Brazil ‘Bailout’ Means Austerity For Workers, Peasants

By Hilda Cuzco, The Militant, Vol.62 no.22, 7 December 1998

Weeks after his reelection as president of Brazil, Fernando Henrique Cardoso announced an agreement with the International Monetary Fund (IMF) for a $41.5 billion rescue loan package. As a condition, Cardoso vowed to carry out social spending cuts that will affect most of the country's 165 million people. The severe austerity measures include cuts to social programs, the social security system, and tax increases affecting millions of workers.

In Washington, IMF Managing Director Michel Camdessus lauded the Brazilian government for a step he claimed would assure the economic stability of the country. Brazil has the largest economy in Latin America. U.S. president William Clinton also praised it as a solid program to tackle its fiscal problems that he [Cardoso] has committed to implement swiftly.

The declared purpose of the new loans and loan guarantees is so the Brazilian government can continue making debt payments to Wall Street and other imperialist creditors. It is similar to earlier imperialist bailouts - in Mexico in 1995 and in Indonesia, Thailand, south Korea, and other countries in Asia last year - except that it comes prior to a complete financial collapse in Brazil. Those so-called rescue packages have in fact deepened the debt slavery of the semicolonial countries and accelerated the sell-off of banks, industries, and other resources to the imperialists.

Part of world deflationary crisis

Until recently, Brazil was one of a handful of countries in Latin America and Asia pointed to by boosters of the so-called free-market system as a model proof that capitalism could bring economic growth, national development, better education, and expanding democracy to the Third World. But the growing worldwide deflationary crisis is exposing this myth, from the collapse of the so-called Asian tigers to the growing social catastrophe in Africa and Latin America - and Brazil is no exception.

The Brazilian government announced November 18 that the economy contracted 1.5 percent in the third quarter of 1998, and there's no sign of the trend being reversed. Industrial production has slowed, particularly in the automobile sector. Sales dropped almost 20 percent in the second quarter, and are down 40 percent compared to last year. Auto accounts for 12 percent of Brazil's gross domestic product.

Between 1992 and 1997, auto sales in Brazil increased from 740,000 to 1.64 million car units. Before the financial turmoil in Asia began directly affecting markets in Brazil at end of last year, predicted sales for 1998 were 1.8 million. To avert a currency devaluation last year, the Brazilian government doubled short-term interest rates to 43 percent and raised excise taxes on industrial production, including automobiles. The number of sales on credit - more than two-thirds of auto sales - plummeted 30 percent. Last July and August the excise tax was lowered 5 percent and short term interest fell to about 22 percent, but consumer interest rates skyrocketed to 150 percent. The inventory of unsold cars in factory yards and in dealerships has doubled to 200,000 in recent months.

Meanwhile, 1,300 auto workers were laid off in September and October and another 2,500 are expected to lose their jobs by year's end.

Unemployment now officially stands at 19 percent in Sao Paulo, Brazil's largest city, and 8 percent nationally, with higher figures expected. We're probably going to have record levels of unemployment in the first half of next year, said Mai'lson da No'grega, a former minister of finance.

Pressured by bosses' demands, some unions have agreed on concession contracts, such as collective vacations or temporary layoffs. Other companies have floated the idea of payment in products instead of cash for the 13th month of wages workers receive at the end of the year. Since workers get paid monthly, which covers four weeks, the 13th month salary constitutes compensation for the extra days each month and is a legally mandated payment.

Nilton Silveira, 43, a glove factory worker whose monthly pay totals $300, told the New York Times, It doesn't do us any good to receive products. At Silveira's work place, which produces industrial gloves for metal workers, business has dropped 40 percent and only five of 11 workers remain employed.

Cardoso: tax pensions, limit retirement

The austerity measures Cardoso has pledged will exacerbate the situation facing millions of toilers. Many of the measures, such as cutting pension payments, are steps he has been pushing since his inauguration four years ago but has been unable to push through so far for fear of workers' reaction.

The current scheme includes collecting an additional $2.2 billion in social security taxes from public employees and imposing new taxes on retired government workers of between 11 and 20 percent of their income. Pensions for private-sector workers are to be based on the number of years contributing to the social security plan, rather than on years worked, and for government workers there would be a minimum retirement age for the first time. Nilton Tambara, a 54-year-old retired metalworker, told the New York Times he began working at 11 and contributed to the social security system 33 years of the 41 he had worked before he could collect his pension. The categories that the government talks about - the rich, the middle class, and the poor - don't exist. It's just the rich and the miserable, he said.

The plan outlines cutting 30,000 nonpermanent government jobs and not filling 15,000 openings. It also includes doubling the charge for check transactions and impounding 40 percent of local, state, and municipal taxes for the national government until 2006. Vicente Paulo da Silva, leader of the Central Labor Union, said these measures would deepen the country's crisis. He announced protests through December 10 as Congress debates the austerity proposals in the social security system.

The imperialist banks and other financial institutions participating in the $41.5 billion bailout plan to collect loan-shark rates for the supposed aid. Some $14.5 billion in loans from 20 governments or central banks - including $5 billion from the U.S. Treasury - must be paid back in six months of when the funds are accepted, at interest rates 4 percent over U.S. Treasury bill rates. Half of an $18 billion IMF loan must be repaid in a year and the rest six months later, at rates starting 3 percent above what the IMF usually charges. The InterAmerican Development Bank and World Bank, which have put up a loan of $9 billion, also demand a 4 percent premium over normal rates. Meanwhile more than $250 billion in debts come due in a few months; as of June $25.6 billion loan to U.S. banks remain outstanding.

Sell-off of national patrimony

Cardoso also hopes to push through the sell-off of a number of state-owned industries to foreign capitalists. Attempts to do this have run into resistance over the last several years, however, including major strikes by oil workers in 1995.

Cedae, the state water company in Rio de Janeiro, is slated to be sold for about $4 billion. Two French bidders, Suez Lyonnaise des Eaux and Vivendi, had announced bids for the enterprise in September under the Social Democratic state government. The deal is on hold now because the new governor- elect, from the Democratic Labor Party, says he opposes the sell-off.

The telephone company, Telecomunicacoes Brasileiras S.A. (Telebras), was auctioned off earlier this year, but not without a battle from unionists. It was the highest sale the Brazilian government has achieved so far. The July 29 auction, held on the floor of the stock exchange in Rio de Janeiro, netted $19.2 billion. A consortium headed by MCI Communications based in Washington, D.C., took the lucrative long-distance portion of Telebras, while Spanish and Portuguese capitalists bought much of the rest.

Outside thousands of protesters called it the sellout of the century. The demonstrators, in their majority trade unionists, landless workers, and students, battled 2,000 military police in riot gear with several dozen injuries and 30 arrests. The telecommunications union Sinttel and others had filed lawsuits to block the auction. Although initially the union won a court injunction to reconsider the sale, the government lawyers contested the appeals and overturned the Rio court ruling hours before the auction.

At the same time, other struggles by workers and peasants against the conditions they face continue. The Movement of Landless Rural Workers (MST) has been plugging away in their fight for the land and to protest the steep austerity measures to come. In northeastern Brazil landless peasants occupied two farms November 16 and were heading to take another 22 farms in Pernambuco state. Carlos Brasileiro, one of the leaders, said that 80 people took over the Sibiro Grande farm, located 1,160 miles northeast of Rio de Janeiro, and another 80 occupied the Curupaiti farm. The austerity plan, he said, would dry up $31.5 million intended for agricultural reform in the state.