ECONOMY-BRAZIL: Cardoso Seeks to Stem Loss of Confidence

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, May 27 1998 (IPS) - Funds for fighting famine in impoverished northeastern Brazil and further economic reforms are President Fernando Henrique Cardoso’s recipe for stemming the loss of confidence in the economy and bolstering his chances for reelection.

Political analysts point to the president’s waning popularity, as indicated by the latest opinion polls, as one of the main factors in the recent decline of stock markets, along with the fiscal deficit, and instability in Russia and Asia.

So far this month, the Sao Paulo and Rio de Janeiro stock markets accumulated losses of over 19 percent, and financial observers say there is little outlook for improvement.

The market is betting on new rises in interest rates, in the face of the aggravation of the fiscal deficit, and thus rejected public bonds offered by the Central Bank Tuesday in an attempt to extend their deadlines.

Francisco Lopes, on the Central Bank’s board of directors, admitted that the pessimism was a consequence of the deterioration of Brazil’s public accounts. The reduction of the prime interest rate to 21.75 percent over the last week was overly optimistic for the market, he added.

Brazil is not like Indonesia and Russia, Cardoso told local and foreign reporters Wednesday in his first press conference this year. His last news conference was held after the Asian crisis took a turn for the worse in October.

“Look what happened in Indonesia,” the president said, justifying the measures adopted by his government seven months ago, such as a twofold rise in interest rates, designed to keep the Brazilian economy from catching the Asian “flu.”

Thanks to those unpopular measures, which entailed “political costs,” Brazil has remained safe from the crisis which continues to rage in Indonesia and Russia, he underlined.

Interest rates, which rose from 20.7 to 43.5 percent in November (the Central Bank prime rate) caused the 1.1 percent fall in Gross Domestic Product seen in the first quarter of the year. The official unemployment rate rose from 4.84 percent in December to 8.18 percent in March.

A cash-strapped population, and the resultant insolvency of business concerns due to purchases in installments, has reached unprecedented levels, pushing a number of companies previously considered solid to the brink of bankruptcy.

Cardoso admitted the gravity of Brazil’s public deficit, “dramatically generated by social security and interests,” which he said were high precisely due to the fiscal troubles.

To fight that situation he said structural reforms, of the tax sector for example, would be extended, but he ruled out new emergency fiscal measures.

The Oct. 4 elections, which could go to a second round Nov. 15, have made unpopular moves virtually impossible, another factor leading to a loss of confidence in the market.

But the main item on Cardoso’s agenda Wednesday was the announcement of a programme of assistance for the northeast, where 10 million people are facing starvation due to a prolonged drought blamed largely on the El Nino weather phenomenon. The government’s image has taken a bashing due to its delay in providing assistance to the area, Brazil’s poorest region.

Resources for the creation of temporary “work fronts” for one million people and for literacy and professional training courses will be disbursed to the region starting Jun. 1, said Cardoso.

The central government will also open a close to 400 million dollar credit line for small companies and micro-enterprises in the region, in an effort to stimulate the generation of jobs.

The president had harsh words for those he said were seeking to use the drought and famine to obtain electoral pay-offs. He called the Landless Movement (MST) “raiders” for inciting the ransacking of trucks and looting of food warehouses in the northeast and invasions of banks in the south.

He denied press reports that the army would be called out to prevent looting. Public order is the mission of provincial governments and police, and the armed forces would be resorted to only “as a last resort,” he added.

Nevertheless, the looting is “upsetting and destabilising the country,” he argued to demand stepped-up law enforcement efforts by authorities in the provinces.