[mgj-announce] Next MJG Meeting 8/14; + Brazil
rob at essential.org
Tue Aug 13 11:36:52 EDT 2002
46 DAYS TILL SEPTEMBER 28TH!!!!!
Next MGJ General Meeting,
Wednesday Aug 14,
St Stephens Church
16th and Newton NW
And for inspiration, see the New York Times story below.
New York Times
August 11, 2002
Brazilians Find a Political Cost for I.M.F. Help
By LARRY ROHTER
RIO DE JANEIRO, Aug. 10 Brazil and other Latin American
governments have followed Washington down the free-market path, only to
find they are now losing control over their economies.
The immediate consequences are most visible here in Brazil, which is in
the midst of an important national election. Brazil, Latin America's
largest country, has just engaged a $30 billion lifeline from the
International Monetary Fund, but one that imposes strict policies on the
next government. There is a strong chance that it will be a left-leaning
one that promises to improve the lives of the poor who were left behind
in the economic experimentation.
"Don't try to strangle us," President Fernando Henrique Cardoso, who
leaves office in January, told market speculators who have sent Brazil's
currency plummeting in recent weeks on fears of a government default. He
said the loan gave Brazil vital oxygen, and showed that the monetary
fund played an important role in developing economies.
But to some Brazilians, it is the fund that could do the strangling. The
bailout announced this week is described as the most far-reaching
package since the Clinton administration and the I.M.F. came to the
rescue of Mexico in 1995, a successful intervention that was paid out
almost all at once. But Brazil's comes with unusual strings, and it
thrusts the lending agency into the uncomfortable position of being in
the middle of Brazil's democratic decisions.
That is because $24 billion of the loan would be delivered next year
only if the new government met certain budgetary targets.
"This agreement is an extremely shrewd and subtle piece of political
engineering," said Gilberto Dupas, director of the international studies
program at the University of São Paulo. "No candidate is going to want
to be responsible for a brutal reversal of expectations" that would come
from not receiving financing from the fund.
After eight years of free-market orthodoxy that has produced only modest
growth, Brazil has a strong chance of turning in another direction. A
poll released Thursday shows the government's candidate slipping and two
leftist opposition candidates Luiz Inácio da Silva, known as Lula, of
the Workers' Party and Ciro Gomes of the Popular Socialist Party with
more than 30 percent each. They are possibly heading for a second-round
runoff in October.
With so large an amount of money at stake, both Mr. da Silva and Mr.
Gomes have reluctantly endorsed the loan deal.
The bailout was intended to stanch a sudden crisis of confidence,
manifested by a plummeting currency, investor flight and the prospect of
a new government defaulting on $250 billion in public debt.
Such fears have vastly increased the regional tumult that began with
Argentina's financial crisis late last year. The crisis propelled the
monetary fund to act, with the reluctant backing of the Bush
administration, which had earlier opposed new money for Latin American
In the extreme circumstances, the I.M.F. promised the $30 billion,
nearly twice the amount that market analysts had expected.
"This is going to contribute to reducing the financial panic that was
threatening to make the crisis worse," José Antonio Ocampo, director of
the United Nations' Economic Commission for Latin America, said of the
monetary fund's package. But he said the effects might be short- lived,
and the "consequences for economic growth are limited."
Brazil's new money is to be doled out over 15 months and requires
whatever government takes power on Jan. 1 to maintain a budget surplus
of 3.75 percent through 2005.
But both of the leading candidates are chafing at what they perceive as
an intrusion on Brazil's sovereignty and on their ability to fulfill
campaign promises. Guido Mantega, Mr. da Silva's chief economic adviser,
complained that the I.M.F. was trying to confine a Workers' Party
government "in a plaster cast."
"This limits the capacity for social investment we plan to make," Mr.
Mantega said. "If we reduce interest rates and the primary surplus is
maintained until 2005, the effort to reheat the economy will be in
The penalties for noncompliance are equally clear. Brazilians need only
look next door at Argentina, which has been bogged down for months in
futile negotiations to restore its line of credit with the fund.
"When it comes time for the rest of the money to be dispersed in Brazil,
because they have quarterly targets and reviews, the first time that
Lula misses they can tell him he's not getting any more money," said
Walter Molano, a market analyst with BCP Securities. "That's what they
did to Argentina last year, saying there would be no waiver, and they
will do the same to the next administration in Brazil."
As goes Brazil, so goes the rest of the continent. The slide of the
currency here, which lost nearly 20 percent of its value last month, was
reflected in similar dips in Colombia and Chile and helped fuel a
banking crisis in Uruguay. That was resolved only when the Bush
administration agreed to an emergency $1.5 billion bridge loan last
The standard advice of the fund to clients facing crises has been to
insist on increased austerity, arguing that fiscal discipline is a
necessary precondition to prosperity. But that translates into enormous
suffering for millions of people, strengthens the appeal of left-wing
critics of free-market economies and weakens governments that have made
the changes Washington is urging.
"It's easy at the top to say cut back on expenditures, but it is hard
when you are a politician and the unemployment rate is 18 percent," said
Joseph E. Stiglitz, winner of the Nobel Prize in Economics in 2001.
Latin America "is not like the United States where you have a social
safety net," he added. "Firing a worker has enormous economic and social
>From 1980 to 2000, per capita incomes in Latin America grew at only
one-tenth the rate of the previous two decades, when governments
followed more interventionist and protectionist policies.
In a report that came out early this month, the Economic Commission for
Latin America forecast no immediate improvement, saying that Latin
America's economy will actually contract nearly 1 percent this year,
largely because of the implosion of Argentina's economy.
Despite its reluctant approval of bailouts in Brazil and Uruguay this
month, the Bush administration continues to be baffled as to a long-term
solution to that problem.
Asked during a news conference in Argentina this week why Latin
Americans were increasingly rejecting the magic recipe of privatization,
lower tariffs and increased foreign investment, Treasury Secretary Paul
H. O'Neill replied, "I have no idea." When it was suggested to him that
such policies were not yielding the expected results, he said, "I don't
know of another plausible answer, do you?"
Mr. O'Neill appeared to offer free trade as the panacea for the region's
current difficulties, referring repeatedly to Mr. Bush's approval of
trade promotion legislation this week and the opportunities that offers.
But Latin American officials consider that formula as simplistic as many
of Mr. O'Neill's earlier declarations about the region.
"We're in so extreme a situation here right now that the banks won't
even give us export credits," even when the banks are not at risk, a
senior Argentine official said after Mr. O'Neill's departure.
"If all of our economies fall apart and have to rely on an I.M.F. life
support system to survive," he said, "there's not going to be anyone
around for you to trade with."
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