Brazilian Finance Minister Dilson Funaro said recently there is no reason commercial banks and industrial governments can demand that his nation reach another austerity agreement with the International Monetary Fund, the multinational financial rescue agency.
Funaro said Brazil's tough new anti-inflation program has eliminated the only legitimate worry that foreign governments had about economic policies in South America's biggest country.
He said he has made a list of 10 economic developments "that could give us problems. Nine of the 10 are controlled by developed countries, things such as interest rates, trade protectionism and the strong dollar. The last item was Brazilian inflation.
"We've taken care of inflation. If they industrial countries correct the first nine, then maybe I would then sign an agreement with the IMF," Funaro said.
Brazil has resisted reaching a new agreement with the IMF since the civilian government of President Jose Sarney replaced a 21-year military government early last year. Sarney has argued that the policies advocated by the IMF lead to recession.
Reaching an agreement with the IMF also would be politically difficult for the new government, especially because Brazil earns enough from its exports to keep current on its foreign loans and does not need to borrow new money from the IMF or commercial banks. In Brazil, as in many South American countries, the International Monetary Fund is viewed as an interloper trying to impose its will on a sovereign nation.
The Brazilian anti-inflation plan, adopted Feb. 28, froze wages and prices for a year to halt price increases that were approaching a 300 percent annual rate. The new plan eliminates the longstanding Brazilian practice of automatically adjusting all prices, wages and interest rates for increases in the cost-of-living. It also aims to continue shrinking the federal deficit to reduce the government's large and growing internal debt.
In the past 40 days, the overall price level in Brazil fell by 1.7 percent, the first time the country has experienced a decline in prices since the Great Depression, Funaro said in a recent interview in Washington.
The finance minister, a former Sao Paulo toy and plastics executive, said that despite the initial success of the anti-inflation program, the controls must be kept on for a year to "change the mentality of Brazilians."
For the "last 35 years, we've not known how to do business without the mechanism of inflation." He said it will take time for people to realize that increases on the order of 1 percent to 2 percent a month are large when they "have been used to 10 percent or 15 percent."
The anti-inflation plan has sparked increases in investment by some Brazilian industrialists who had been reluctant to build new plants and to install new equipment when inflation was 300 percent a year, Funaro said. In the past month the paper, aluminum and steel industries have announced major investments, he said.
If the recent decline in world interest rates continues, Funaro said, Brazil will be able to step up imports of vital industrial products. Although Brazil has the best-developed capital goods industry in South America, it must import many items that are essential to investment in plants and equipment.
Like most debtor countries, Brazil has had to put the clamps on imports to conserve its dollar earnings to pay the interest on its $102 billion foreign debt.
Falling world oil prices and increasing domestic oil production have enabled Brazil to increase imports of industrial goods while cutting the overall level of imports. In the past 12 months, he said, the cost of oil imports fell 30 percent, imports of industrial products rose 35 percent, and the overall cost of imports fell 5 percent.
He said each percentage-point decline in world interest rates saves Brazil $800 million in loan payments. If rates decline further, the government will allow increased imports of industrial goods -- which should help Brazil's economy expand and produce new jobs for the hundreds of thousands of Brazilians that join the work force each year.
Last year, Brazil's economy grew 8 percent, the fastest rate in the world, mainly as the result of continued high exports and a consumer spending boom. The new anti-inflation plan is expected to cut the growth rate in half this year -- although falling interest rates and oil prices might make the outlook brighter.
Like most Latin American debtor nations, Brazil suffered several years of severe recession and rising unemployment in the early part of the decade, and living standards are little higher than they were a decade ago.