Brazil debt talks reach crisis
point
Brazil's Finance Minister Pedro Malan
Brazil made its latest bid to avert a growing economic
crisis on Tuesday when the country's finance minister
Pedro Malan met with three rebellious state governors.
Brazil is attempting to stop the states defaulting on
massive debts to the Federal Government, which could
scupper any chances of a speedy economic recovery.
However, the meeting failed to produce any firm
agreements on how the states plan to cope with the
financial turmoil the country now finds itself in.
"The meeting was not conclusive on any point," said
Anthony Garotinho, governor of Rio de Janeiro state.
The governors are now likely to push for a meeting with
President Fernando Henrique Cardoso to try and thrash
out a deal, although he has said in the past that he is
determined not to renegotiate the debts.
One proposal is for the state governments to be allowed
to tax Brazil's agricultural exports to raise revenues.
Brazil is the world's largest producer of coffee, orange
juice, and sugar, but the powerful agricultural interests
received a lucrative tax exemption in 1996.
Nervous markets
The lack of any real progress
is unlikely to calm nervous
world financial markets, and
could lead to a further slump
in the value of the country's
currency, the real. That, in
turn, could fuel inflation.
The Brazilian currency
suffered steep falls of more
than 4% on Monday,
although is held firm on
Tuesday to close at 1.92 to
the US dollar.
It was the declaration of a moratorium on its debt
repayment by the Brazilian state Minas Gerais that
precipitated the devaluation.
Struggle over IMF reforms
The new plunge increases the pressure on President
Fernando Henrique Cardoso in his uphill struggle to push
through controversial economic reforms designed to pull
the country out of one of the most serious economic
crises it has ever faced.
The President pledged he
would keep to his tough
stance on inflation and the
budget in order to defend the
currency, now down 37%
since January, from a flight of
capital.
Meanwhile the president's
popularity rating has hit a
new low as everyone from
church leaders to politicians
have voiced their concerns
about the Brazilian
Government's proposals.
Brazil is attempting to slash its national budget in order
to receive the next payment in a $41bn financial rescue
package from the International Monetary Fund.
The IMF wants Brazil to tighten its belt by cutting public
spending to overcome the problems caused by the rapid
devaluation of its currency, the real.
However as Brazil's Carnival season approaches, the
prospect of cuts in public spending or higher taxes has
not left the nation in a carnival mood.
The crisis is already hitting jobs and output, with
employment in the industrial sector shrinking by nearly
6% in 1998, while output was down 2%, the worst since
1992. The high interest rates used to defend the
currency - now 39% - could deepen the recession and
increase the cost of the public debt.
IMF deal in doubt
Under the terms of the IMF agreement, yet to be ratified,
Brazil would receive an additional tranche of $9bn (£6bn)
in return for making further budget cuts and pledging to
keep inflation in single figures.
But politicians warned they would not support further tax
increases, after the politically painful round of tax
measures just passed by the Congress.
"The executive government has to start sending signals
on spending cuts before we will support new tax
increases," said Odelmo Leao, a political ally of
President Cardoso.
The government admitted it had no plans yet for
spending cuts, but called on a spirit of unity and
sacrifice.
"There is still no decision on how the new division of
sacrifices will be, but the moment demands sacrifices by
all," said budget ministry executive secretary Martus
Tavares.
Meanwhile, Brazil's influential Catholic bishops accused
the government of "total submission" to the IMF and said
the deal had not been adequately discussed by the
Congress or the people.
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