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Brazil's Big Dreams Turn to Nightmares As Recession Looms

March 16, 1987|WILLIAM R. LONG | Times Staff Writer

RIO DE JANEIRO — Brazil is a robust nation of buoyant spirits and big dreams--but it has its glum moments. And one of those moments is now.

An urgent problem is money. Strapped for hard currency, Brazil halted interest payments last month on its huge debt to foreign banks. The moratorium jolted the international financial community and the Brazilian public. It was painfully clear that the biggest debtor nation in the Third World was in crisis.

But the foreign debt is only part of Brazil's economic problem. Since the beginning of the year, inflation has exploded, reaching double-digit monthly rates. Fears of recession are growing.

Consumers, businessmen, farmers and workers are perplexed and angry. In the midst of the storm, the lightning rod is President Jose Sarney, 56.

A civilian who took power after two decades of military government, Sarney completed two years in office Sunday. Instead of getting credit for leading the country on a proud march to democracy, he is being widely blamed for the overshadowing economic crisis.

Critics are accusing him of political opportunism, economic ignorance and gross mismanagement. A crowd booed him when he appeared in public recently.

Many economists say Brazil will have to tighten its belt and make difficult sacrifices to put its economic house in order. But government officials, including Sarney, warn that too much austerity could provoke a popular upheaval with unpredictable consequences for democratic development.

The predicament is common to several emerging democracies in Latin America, but its international effect looms larger in Brazil.

Brazil's population, estimated at 135 million, is more than twice that of any European democracy, and its economy is the eighth-largest in the Western world. Brazil owes nearly one-third of the combined foreign debt of all Latin American countries.

Loans from private banks account for about $70 billion of Brazil's $109-billion debt. The rest is owed to governments and international lending organizations.

Brazilian officials and foreign bank representatives are about to start negotiations over rescheduled payments and lower interest rates, and Sarney has said that the talks will determine how long interest payments remain suspended. His finance officials will also want additional billions of dollars in loans. Creditors, however, want guarantees that Brazil will straighten out its own finances. That means austerity and probably a recession, economic analysts say.

Some say a recession already is beginning. High interest rates and inflation, coupled with a lack of confidence in the government's economic management, is discouraging business investment.

Consumption is declining. Waldir Nunes, who owns a small clothing store in a Rio de Janeiro slum neighborhood called Jacarezinho, said that inflation has cut his sales sharply in the past two months.

"With the merchandise going up every day--that galloping inflation--sales fall," Nunes, 39, said.

Abilio de Medeiros, a friend of Nunes, said inflation is rapidly reducing living standards. "In my family, there has been a very big regression," Medeiros, a 32-year-old schoolteacher, said. "If this lasts long, there could be a social convulsion."

Waves of strikes, merchant protests and farmer demonstrations are sweeping the country. Striking merchant seamen stalled shipping last week, and the army occupied oil refineries to keep workers from shutting them down.

Gen. Octavio Medeiros, director of personnel for the army, was recently quoted in a major newspaper as saying that the government lacks a "firm hand" of authority. Asked for his opinion on the transition to democratic rule in Brazil, Medeiros replied: "I don't know if there is a transition."

No one, however, is predicting a coup by the armed forces.

"I think they (military leaders) realize there is no way the nation would accept a resumption of military rule," banker Pedro Leitao da Cunha said.

A foreign political analyst said the economic crisis further discourages any thoughts of an army takeover. "They certainly wouldn't like to have this hot potato now," the analyst said.

The military overthrew Brazil's last elected government in 1964 and held power until 1985. Recessions in 1981 and 1983 helped to drive out the generals.

A leading figure in the political party that backed the military government was Sarney, then a senator. When the generals decided to relinquish power to civilians, Sarney switched to the opposition Brazilian Democratic Movement and was named as a compromise candidate for vice president.

The Democratic Movement's presidential candidate was Tancredo Neves. He won the vote of an electoral college but was on his deathbed by inauguration time. Sarney took his place.

When he was sworn in as president on March 15, 1985, Sarney was not popular. A year later, his popularity skyrocketed, thanks to an economic program called the Cruzado Plan.

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