BRAZIL-ECONOMY: Getting Richer Brings New Problems

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Sep 12 1996 (IPS) - There is no doubt that for Brazil’s poor, the economic stabilisation plan which was implemented two years ago, has meant a substantial increase in purchasing power.

But the new, relative, prosperity also brought with it problems that had not been there before. No longer is inflation the main motor of social inequality in Brazil, now it is the high interest rates which divide the haves from the have-nots.

Without money to buy things in cash, the poor are forced to pay high interest rates — often surpassing 10 percent a month — in order to purchase a television set or a refrigerator. If they pay for it over a year or more, the product could easily cost more than double the original price.

The government of President Fernando Henrique Cardoso has released recent statistics which reveal a notable improvement in income for the country’s poorest sectors as a result of the ‘Plan Real’, in place since July 1994.

Brazilians’ average monthly income went from 338 to 434 reales (practically the equivalent in dollars) between 1993 and 1995, after eight years of decline. The largest increase occurred among the poorest 10 percent of the population, where it went from 24 to 48 reales.

It has been “the greatest redistribution of income” in the country’s history, as Cardoso likes to say. He first implemented the Plan Real while he was Economics Minister, thus gaining the popularity which allowed him to be elected president in 1994.

Without the monthly inflation rate of 30 to 40 percent which Brazilians were used to before 1994, the poor are finally able to equip their homes with domestic appliances. In the last two years, there has been a sharp increase in the sales of refrigerators, TV sets, stoves and washing machines.

Even the poorest were able to equip their homes. In 1995, 81 percent of Brazilian households had television sets, compared to 75.8 in 1993, a difference of 3.6 million households. Many were able to exchange their old black-and-white sets for colour T.V.

But the surge in consumption occurred at the cost of a new form of inequality. The prices paid by the poor — who are forced to resort to credit — are far higher than those paid by the rich, who are able to pay for things in cash.

The interest rates charged by businesses climbed to almost 400 percent between August 1995 and July of this year, according to the National Association of Financial Executives, while inflation remained between 10 and 15 percent in that same period.

A few months ago, Josefa Gomes — a domestic employee who earns a little more than 200 dollars a month — bought a washing machine for 930 dollars in ten 93-dollar installments. If she had paid for it in cash, it would have cost her 660 dollars.

Gomes bought the machine for a friend who could not obtain credit. “I did it for her; but it is absurd, a rip-off. I would never buy anything under those conditions,” she says.

“People only see the monthly installment, not the full amount that they have to pay,” she adds.

Thus low-income consumers are attracted precisely by the longest payment plans, which also imply the highest interest rates.

Samuel Klein, a businessman who became rich in the last several decades with his Casas Bahia — one of the largest chains of consumer durables — acknowledges that credit sales have been the secret of his expansion.

“I buy at 100 and sell at 200,” he admits.

This year, his business — based in Sao Paulo — expanded with the purchase of three competitors, including Casa Garson of Rio de Janeiro, and he now controls a large segment of the national market in electric appliances and furniture, one which has had the largest growth in the past two years.

Ads for Casas Bahia — whose yearly income is estimated in 2.5 billion dollars — claim “the best purchasing conditions”. The alleged “great reduction in interest rates” corresponds in reality to 6 percent a month, or 101 percent annually.

Klein’s stores, for example, are selling a stove in 16 monthly installments of 33.9 dollars, a total of 542,40 dollars, 49 percent above the price if one were to purchase it in cash.

The high interest rates — which according to economic authorities are necessary for containing consumption and inflation — are gradually coming down. But they are still very high, even after 26 months of the stabilization plan, because the government has not been able to control the fiscal deficit, economists say.

Business owners complain that under those conditions it is difficult to compete with imported goods, financed in the long term at much lower rates, and with foreign capital which is acquiring many local businesses.