BOOM OR BUST IN BRAZIL

	April 27, 1999
	Foreign correspondent Charles Krause reports from Brazil on the country’s economic rebound.

JIM LEHRER: World financial leaders are in Washington today for a meeting of the International Monetary Fund and World Bank. They gathered amid signs the global economic crisis which began 18 months ago in Asia is coming to an end. But as Charles Krause reports from Brazil, the costs have been high. CHARLES KRAUSE: Sao Paulo is Brazil's economic powerhouse and ground zero for any assessment of the country's economic prospects. Sprawling, dynamic and tough, Sao Paulo long ago eclipsed Rio to become Brazil's financial and industrial capital. Today, this vast urban metropolis of 16 million people is Brazil's New York, Chicago and Detroit rolled into one, a showcase and a barometer of the country's economic health. With 160 million people, Brazil is already the world's eighth largest economy. It's a country with enormous potential that US corporations have come to view as key to their global strategy. It's also a country where they've invested tens of billions of dollars, much of it in recent years. (Shouting) Yet in January, almost overnight, Brazil's boom went bust when the global economic crisis hit the country full force. For weeks, there was near panic on the floor of the Options Exchange in Sao Paulo as Brazil's currency, the real, plummeted, losing nearly half its value. Foreign investment came to a standstill, and the many US corporations already in Brazil were suddenly at risk and extremely worried. At the US-Brazil Chamber of Commerce, President John Edwin Mein says it was not just US corporations, but also the US Government that was deeply concerned about Brazil's collapsing economy. JOHN EDWIN MEIN: It's not because Americans like Brazilians. It's because they do a lot of business in Brazil; because they have a lot of investment in Brazil; because they export a lot to Brazil; because a lot of American jobs depend on those exports. That's the reason Americans care. That's the reason the American government at the end of last year sent lots of representatives down here to show that they were interested in resolving the Brazilian crisis, not because they wanted to solve the problems for Brazil, but because it's good for the Americans. About a third of all foreign investment in Brazil, of the close to $100 billion of investment in Brazil, is American investment. CHARLES KRAUSE: In mid-February, we spoke with Francisco Gros, managing director in Brazil of Morgan, Stanley, Dean Witter. FRANCISCO GROS: It's affected our business seriously. Our business is essentially cross-border business. We raise money abroad for Brazilian corporations. We help our multinational clients invest in Brazil. At this point, markets have slowed down considerably. They've practically stopped. What we've done is to reaffirm our commitment to the country. We continue to visit our clients. We continue to seek mandates for the day when the crisis blows over and markets reopen. CHARLES KRAUSE: Since those dark days in January and February, the markets in Brazil have started to reopen, and indeed, as in Asia, a recovery may be underway. Over the past month, the Bovespa in Sao Paulo, Brazil's principal stock market, is up sharply, while the real has also recovered much of its value. Yet, financial markets do not necessarily measure the health of a country's overall economy; nor in Brazil's case do they repair the economic and political damage that's already been done. (Shouting in Portuguese) Since late last year, tens of thousands of Brazilian workers have lost their jobs, and there have been demonstrations and protests throughout the country. Much of the anger is directed at Brazil's government, but many Brazilians also blame the International Monetary Fund in Washington, because it was the IMF which insisted on high interest rates and cuts in government spending as a condition for a $41 billion rescue package for Brazil. After months of uncertainty, the tough austerity measures have helped restore investor confidence in the real and in the stock market, but they've also contributed to the growing unemployment and economic hardship. Minas Gerais, a state the size of Texas, has become the principal hotbed of anti- government and anti-IMF protests and activity, galvanized by the state's controversial governor, Itamar Franco. ITAMAR FRANCO: (speaking through interpreter) What we believe is that we Brazilians cannot accept the policies imposed by the IMF. If those policies are not changed, they will lead the country to further recession and more unemployment. Socially, they will affect the poorest sectors of the population. I hope we are wrong. I hope the IMF, when they impose their policies on Brazil and when the president of the republic agrees to them, that they are right. But the IMF, If you'll permit me to say so, has not been right in any of the other countries where they have been meddling, and I'm quite sure they won't be right in Brazil either. CHARLES KRAUSE: Since January, Franco has become a national figure in Brazil, refusing to repay his state's debts to the federal government and attacking the IMF at every opportunity. His critics say he's a demagogue and an old-fashioned populist who doesn't understand the way the new global economy works. But Franco has become a hero to many Brazilians, who have been affected by the budget cuts and high interest rates imposed by the IMF. At the height of the crisis, rates were so high, approaching 50 percent, that automobile showrooms were empty and manufacturers were forced to lay off thousands of workers. At the Ford plant near Sao Paulo, some 2,800 workers lost their jobs. Angry and fearful, for months they demonstrated outside the plant almost daily to protest the layoffs, which their unions blamed largely on the IMF. Vincente, one of Brazil's most respected and militant union leaders, accused the IMF of sacrificing Brazil's workers and the poor to stabilize the country's financial system and to prevent Brazil from defaulting on its international debts. VINCENTE PAULO DA SILVA, Federation of Labor Unions: (speaking through interpreter) There should be a policy to suspend this debt and renegotiate repayment terms with the IMF. IMF means for us "FIM," which in English mends end. It is not possible that our Brazil, with all this economic potential, be managed by a group of technocrats who don't know anything about our country. If my son were starving and I owed money to someone who already had lots of money, I would say "hold on, I need to solve my problem first." CHARLES KRAUSE: Luiz Xavier Da Silva was one of the Ford workers dismissed in December. And like many of the others, he told us that he'd rather have a job than continue to protest. LUIZ XAVIER DA SILVA: (speaking through interpreter) I will continue to fight for my job and I don't mind if I come back to Ford just sweeping the floor. I'm not choosy. I just want to have a job. CHARLES KRAUSE: Luiz Da Silva lives with his wife, Eliza, his seven-month-old son, Gustavo, and his mother in a home which he started building four years ago. Before he was fired, Da Silva says he was earning the equivalent of about $1,000 a month. By Brazilian standards, it was an excellent salary. And with the money, Da Silva could not only clothe and feed his family, he was also able to finish building the kitchen, a bathroom, and what was to have been the living room of his new home. But now he says his dream of finishing the second floor of his home is out of the question. Indeed, in a country without unemployment benefits or much of a social safety net, Da Silva told us that once he receives a final paycheck from Ford, he's not even sure how he'll manage to support his family. LUIZ XAVIER DA SILVA: (speaking through interpreter) My savings are zero. It was so little that I've already spent it. What am I going to do? It's a question that I ask myself every day. I go to bed worrying about it and I wake up worrying about it. CHARLES KRAUSE: We asked him if without a job he could afford to keep his home. Clearly, it was something he'd thought a lot about. LUIZ XAVIER DA SILVA: (speaking through interpreter) I will try to maintain this house because I fought for it my whole life. I will not leave here. They can cut off my lights, they can cut off my telephone, they can cut off my water, but they cannot cut off my dignity. I will live here and they cannot take this away from me, because this is mine. CHARLES KRAUSE: In addition to the high interest rates that have led to growing unemployment, the IMF has also recommended huge cuts in government spending, pensions, health care, education and other programs which benefit the middle class and the poor. At the Pope John XXIII Hospital in the city of Belo Horizonte, for example, the emergency room was already overcrowded and the doctors overworked even before the cutbacks took effect. Meanwhile, in Jardim Carumbe, one of the largest slums in Sao Paulo, there's growing hardship and tension as both small government subsidies and jobs have begun to disappear. Shopkeeper Manoel Vincente: MANOEL VINCENTE: (speaking through interpreter) My clients used to spend 50 reais and now they spend 20 reais, so I know that the crisis is very bad. I'm going to search for good deals, because I know that people here don't have salaries and can't afford to pay high prices. CHARLES KRAUSE: An American priest who lives and works in Jardim Carumbe, Father Daniel McLaughlin, told us that the situation was as bad last month as it was during an earlier economic crisis 17 years ago. FATHER DANIEL McLAUGHLIN: At that time, I had just arrived in Brazil-- I was here about a year-- and I do remember very clearly the breaking into supermarkets, neighborhood supermarkets to get food. And it was quite common then, quite common in '82, it happened in a number of places. It could happen again. CHARLES KRAUSE: It now appears that Brazil's recovery may come quickly enough to avoid the kind of rioting and violence that IMF austerity measures have led to in many other countries. But in Brazil, there's clearly growing resentment because the cutbacks demanded by the IMF appear to have fallen most heavily on the middle class and the poor. Meanwhile, political analyst Alex Barros says government bureaucrats and the wealthy appear to have been protected. ALEX BARROS: The problem is that already education is in shambles in Brazil, health, the public health system, is in shambles. And what people are saying is, why doesn't the government cut a little bit more in its own services, in its own waste, rather than going after the poor who are already being so sacrificed? CHARLES KRAUSE: Finance Minister Pedro Malan told us that in today's global economy, the government had no choice but to cut social programs and government spending with or without pressure from the IMF. PEDRO MALAN: Countries have to make their own minds about how they see their future and we don't have any -- I could assure you -- inferiority complex in terms of addressing and discussing and presenting our views to the fund, to the other institutions and to governments of the key countries. We do what we think is appropriate for Brazil, taking not a short-term perspective, but a medium, or longer term perspective as we have been doing for several years now. CHARLES KRAUSE: But opinion polls show that Brazil's government, like many of the governments in Asia, has lost much of its political support for following the IMF's prescriptions. In parks in Sao Paulo and elsewhere throughout the country, the growing anger and frustration is expressed in folk songs that speak of overcoming injustice and oppression. (Singing in Portuguese) There's also confusion and lingering bitterness. Many Brazilians wonder why they've been forced to pay such a high price to join a global economic system that's so far failed to produce what it promised: A higher standard of living and a better way of life.