by David Zenian
SAO PAULO - When he took office in March of 1990 at the age of forty, President Fernando Collor de Mello seemed like the ideal person to turn around Brazil's chaotic economy, suffering from the same malaise of hyperinflation, debt, bureaucratic waste and deficit spending that afflicted much of Latin America in the 1980s.
Instead, economists say, he has been a disappointment.
His ideas were fine: deregulate the economy, cut government spending, privatize the pervasive, money-losing state companies, and curb inflation.
Only Collor has not been able to carry them out, and Brazil is still suffering from runaway inflation, a phony exchange rate system that tolerates a "black market" dollar and an official dollar, and much of the same self defeating statism that the new president inherited when he took over.
Brazil's neighbors, Argentina, Peru and Bolivia, three nations that also suffered hyperinflation, have managed to put their houses in order and are on the road to achieving economic stability. Unfortunately, the largest nation in Latin America that has half the land mass of South America is sadly trailing behind its smaller neighbors when it comes to economic reform.
Inflation in Brazil was twenty-two percent in October and was expected to reach thirty percent by the end of November. In contrast, neighboring Latin American countries, Argentina, Uruguay, Bolivia, Columbia and Venezuela, had inflation rates less than five percent, a symbol of how the "big guy" of South America has become the "odd man out."
Now President Collor cannot blame the unacceptable rate of inflation on his predecessor, President Jose Sarney, as he could when he took office. For instance, in February of 1990, the month before Collor's inauguration, inflation reached seventy-three percent for that month alone, technically a hyperinflation rate. By a drastic shock plan, applied by the first of two Economic Ministers, Ms. Zelia Maria Cardoso, Collor managed to reduce inflation to 3.29 percent in April.
Now the Cardoso plan has become unglued. Brazil's first woman Economic Minister quit in May and Brazil is once more adrift.
The initial shock plan consisted of price controls, lowering tariffs for imports, and more importantly, the freezing of an estimated 18 billion in Brazilian checking and savings deposits.
To keep the nation's factories running, Collor and Cardoso allowed many exceptions to the freeze on bank accounts. Since the plan was not accompanied by permanent structural changes, such as reductions in official spending and restructuring of inefficient state companies, it failed. Brazil still has controls and a dual exchange rate, an official rate for the cruzeiro and a black market rate which is higher. Practices that are frowned upon by the International Monetary Fund and abandoned long ago by most of Brazil's neighbors in favor of a free market exchange rate and pricing system.
When he first took office, Collor had two strikes against him: lack of experience and a hostile Congress, where his National Reconstruction Party has little clout.
Collor's lack of experience can best be seen in his handling of Brazil's foreign debt, the Third World's largest at 122 billion dollars. Following the advice of Harvard economist Jeffrey Sachs, Peru, Bolivia and Argentina resisted making heavy payments on their Foreign debts until they could stabilize their economies and make a realistic payment plan with creditors.
The Collor economic plan, in contrast, has buckled under the routine arm twisting that is the usual collection effort of international banks. Brazil shelled out a billion dollars in debt payments in July 1990, ending a one-year non-declared moratorium, and has also made heavy debt payments in 1991. Since the economy has not been stabilized, these payments were self-defeating, fueling inflation and preparing the way for another inevitable default.
When he took office, Collor promised to privatize twenty state companies at the rate of one a month. By now he should have privatized nearly all of them. In fact, he did not even get started until October of this year and has only privatized a handful of firms.
Even if he wanted to, Collor could not privatize Brazil's largest state companies that control the petroleum and communications industries. These are protected by the Constitution, along with other large state enterprises.
To achieve stability, Brazil must conquer some of its own self-defeating mental attitudes. Brazilians tend to consider their nation as having been built on dreams and imagination. Going through the mundane paces of an IMF stability plan goes against the national character. Yet, as Brazil's neighbors continue to do the right thing, they may humiliate the larger nation to such a degree that it will also go along with the trend.
If Collor fails to turn Brazil around, he will not only leave behind a disabled economy in his own country, but he will also disrupt plans for a four nation South American common market by January 1995.
To make this common market, consisting of Brazil, Argentina, Paraguay and Uruguay, work the four countries agreed to have similar economic programs in place by the launching date. That is, none of the four countries are supposed to have an unfair trade advantage through massive devaluations, a policy that inevitably follows high inflation, such as the kind Brazil has now.
If Brazil cannot achieve stability by the end of 1994, the South American Common Market, in territory six times the size of the European Common Market, will have to be delayed.
