SOUTH America's two largest economies aren't yet dancing the
samba. Times are still hard in Brazil and Argentina. But recent
news and statistics hint that the economic beat could be picking up.
In Argentina, inflation has come down significantly. It was 2.6
percent in July. That's a month-to-month rate, not an annual rate.
Nonetheless, it is the lowest since President Carlos Saul Menem took
office in July 1989. Economists say prices may rise only 1.5 percent
Further, Argentina came to an agreement on an economic-reform
package with the International Monetary Fund (IMF) in late June. As
a result, it has begun to receive part of a $1 billion standby loan
from this powerful multilateral institution.
In Brazil, the government is finally about to discuss its $53
billion debt to private foreign banks. A first meeting has been set
for Aug. 21 in New York.
Last week, Economy Minister Marcilio Marques Moreira announced
that most of Brazil's private creditor banks had approved an
agreement forged in June involving payment of $8 billion worth of
While Brazilian inflation is still high, at 13.22 percent for the
month of July, the government is working to build confidence in its
economic policy. Mr. Moreira returned some products to price
controls last week and said he will tighten monetary policy.
Both countries experienced fast economic growth in the 1970s,
becoming important markets for United States exports. However, hit
by higher energy prices and the debt crisis, they spent most of the
last decade trying to restore better times. Inflation, bloated
government, and economic instability have remained obstacles to
progress. Now government officials are slowly beginning to attack
the causes of these problems.
"We are trying to achieve several goals, which isn't easy," Mr.
Moreira said last Friday.
Both countries are keen on earning US help in solving their
problems by carrying out tough domestic economic reforms. "When I
say we will administer a medium-term program, (the IMF reform
program), when I say we will bring together the resources needed to
sit down with the commercial banks, well, this is the same as saying
we will probably use the framework of the (US-proposed third-world
debt reduction) Brady Plan," Argentina's economy minister, Domingo
Cavallo, told the press recently.
Brazil's economy minister this month began the crucial process of
changing the country's entire tax and revenue-sharing system.
"Ninety percent of the 1992 (federal) budget has already been
allocated, and 10 percent is left over," says Joao Geraldo Piquet
Carneiro, a political-risk analyst in Brasilia. "We need to invest
in electric energy and in the highway system to improve public
employees' wages. You can't do any of this with 10 percent." Mr.
Piquet says the possibility of fiscal reform happening soon is
strong, "because the situation is so dramatic."
Federal spending in Brazil has long been a prime cause of
inflation. In the last two years, officials kept the federal deficit
down by creating special taxes, keeping government wages low, and
putting off debts; but this cannot continue, Piquet says. Reforms,
which would include shifting revenue bases away from large sales and
payroll taxes toward the more progressive income and capital-gains
taxes, need congressional approval and support from Brazil's state