BRAZIL-FINANCE: Snags in Economic Plan Increase Tensions

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Nov 10 1994 (IPS) - Brazil’s economic stabilisation plan will face a period of storms and uncertainty towards the end of the year, judging from the tension in the air, both within and beyond the government of President Itamar Franco.

The economic plan, which sought to curb runaway inflation with the introduction of a new currency – the real – on Jul. 1, is in crisis, with rising inflation approaching three percent a month.

This close to the end of its term, the government is deemed unlikely to check the rising inflation with provocative or unpopular measures.

The team responsible for designing and carrying out the “Real Plan” worked under then-Finance Minister Fernando Henrique Cardoso, who was recently elected President on the strengh of the plan’s success.

Members of this team have retained their positions under Cardoso’s successors, Ambassador Rubens Ricupero and Ciro Gomes, and, according to the President-elect, will form part of the incoming government, to take power on Jan. 1.

Current Finance Minister Gomes is having problems with the economists now under his control, as well as the business community, which rejects his harsh criticism.

He denounced business leaders as “villains, scoundrels and thieves,” threatening to present his resignation just 50 days short of the end of Franco’s term.

In October, several inflation indices noted increases ranging from 1.8 to 3.5 percent above September levels, with similar rises expected in the last two months of the year.

Most analysts fear that continued inflation will lead to a generalised index-linking of the entire economy, a tendency already visible in several industrial and service sectors, as a result of workers’ strikes.

The Brazilian daily “The Mercantile Gazette” reported Thursday that the economic team had proposed a package that will lead the way to “total de-indexing” of the economy, based on an as yet undefined “strong influence from the government.”

Meanwhile, the real continues to appreciate, for a current exchange rate 17 percent above the anticipated one-to-one parity to the dollar.

The strength of the new currency will draw protests from the business community and cause serious problems in the coming year, according to former Central Bank President Ibrahim Eris.

Eris also pointed out that the Central Bank is already keeping interest rates high to forestall increased consumption at a delicate moment of great inflationary pressure.