The Christmas lunches of Brazilian industrialists were gloomy affairs this season, overcast with predictions of recession, higher unemployment, tighter credit and painful spending cuts for the national welfare system.
The source of this gloom is an austerity program imposed on Latin America's largest nation mainly by a team of negotiators for the International Monetary Fund, the Washington-based agency whose loans have become life's blood for cash-starved Third World countries like Brazil.
The televised announcement of the IMF's aid package Dec. 15--done in fluent Portuguese by the agency's team leader, Horst Struckmeyer--underlined the shift in the Fund's role from a shadowy assessor of ailing economies to a more public underwriter and confidence-builder for debtor nations.
The results of the IMF negotiations became more concrete yesterday, as Brazil disclosed the anticipated spending cuts. The 1983 budgets for state companies, banks and the welfare programs, representing 30 percent of Brazil's gross national product, will be reduced 2 percent in real terms from 1982 budget estimates. Investments by state companies will decline 20 percent.
With these and other measures not yet disclosed, the IMF intends to put the brakes on Brazil's economy, whose feverish 95 percent inflation rate and escalating foreign debt made international bankers unwilling to make new loans.
In exchange for Brazil's economic concessions, the IMF agreed to a package of almost $6 billion in loans, and, equally important, fixed its stamp of approval on Brazil to open the way for $30 billion in essential private bank loans, which Brazil now hopes to receive.
"We hope that with this agreement with the fund, international banks and the international community will give the necessary aid to Brazil," Struckmeyer said Dec. 15, endorsing Brazil's 1983 economic plan as "very coherent."
Though Brazil's permanent representative at the IMF, Alexandre Kafka, described the talks as "the most agreeable negotiations there have been, in my large experience of the IMF," a somewhat arrogant attitude toward both the fund and the issue of renegotiation had been detectable in announcements or denials made by planning minister Antonio Delfim Netto and economics minister Ernane Galveas.
But offsetting Brazil's hauteur was its desperation to conclude a pact by Christmas, because of more than $4 billion repayments due after the holidays.
On Nov. 22, a week after nationwide elections, a team led by Venezuelan economist Ana Maria Jull discreetly began to probe accounts at Brazil's central bank, major state industries, and foreign trade bodies. They dealt at first with middle echelon officials, but the following week, Struckmeyer--chief of Western Hemisphere operations--arrived and the pace quickened at meetings of up to seven hours each.
The framework for the agreement was a document released in October by the national monetary council, which shrewdly judged a series of voluntary austerity measures likely to be accepted by the fund would be a smoother political option. And though Delfim maintained that the fund was simply accepting the provisions laid down--halving the current account deficit of $14 billion, with drastic cuts in public sector imports and oil purchases, pruning back the growth in foreign debt, Struckmeyer wanted much more.
Before the final agreement was reached the team of Struckmeyer, Jull, Hans Flickenschild, Jose Faigenbaum and Thomas Reichmann kept silent, letting Brazil sketch in the emerging plan. Delfim's outline document called for inflation to be pared back 20 percent, and the price of electricity, oil, and steel products to rise.
During negotiations Brazilian ministers showed increasing signs of strain and exhaustion, while the fund team kept up a punishing routine of ministerial meetings and information-gathering. Struckmeyer appeared to spend his leisure time attentively punching a calculator to crosscheck figures quoted by Brazilian newspapers.
Reports began to surface that the IMF team was far from happy with data on the short-term debt from the central bank's international department, and Jull was reportedly skeptical of Brazil's ability to turn a trade surplus of a few hundred millions this year into $6 billion in 1983.
The IMF never touched explicitly on two key areas that raised intense speculation: a phasing out of rural credit subsidies which have consistently been abused by farmers for money market speculation was left to the national monetary council, which could only fine-tune domestic banking policy after the talks were over. More speculation centered on changes to the salary laws whose built-in quarterly cost-of-living increases fuel inflation in times of low productivity--but have also quelled strikes and unrest. This sensitive issue Struckmeyer again left to Brazil to announce in the new year.
The austerity program will inevitably have a sharp recessionary effect in 1983, despite Delfim's hopes of 2 percent real growth. Cuts of 21 percent in state enterprises and the phaseout of energy and agricultural subsidies will raise unemployment drastically.
Akihiro Ikeda, special secretary for economic affairs in the Ministry of Planning, predicted the spending cuts, along with the federal government's overall austerity, will reduce the federal government's deficit from nearly 6.5 percent of GNP this year to between 3 percent and 3.5 percent in 1983.
The gross national product was $319 billion this year, and in making its budget estimates, the government predicted inflation for 1983 will be 78 percent.
Although he would make no specific predictions, Claudio Bardela, vice president of the Federation of Industries of the State of Sa o Paulo, Brazil's most important business lobby, said, "Next year is going to be a lot worse than this year. We are not going to be able to maintain the same level of production and employment."
The government has no reliable unemployment figures, but private estimates put it close to 13 percent.
Brazil's Congress has had no say in key economic decisions that will affect the country much more profoundly than last November's elections, but newly elected opposition governors in the 10 states that control 75 percent of Brazil's GNP will put pressure on Brasilia to sugar the IMF's bitter pill when more economic decisions are taken Jan. 10.