The honeymoon is over

By Mario Osava, IPS, 12 November 1997

RIO DE JANEIRO, Nov 12 (IPS) - The 51 fiscal measures announced by the Brazilian government this week in the wake of the financial turmoil in Asia brought a sharp drop in support for the government's economic policy, and gave rise to uncertainty over the future.

The new structural adjustment package, which seeks to save the government some 18 billion dollars through cuts in public spending and increased revenues, was criticised by 53 percent of those surveyed by a local Sao Paulo newspaper, which reported the results of its opinion poll Wednesday.

For the first time, support for the 'Plan Real' - the economic stabilisation programme which has tamed hyperinflation since it went into effect in July 1994 - has dropped below 50 percent, according to the daily 'Folha de Sao Paulo'.

Popular support for the plan currently stands at 47 percent, down from 55 percent in late October and 66 percent in June. Those surveyed said their greatest worries were a rise in unemployment and inflation.

And according to a telephone survey conducted by the Vox Populi Institute, one third of the middle class Brazilians interviewed - who mainly reacted to hikes in fuel prices and taxes - said they had lost confidence in the government due to the adjustment measures.

The inevitable economic slowdown and resultant unemployment and discontent among many sectors of the population will jeopardise President Fernando Henrique Cardoso's aspirations to re-election in October 1998.

Cardoso conceded that the measures were tough, but warned that he would not hesitate in taking further steps to defend the stability of the national currency - the Real - even at the expense of his popularity. What matters is the country, he stressed.

A dose of optimism came from Argentine President Carlos Menem, whose visit to Brazil this Monday and Tuesday coincided with the misgivings triggered by his host's decisions.

Menem pointed out that in 1995 he had to take equally unpopular measures in the wake of the Mexican 'tequila crisis', but that his decisions did not impede his re-election. He predicted that the same thing would happen with Cardoso in Brazil.

Among Brazil's trade unions, the conviction that economic recession will occur and unemployment will rise has translated into threats of protests and strikes, mainly by public employees.

Besides the dismissal of 33,000 people on the central government's payroll who were not covered by the constitutional guarantee of job security for public employees, the governor of the state of Rio de Janeiro, Marcello Alencar, announced that he would sack 10,000 state employees.

And the wave of dismissals could continue to grow, because the fiscal package announced Monday stipulates cutbacks in expenditures by state administrations, most of which are heavily indebted.

The private sector also projects a major contraction of demand and economic activity, and, in consequence, a loss of jobs.

The industrial sector of Sao Paulo, the country's most developed and populous state, calculates that some 30,000 workers will be laid off by the end of the year. Close to 78,000 industrial workers already lost their jobs from January to October.

Industry and trade will both suffer the consequences of the new measures, after having been hit hard by the Central Bank's increase in interest rates implemented two weeks ago as a first measure to stem the capital flight unleashed by the crisis shaking stock markets in Asia.

The Rio de Janeiro Commercial Association, which had already predicted a 10 percent drop in Christmas sales with respect to last year, now fears a 20 percent contraction in business, with the accompanying fall in temporary jobs offered during the busy holiday season.

Groups in parliament, meanwhile, have been putting up resistance to some of the 23 measures that must be approved by Congress. Key legislators say the 10 percent increase in income taxes, for example, will not make it through.

A majority of the deputies and senators are also aiming at re- election in October, and are unwilling to vote in favour of unpopular measures. Economic authorities and leaders in parliament are looking for an alternative source for obtaining the 1.1 billion dollars that were to come from income tax hikes.

Although the governing coalition enjoys a comfortable majority in Congress, many legislators fail to toe the line when it comes to sensitive issues that could result in a loss of votes. After two years of efforts, the government has been unable to muster the necessary support for tax, public administration and social security reforms considered essential for ensuring on-going economic stability.