Financial Crisis in Brazil

The crippling devaluation of the Real- from U$1=R$1.2 to U$1=1.91 in less than 2 weeks - plus the hard currencies reserves meldown in Brazil, is having its future effects evaluated here in Brazil. The chief Brazilian bourgeois newspaper, _O Globo_ (owned by the press moghul Roberto Marinho, "The Brazilian Citzen Kane") last Sunday, offered some insight on the issue, which I translate on the fly:

DEVALUATION TO AGGRAVATE INCOME CONCENTRATION

(*O Globo, 31st january 1999)

The earthquake that is hitting the Brazilian economy since the 1st days of the year will *reduce to pieces* [*destroçar*- my emphasis] a part of the population that has never even touched a dollar bill. The traumatic devaluation of the national currency and the inflation [generated by heavy dependency on imported inputs-CR] that tends to attain 10% in yearly rates, will sharpen one of the country sores:income concentration. With a forecast of a fall in GDP, the yearly per-capita income - which had in 1997 attained its all-time high of U$ 5,000- will recede almost U$ 1,000 and return to the levels *of the 1st. year of the Real plan*" [that's to say 1994; emphasis mine]"

An adjoining graph gives values: At the begining of the 80s, p/c income had attained U$ 2,189; with the early 80s recession, it immediately fell to 1,496, recovering to 3,081 in 1991, with the period of fiscal laxness and public spending during the Sarney government (which brought, as a side effect, hyperinflation).Financial adjustment during the Collor government (including freezing of financial assets) made it fall to U$ 2,506 in 1992.World economic recovery, plus the R$ scheme, led to a recovery- mediocre, but steady- to the said 1997 5,037, and to the forecast of a fall to 4,054 in 1999".

In other words, without just one shot, in terms of average living standards, it is as if the last 4 years didn't exist- something one could think possible only in textbooks about "War Communism" (specially in accusatory accounts by R.Pipes et al). But average is just that, average. Since a compression of the mass of wages is going to happen-the Ford plant in Sao Paulo has just laid off 255 of its entire workforce- and financial gains are to increase in returns over capital investment (the rate offered by public bonds being the 3rd highest world wide) we have the following considerations:

"The wealthiest 10% of the population have *now* no less than one half of national wealth [says the head of the Economic Dept. of the Rio Catholic University]

"- 20% of Brazilian workers earn monthly less than the minimum wage[of roughly U$ 120 *before the devaluation].A country so big cannot have so high poverty levels, compared with the p/c income. And that will worsen"

Well, what is this? Some Trot leaflet interviewing Cde. X? No, it's the greatest bourgeois newspaper interviewing the head of the Economics Dept. of the university where most of the government financial experts had their upbringing and where they teach. I partake this trans. because the whole thing is shocking to read. Well, more shocking to witness 1st. hand and to experiment.

Carlos Rebello


Since after a previous stall the late Tuesday the U$ has continued to rise yesterday and today, previous hints I had received from generally well-informed people that Arminio Fraga's nomination as head of the Central Bank was to be only the beginning of a grand scheme of harnessing the fate of Brazil's economy to the financial health of Soros's fund, and also to the financial health of American pension funds, that, supposedly, being only part the said grand scheme of future dollarization and fast entry of Brazil into the FTAA - must now be taken with a grain of salt- at least for the time being. It does not appear that Fraga (who is, after all, a private person who has spent something between the last 5 to 10 years of his life in NYC- and he is only 41) has any preconceived scheme, and his nomination seems to be-at least, I repeat, for the time being- only a dramatic gesture in order to calm down speculators. In fact, the lethargy of the Cardoso government - and, above all, of Cardoso himself- reminds one very much of the behaviour of both Nicholas the 2nd. and Louis the XVIth at the eve of revolution- a point dwelt upon by Trotsky in the History of the Russian Revolution - "before a scratch, each one behaves differently; before a white-hot iron, all do the same"

Carlos Rebello


NY Times, February 8, 1999

For Argentina, an Economic Trickle Down From Brazil

By CLIFFORD KRAUSS

CONCEPCION DEL URUGUAY, Argentina -- The main north-south highway running through Entre Rios, this languid, marshy province of gauchos and cattle, is still clogged with trucks carrying Brazilian, Paraguayan and Uruguayan license plates. Workers continue widening the roads and improving bridges, suggesting a limitless future tied to expanding international commerce.

But dark clouds are looming ever larger just to the north, over Brazil's economy, the main engine of the region's trade union, known as Mercosur, which means so much to the 1.1 million people who live in Entre Rios.


Very important post, I think. In fact, the fact that part of the industrial kernel left by import-substitution policies in Brazil and Argentina could survive the crazed drive for deregulated free trade that tore much of the industrial guts of both countries open is due to the existence of MERCOSUR, that allowed , viz., Brazilian and Argentinian motor-car plants -which are, of course,100% multinational- to integrate themselves profitable and, by so doing, to preserve opportunities to relevant trade union job-defense activity- very reformist and defensive in character, but better than, for instance, the havoc that must be suffered by trade-unionism in countries like Spain and Portugal where the EU has simply eviscerated entire sectors of industrial activity. It must be said that, for the time being, the Mercosur is only forum where the Brazilian and Argentinian working classes can practice some international activity (close contact between union centrals, situation conferences, proposals for an unified social rights charter for member countries of Mercosur, etc.) that can make sense in the short run and can interest the common Brazilian or Argentinian worker. For marxists that would like a more internationalist mind frame, it must be kept in mind that the masses do not learn through books, but through their concrete activity, and that is in itself reason enough for supporting the Mercosur as compared to a FTAA that would wipe entire parts of LA economies, at the same time in such a way that would meke the LA working classes behold such a catasthrophe like an hurricane or a volcanic eruption.

And, by the way, Mercosur comprises not only Brazil and Argentina, but also Paraguay and Uruguay, and is supposed to include, in the near future, Bolivia - where a working class proud of its activist traditions (COB) and of its ideological commitments was reduced almost to political non-existence by the trimming of the once mighty mining economy and neoliberal policies from 1985 on (I've read little about this very tragedy here in Brazil).

Carlos Rebello


Carlos Rebello: In fact, the fact that part of the industrial kernel left by import-substitution policies in Brazil and Argentina could survive the crazed drive for deregulated free trade that tore much of the industrial guts of both countries open is due to the existence of MERCOSUR, that allowed [...] to preserve opportunities to relevant trade union job-defense activity- very reformist and defensive in character, but better than, for instance, the havoc that must be suffered by trade-unionism in countries like Spain and Portugal where the EU has simply eviscerated entire sectors of industrial activity.

Not exactly the same case on this side of the border, but in general I cannot but strongly say:

Yes! In fact, there is all but declared war on Mercosur by the USA, who struggles to impose their own version of Pan-American economic union. There is a very meaningful fact, that I can add. After the Brazilian devaluation, it was not the Argentine industrialists, not even people at the Argentine Secretary for Industry, who proposed to raise high tariffs against the cheaper imports from Brazil, but Miguel Kiguel, a guy who works on the financial sector and is directly interested in supporting American policies towards the Mercosur. Kiguel has proposed this policy (when he did not open up his mouth after the S.E. Asian devaluations) because it is the policy of the pro-US sepoys to burst the Mercosur to smithereens (and the Mercosur itself is nothing else than an imperfect customs union)!

Carlos: It must be said that, for the time being, the Mercosur is only forum where the Brazilian and Argentinian working classes can practice some international activity (close contect between union centrals, situation conferences, proposals for an unified social rights charter for member countries of Mercosur, etc.) that can make sense in the short run and can interest the common Brazilian or Argentinian worker.

This is a very important dimension of the Asuncion Agreements. Though officially neither the Argentine nor the Brazilian governments have fostered enforcement of these provisos, the Mercosur treaties do have sections that point directly to fostering the relationships between the four (Paraguay and Uruguay too, Carlos, we are always forgetting them!) countries, including for example wide cultural operations.

Carlos: For marxists that would like a more internationalist mind frame, it must be kept in mind that the masses do not learn through books, but through their concrete activity, and that is in itself reason enough for supporting the Mercosur as compared to a FTAA that would wipe entire parts of LA economies, at the same time in such a way that would meke the LA working classes behold such a catasthrophe like an hurricane or a volcanic eruption.

Truth is always concrete. Very good, Carlos, very good indeed!

Carlos: And, by the way, Mercosur comprises not only Brazil and Argentina, but also Paraguay and Uruguay, and is supposed to include, in the near future, Bolivia - where a working class proud of its activist traditions (COB) and of its ideological commitments was reduced almost to political non-existence by the trimmimg of the once mighthy mining economy and neoliberal policies from 1985 on (I've read little about this very tragedy here in Brazil).

Oh, I see you did not forget our brothers either. As to Bolivia, I will try to send some info one of these days.

Nestor