Economic Crisis Worries Brazil Rulers

By Hilda Cuzco, The Militant, Vol.61 no.32, 22 September 1997

Workers, peasants, students, and others demonstrated in hundreds of cities and towns across Brazil September 7, protesting the austerity policies of President Fernando Henrique Cardoso. Participants in the third annual Cry of the Excluded actions, which took place on the 175th anniversary of Brazil's independence, denounced hunger, unemployment, violence, impunity, corruption, illiteracy, [and] the government's economic policy. The actions were promoted by trade unions, the Movement of Landless Rural Workers, the Brazilian National Bishops Conference, and various community groups.

Meanwhile, capitalist investors are growing nervous over the potential impact of the Asian currency crisis on the weak Brazilian economy. Since July 1 the currencies of Thailand, Malaysia, Indonesia, and the Philippines have fallen sharply against the U.S. dollar, with the shock waves affecting most other countries in the region. Stock prices have plunged from Bangkok to Hong Kong. Along with Brazil and a few of the other more industrialized countries in Latin America, these nations had been touted as emerging markets where capitalism could grow rapidly and provide above average returns to bourgeois investors.

Like in Thailand and many of the other countries in southeast Asia, the Brazilian rulers have pegged their currency, the real, to the U.S. dollar, and are running a relatively high fiscal deficit of 4.9 percent of gross domestic product . In the weeks since the devaluation of the baht, prices on Brazil's stock market have slid, dropping by as much as 4.7 percent in a single day, and banking officials there fear there will be pressure to devalue the real.

Cautioning foreign investors not to do anything to trigger a crisis, former Brazilian finance minister Rubens Ricupero warned that the Brazilian economy is in a weaker position than those of many countries in Asia, with higher deficits and less export capacity. Speaking in Sao Paulo September 4, he stated that U.S. interest rates and fluctuations in the international stock markets influence the stability of the Brazilian economy. So far we have been lucky, he said.

Ricupero, who is today secretary-general of the United Nations Conference on Trade and Development, blamed the weakness of the Brazilian economy on the government's slowness in implementing cuts in the civil service and social security system, and in reducing the budget deficit.

The current Brazilian finance minister, Pedro Malan, tries to present a more optimistic picture, saying that Brazilian economy will avoid a crisis through the current sales of state enterprises. Writing in the Wall Street Journal August 8, Malan denied that the real could be a candidate for devaluation and gave reassurances of the government's commitment to continue structural and institutional reform.

The social security reforms both the current and former finance minister consider crucial include increasing the minimum retirement age and the number of years in which workers must contribute. They would also cut income and benefits for pensioners. Eighteen out of the 27 state governments have promised the federal government they will slash their budgets, and the public administration reform amendment currently under congressional consideration would eliminate most guaranteed tenure for civil servants, limit the amount of government revenues that could be used for wages and reduce other distortions in public sector administration, Malan bragged.

Over the last several years the government has carried out a massive program to sell state enterprises, including mines, gas companies, railroads, and phone companies, to the highest bidder. In May the world's largest iron ore mine, Companhia Vale do Rio Doce, was sold to a consortium led by Companhia Siderurgica Nacional, Brazil's largest steelmaker, for $3.1 billion. The sale met resistance in the form of protests outside the stock exchange and a lawsuit arguing the mine was sold for a pittance. The cellular telephones of the city of Sao Paulo went to the U.S. company BellSouth for $2.4 billion in August.

In many cases the new owners continue policies of the previous management that try to squeeze more labor out of the workforce. In 1957 when the Brazil's rail system was nationalized there were 150,000 employees. This number had been reduced to 45,000 by 1995, and another 20,000 workers were laid off in 1996. Now five of the six branches of the system have been placed under private management, and the employers aim to cut personnel down to 15,000.

A plan to sell off the container terminal at Santos, the biggest seaport in Latin America, has sparked resistance from workers. As part of the scheme, the port authority decided to fire 2,300 dock workers and force them to register as freelancers with a new federal agency that pays by the day. The workers announced they would strike starting September 9 in protest. They postponed their work stoppage at the last minute after a labor tribunal forced authorities to delay the job cuts.