DEVELOPMENT-BRAZIL: Credits for Poor a Bid to Stimulate Economy

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Jul 16 2003 (IPS) - Credits for millions of poor and incentives for hiring young adults could lead the way to "less unequal" development in Brazil, though some experts say the economic benefits of these policies, announced recently by President Luiz Inácio Lula da Silva, would not be manifest in the short term.

The focus of the debate on macroeconomic matters, like exchange rates and Central Bank interest rates, has diverted attention away from initiatives for small business, peasant farmers, the informal work sector and youth, groups that "create social capital," Ladislau Dowbor, professor of economics at the Catholic University of Sao Paulo, told IPS.

President Lula faces harsh criticism from among his own ranks on the political left, as well as from the right, for having adopted economic policies that follow the policy line that his predecessor, Fernando Henrique Cardoso, and the International Monetary Fund agreed on.

The critics say the leader of the leftist Worker’s Party (PT) has even intensified some of the IMF-favoured policies, such as hiking the basic interest rate and cutting public spending.

The Lula administration is also promoting social security reforms that go deeper than anything proposed by social-democrat Cardoso, changes that would strip public employees of some of the benefits they have long enjoyed, such as retirement pensions kept at par with the salaries of their working colleagues.

That proposal in particular triggered the ire of the far-leftist sectors within the PT.

Members of the conservative opposition are taking Lula to task for what they call the "inconsistency" of carrying out policies he previously condemned. They say he used his criticism of those policies as a major point in his platform that won him the presidential campaign last year.

The result of the economic path was stagnation in the first half of this year – Lula’s first six months in office. Brazilian industry suffered recession and in May unemployment reached an unprecedented level of 12.8 percent of the economically active population.

The government had predicted a turnaround in that trend in July, saying "a spectacle of growth" would begin.

Treasury Minister Antonio Palocci, known for his more-moderate positions, said the Brazilian economy is preparing to enter a growth phase, with the Central Bank’s reduction of interest rates and inflation under control.

Meanwhile, says economist Dowbor, measures of a social nature are being implemented because the government aims to expand the "market of mass consumption", which in the long term could revitalise the national economy.

Brazil has the "advantage" of being home to "100 million under-consumers", whose inclusion – made possible by increasing their buying power – could foment domestic market growth, he adds.

The set of initiatives the Lula administration has announced over the past few weeks "gradually converge" on that goal, in addition to fighting the sharp social disparities prevalent in Brazil.

Some of the measures expand resources for microcredits and streamline access to bank accounts and financing, particularly in state institutions, with the objective of bringing 25 million people into contact with such services.

Private banks have been given incentives to offer microcredits at a two-percent interest rate, half of today’s going rate among the few banks and agencies that make this sort of loan – of up to 5,000 dollars – to small and medium businesses.

The government this year increased the total set aside for subsidised loans to family farming operations, now reaching 5.4 billion reais (around 1.9 billion dollars), 28.5 percent more than was distributed in 2002. There are an estimated 4.2 million family farms in Brazil.

Then there is the First Employment programme, which Lula announced Jun. 30, aiming to create 260,000 jobs for youths aged 16 to 24, and to benefit at least 600,000 with vocational training courses and assistance in setting up microbusinesses or cooperatives.

The two-year plan establishes special government assistance of 200 reais (some 70 dollars) for small businesses, as well as support for big employers that create jobs for people in that age group.

The justification for the project is its potential social benefits. Young adult males are the majority in the country’s prisons and they face unemployment rates twice the national average. Because they lack work experience, they find it very difficult to enter the labour market.

This subsidy costs society less than it would to continue with these young men on the streets or in prisoner, Lula said in announcing the initiative.

The Labour Ministry last month created the Secretariat of Economic Solidarity with a mandate to promote cooperatives, salvage companies in bankruptcy to be run by their workers, and set up barter markets.

But economists charge that none of this has real economic relevance.

"Microcredits are an instrument of social policy more than of economic policy," wrote economist Fernando Cardim, professor at the Federal University of Rio de Janeiro, in Folha de Sao Paulo newspaper recently.

The sources of income created by microcredits are negligible in the big picture of massive unemployment caused by the government’s recessive policies, like high interest rates and dramatic fiscal cutbacks, argued Cardim.

Paul Singer, Secretary of Economic Solidarity, disagrees. He asserts that providing small loans for the poor, "who really need them," stimulates the economy by increasing consumption, production and tax revenues.

Argentina, with its highly solidary economy, said Singer, was able to survive the December 2001 collapse thanks in part to the barter clubs that involve nearly seven million people in a country of 37 million.

Economist Dowbor points out that one cannot expect immediate results from the actions the Lula administration has announced, including the Zero Hunger programme that targets the extremely poor population.

The pace of public administration is very slow and "depends on the capacity of social organisation" to coordinate different government agencies and create new mechanisms, he said.