Socialist Action /February 1999
Brazil's Economy Teeters on Verge of Collapse
The Brazilian economy has been teetering on the edge of collapse since
last August. The billions of dollars in loans made by the United States
and the International Monetary Fund have failed to stop the collapse of
Southeast Asia and Russia. Another $41.5 billion was pledged at the end
of last year to save Brazil.
While this latest domino to begin tipping over may yet be temporarily
stabilized, steering the world economy back toward some measure of equilibrium
and avoiding a generalized global collapse is extremely unlikely.
As of Jan. 27, Brazil's reserve fund has dwindled from $75 billion to,
perhaps, $30 billion. (Figures cited vary from one news publication to another.)
Brazil has also used up the IMF's first allotment of $7.1 billion of its
pledged bailout money.
And in just the last eight business days before Jan. 27, the country's
currency, the real, lost a third of its value; government bonds have
fallen to half their face value. And worse, in accord with U.S./IMF policy,
further payments on their $41.5 billion pledge will not come until their
austerity demands are met.
Seven years of economic boom followed President Cardoso's tying the real
to the dollar. A triple digit rate of inflation* before his election was
almost instantly reduced to single digits afterward.
This resulted in a flood of foreign investment and a vast expansion of
credit. "Curing" its hyper-inflation by maintaining a dollar in
its reserve fund for every real in circulation allowed Brazil's deficit
to be hidden while its credit climbed way beyond the value of its assets.
Thus, the country found itself with diminished ability to pay off lenders
when their loans are called in.
Eventually, currency traders, sensing that the real was really worth
less that its peg to the dollar, triggered a panic selling of reais**
for dollars. And as happened in Asia and Russia, Brazil's currency went
into free fall. That, in turn, let the air out of Brazil's economic boom.
Business Week, one of corporate America's advocates, notes that
"there is no end in sight to the financial crisis gripping the world
economy...." The piece, which first appeared in this magazine's international
editions, was reprinted in the Jan. 25 New York Times under the headline
"Latin America: The Fire Next Time."
This big business magazine's gloomy but accurate assessment hits the
nail on the head. The following excerpt captures Business Week's
perception of Brazil's and the world's economic crisis:
The IMF no longer knows how to stave off or mitigate crises. ... But
the larger reasons for failed IMF policies in Brazil are these: We live
in a deflationary world-defined by overcapacity and insufficient demand.
The austerity policies forced upon countries by the IMF in return for loans
transform bad debt problems into economic debacles. ... The austerity policies
of the IMF and the U.S. Treasury aren't part of the solution. They are
part of the problem.
But that's only half of the current crisis in Brazil. While the IMF's
conditions for aid continue to be "part of the problem," their
austerity "solution" is meeting stubborn resistance from the Brazilian
working class.
High level of class consciousness
The Brazilian working class is unique in that its level of class consciousness
and combativity have been on the rise for more than a dozen years.
The Workers Party, which rose from a small vanguard to a mass workers'
political movement in this past period, is only the most visible expression
of the high level of class consciousness of Brazilian workers. However,
like most mass workers' parties in the world today, its leadership lags
far behind the consciousness of its worker vanguard.
The Jan. 17 edition of The New York Times reported on the impact
of the crisis on Brazil's industrial workers. The report describes the takeover
on Jan. 5 of a Ford auto plant by 2800 laid-off assembly line workers and
their still-employed comrades.
Larry Rohter, the Times reporter, describes the impact of the crisis
on the country's workers: "For Brazil's 275,000 auto workers, once
considered the elite of the working class, that means hard times after years
of hard-won improvements in their standard of living. 'Yesterday, I was
dreaming,' reads the bumper sticker on a car parked outside the Ford factory
here [referring to the recent economic boom]. 'Today, I can't even sleep.'"
Twelve days after Rohter's report, Ford had not yet moved against the
workers occupying their plant. Capitalists, of course, know that failure
to forcefully and effectively respond to such methods of struggle will lead
to more of the same.
Thus, it's not hard to see that if this crisis persists, unemployment
and other hardships will mount to ever more dangerous levels. Historical
experience teaches that when workers have had a taste of higher living standards
and a better life for them and their families, the reality of being pushed
back to their previous condition can have highly undesirable consequences
for capitalists.
Workers, after all, have been known to conclude that if their bosses
can't keep the economy going and provide workers with the means of a decent
livelihood, they may just have to do it themselves!
The need for workers' leadership
It's these factors that most explain why the capitalist government headed
by President Fernando Henrique Cardoso has been stymied so far in efforts
to impose austerity on the workers.
The powerful state governors have been paralyzed. Fearing an explosive
worker backlash, they have so far foiled Cardoso's plans by refusing to
go along with the austerity conditions required by the U.S./IMF bailout.
But if the economy continues to sink and unemployment and other hardships
increase, class struggle and even social revolution is in the cards. How
it turns out in Brazil, of course, depends on many variable factors-primarily
that of leadership.
In this regard, Brazil's workers have an advantage over most. There are
at least two sizeable and influential Trotskyist working class parties in
Brazil-the United Socialist Workers Party (PSTU) and Socialist Democracy
(DS).
Either one of these revolutionary socialist parties (or it is to be hoped,
both joined together) have the capacity to grow into a mass revolutionary
workers' party in the course of the coming social upheavals.
Of course, success will depend on the very difficult task of applying
intelligently and consistently the lessons of working-class successes and
failures upon which the social laws of class-struggle strategy and tactics
are based. -NAT WEINSTEIN
(Update: The Jan. 30 New York Times reported that the "real tumbled
well past the psychological barrier of two to the dollar. The currency,
which lost just 7.5 percent of it value last year, has plummeted 43 percent
in less than three weeks after the government abandoned its policy of defending
the real's value by purchasing it with dollars in the foreign exchange
market.")
* Before Cardoso was elected president, Brazil's currency
declined as much as 30 to 40 percent per month.
** "Reais" is plural in Portuguese for "real."
Socialist Action /February 1999 |