Argentina and Brazil Take Steps to Get Economies under Control Brazil Addresses Foreign Debt; Argentine Inflation Down to 2.6%

By Julia Michaels, Monitor | The Christian Science Monitor, August 15, 1991 | Go to article overview

Argentina and Brazil Take Steps to Get Economies under Control Brazil Addresses Foreign Debt; Argentine Inflation Down to 2.6%


Julia Michaels, Monitor, The Christian Science Monitor


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 this month.

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 interest arrears.

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 governments. …

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Argentina and Brazil Take Steps to Get Economies under Control Brazil Addresses Foreign Debt; Argentine Inflation Down to 2.6%
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