of the scenery. Since the end of a miraculous boom in the 1970s, the country hasn't seen the long-term 6 to 7 percent annual economic growth it needs to keep pace with a 1.5 million yearly increase in the labor force, and to distribute income better.
Triple-digit inflation, a problem throughout the 1980s, now threatens to hit a record 600 percent this year.
The uncertainty has by no means disappeared. Brazil's first direct presidential elections in 29 years will take place next year, and no one can predict the result. But a number of events in the last six months have provided new hope that Brazil won't, as some cynics have long joked, forever remain ``the country of the future.''
``Over the next five years, we are going to have a fairly tough situation,'' says the president of a major North American multinational corporation's Brazilian subsidiary. ``You have a democracy in its infancy and it has to mature. ... It has tremendous potential. In three to five years, the economy will come back and Brazil will be a factor in the world market.''
For this executive and many others, the most important good news is a new industrial policy announced late last month. With incentives for imported goods and technology, and for local research and development, the policy is meant to stimulate productivity and increase Brazil's industrial competitiveness. It also reduces the government's role in the economy, by privatizing some of the hundreds of publicly owned companies and by cutting regulatory powers.
For three decades, Brazil was one of the world's most closed economies, as it supported local manufacturing over imports. But the new policy could herald a major departure. Businessmen only hope that President Jos'e Sarney will be able to keep it out of the bottom drawers of government bureaucracy.
They also hope he won't let the policy get buried by Brazil's Congress, which has put some nationalistic provisions against foreign business in the country's new constitution, now being concluded.
``The executive is taking a leadership position,'' says Christopher Lund, president of the US Chamber of Commerce, in Sao Paulo. ``The industrial policy is an excellent initiative. It's very, very well thought out.''
Mr. Lund and others believe the government will in fact gradually follow this and other policies to get the economy growing, simply because of a growing consensus that there's now no other choice. They add that Mr. Sarney's five-year term, voted him recently as part of the new constitution, gives him an additional 21 months to get the foundation for growth into place.
The other good news, businessmen say, is that the planning and finance ministers are making all the right moves to straighten out the country's debt situation and cut back on government spending to control inflation. The ministers, who came to office only this year, ``are having surprising success'' with their policies, says Jos'e Mindlin, president of Metal Leve, the No. 2 auto parts manufacturer and a big exporter to the United States.
``They are competent, have no political ambitions, apparently, and they seem to have an economic plan to put things in order,'' he adds. ``With support from the executive branch, the possibility of a favorable solution is much better [than before].''
The plan differs from previous, failed attempts during the Sarney administration, by three different finance ministers. Usually, Brazilians must anxiously await new economic policy in the form of a mystery pacote, or package of measures. But the current ministers have avoided using the word pacote, have announced measures piecemeal, and have made a point of using the news media to communicate their policy to the public and get the support of businessmen and politicians.
One important result is that Brazil is returning to the International Monetary Fund, something that was considered unthinkable only last year, when the country unilaterally announced it wouldn't pay interest on its $62 billion private foreign debt.
So far, the measures include a federal spending cut to bring the public deficit down to 4 percent of gross domestic product, from an earlier 7 percent projection. There have also been a federal wage freeze, cuts in subsidies and public lending, and a crackdown on tax evaders. The IMF board is expected to approve a standby loan of up to $1.6 billion this summer.
At the same time, lengthy talks with private bankers to end the moratorium on the debt and provide $5.2 billion in new lending are coming to a conclusion, officially putting Brazil back as a player in the international finance game.
All the government spending cuts are hurting business, of course. But a sur-prisingly good export performance this year is buoying the sales of many companies. April's record trade surplus of $1.9 billion included $2.79 billion in exports, many of which were shipped by the auto industry. Mr. Mindlin's Metal Leve, for example, expects to sell at least $45 million worth of auto parts abroad this year.
While the exports are helping to keep jobs, the income they generate is inflationary, providing yet another reason for opening the Brazilian economy to additional imports.
Even Brazil's controversial policy to protect its nascent computer industry, a source of friction with the US, is coming under a new light. Recently, in an interview with the nation's influential newsmagazine Veja, President Sarney said he would not vote to protect Brazilian computer manufacturers, if the issue were to come up again, and that the current law doesn't work.
``It deprives private enterprise of its most important attributes,'' he said, ``competitiveness and creativity.''