ECONOMY-BRAZIL: Hopes High for New Year

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Jan 7 2000 (IPS) - The new year has brought hopes and expectations of a new cycle of economic growth for Brazil, after two “lost” decades, according to analysts.

The Sao Paulo stock exchange, Latin America’s largest, rose 24 percent in December and 152 percent in 1999 as a whole. The news of a 155 million dollar trade surplus in December fuelled hopes that things would begin looking up, as did the rise of the real to 1.8 against the dollar, from 1.9 in the previous months.

This year’s budget and the targets agreed with the International Monetary Fund (IMF) are based on four percent economic growth, compared to last year’s 0.5 percent. But while there is agreement that improvement will be seen, most observers expect a slightly lower level of growth.

The Federal Council of Economists predicts a 3.3 percent increase. After two years of decline, industry, with four percent growth, is expected to head the recovery.

The president of the National Confederation of Industry, parliamentary Deputy Carlos Eduardo Moreira Ferreira, forecasts three percent growth in Gross Domestic Product (GDP), although he is confident that industry will grow more than four percent.

The new year has begun with less uncertainty, permitting a clearer forecast of what will happen to the economy, says Moreira Ferreira. The situation contrasts sharply with the start of 1999, when Brazil was suffering the impact of the international financial crisis, and the local currency, the real, was under threat of devaluation, which took place Jan 13.

The Central Bank projects 3.4 percent GDP growth if the basic interest rate remains at the current level of 19 percent. A reduction to 16.05 percent would be necessary in order to reach the four percent growth forecast by the government, according to the Bank.

Whatever the case, a decade of economic recovery is expected by all, with average annual growth of four percent.

However, that level of growth will be insufficient to cut unemployment, warn economists, who believe at least six percent growth would be needed to absorb the army of unemployed and the 1.5 million young adults entering the job market every year in Brazil, a country of around 161 million.

This year’s unemployment rate will be the same as last year’s, 7.5 percent, according to Antonio Correa de Lacerda, president of the Federal Council of Economists.

And even if GDP grows four percent, the number of unemployed will increase from 7.7 to eight million, says Marcio Pochmann, a researcher specialising in the economy of labour at the University of Campinas, 100 kms from Sao Paulo.

The current economic model does not favour the generation of employment, says Pochmann, who estimates the number of jobs lost in industry in the 1990s at 1.2 million, due to the rise in imports, and the number of jobs lost as a consequence of the downsizing of the state at 700,000.

Furthermore, six percent growth is needed in Latin America in order to fight poverty and social inequity, according to the president of the Inter-American Development Bank (IDB), Enrique Iglesias.

But that goal will not be easy to achieve over the next few years, because Brazil must maintain tight monetary and fiscal policies in order to comply with its agreements with the IMF and keep the flow of foreign capital coming.

Inflation, which rose again last year to around nine percent, is standing in the way of a reduction in interest rates. In addition, the public debt grew fast in 1999, and the external deficit remains a problem, even though it diminished by more than 30 percent last year.

The 50 percent devaluation of the real over the course of the last year failed to generate the hoped-for rise in exports, which on the contrary fell by around eight percent.

Brazil ended 1999 with a trade deficit of 1.29 billion dollars, despite December’s 155 million dollar trade surplus. After the Jan 13 devaluation, the government and IMF had predicted an 11.8 billion dollar trade surplus.

This year, the Exporters Association forecasts a 2.3 billion dollar surplus, in contrast with the 5.0 billion projected by the government.