BRAZIL HAS CHANGED its mind about its debts and the strategy for dealing with them. A year ago it declared a moratorium on most repayments. Now it has ended the moratorium, and its new finance minister, Mailson Ferreira da Nobrega, is at work restoring relations with the foreign banks that are the chief creditors. For the past year Brazil's contact with the International Monetary Fund was minimal. Now the Brazilians are openly approaching the IMF for both advice and loans.
The reason for the reversal is very Brazilian -- that is to say, very pragmatic. The moratorium wasn't working to Brazil's benefit. It was supposed to put pressure on the banks to ease the terms of the debt, but instead the banks began building reserves against a possible default. The moratorium was supposed to permit Brazil to accumulate foreign currency reserves, but the retained funds were offset by a sharp drop in normal lending to Brazilians and an anxious effort by some businesses to get their money out of Brazil. As time passed Brazilians began to find it increasingly difficult even to get adequate financing for exports and imports. An industrial economy lives on a constant flow of credit, and Brazil is now the world's 10th largest industrial power. As the effects of the credit drought became apparent, the moratorium grew less popular.
Both Brazil and the United State have got themselves into serious trouble by overspending on consumption, a policy with no more substantial purpose than simply to please people. In Brazil, because monetary policy was loose, inflation has again reached the dangerously high rates at which it interferes with production and national growth. In the United States, thanks to the Federal Reserve Board, monetary policy has been kept relatively tight and inflation has been restrained -- but the result over the past six years has been the creation of foreign debts far larger than Brazil's.
Both countries have, of course, the capacity to carry their present debts and to keep growing. Whether they will actually manage to do it depends on policy and politics. Brazil's government, approaching another period of austerity, is thinking carefully about the country's future and working vigorously to protect it. In that respect, Brazil is well ahead of the United States.