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Brazilians Split Over Economic ‘Shock’ Plan

April 28, 1990

RIO DE JANEIRO, Brazil (AP) _ Business and organized labor say Brazil’s economic ″shock plan″ is driving the nation toward recession, but the poor think President Fernando Collor de Mello has the right idea.

″I hadn’t eaten meat in so long, I’d forgotten what it tasted like,″ said Derly Rosa Perreira dos Santos, 25, who works as a maid and lives in a shantytown of Rio’s poor North Zone. ″Now I can afford it twice a week.″

Record annualized inflation of 4,854 percent has fallen dramatically since Collor announced his ″New Brazil″ plan March 16, one day after taking office as the country’s first democratically elected president in 29 years.

It put an 18-month freeze on savings deposits of more than $1,200 and limited withdrawals from money market funds to $600 or 20 percent of the value, whichever was greater.

About $115 billion was frozen, 80 percent of all bank deposits in Latin America’s largest economy.

Collor also cut spending, imposed new taxes and promised to sell many of the 188 state-owned companies to eliminate the $31 billion federal budget deficit.

There is disagreement over the inflation rate for April - the government says zero and several independent institutions estimate 25 percent - but all agree the threat of hyperinflation is gone.

″Food and medicine are cheaper and the bus fare has stopped rising every week,″ said Mrs. dos Santos, who has two children and rides the bus to work. ″I’ve even been able to save a little money the past month.″

Spending on cheap housewares and appliances has surged.

″Our stores in poor areas are selling about 10 to 15 percent more,″ said Fernando Martinho of the TeleRio chain of appliance stores. ″Our outlets in middle class and wealthy areas report stagnant sales, or even a small drop.″

Mrs. dos Santos said that, if inflation remained low, she hoped to buy a mattress for her children, who sleep on blankets on the floor of the family’s concrete hut.

Poor Brazilians have little sympathy for wealthy people with frozen bank accounts, now referred to in the press as ″nouveau poor.″

More than half the workers in Brazil earn $150 a month or less, while the richest 10 percent of the country’s 150 million people live in luxury.

Nilda Modena da Silva praised Collor for freezing the accounts and said: ″While I had no money to buy bread, the rich threw food in the trash.″

She is not happy about zero inflation, however, because that means pay will not go up, and ″how can he (Collor) freeze a mother’s salary?″

Mrs. da Silva works as a janitor and supports her two children on the minimum wage of about $75 a month.

Opinion about the economic plan seems evenly divided in the middle class, but Collor gets low marks from the rich.

A survey by the respected firm Research International found a sense among the upper 10 percent of reduced social standing, ″loss and humiliation.″

Antonio Ermirio de Moraes, president of the Votorantin group, Brazil’s biggest private company, said on a television talk show he considered emigrating after having $500 million caught in the freeze.

Many businessmen feel betrayed because they supported Collor against socialist Luis Inacio Lula da Silva in the December election. They accuse the president of reneging on promises of free-market reform.

″We are living in an economic dictatorship,″ said business consultant Alexandre Barros. ″Never in the history of this country has there been so little economic freedom.

″The name of the game is no longer to be an effcient entrepeneur, but to be a political operator who can pressure the government into releasing your money. There are no market criteria at all.″

Organized labor agrees with management in this case.

Official figures say unemployment has grown from 3.5 percent to more than 9 percent since March 15.

The huge, foreign-owned auto plants that ring Sao Paulo, Brazil’s largest city, have put 80 percent of their employees on furlough and about 300,000 construction workers have been laid off.

″This plan will lead to a depression far worse than the hyperinflationary spiral which it was supposedly going to save us from,″ said Jose Olivio Miranda of the Central Workers Union, the largest labor federation, which represents about 12 million workers.

Layoffs have led thousands of people who migrated to the industrialized south to return home. In mid-April, buses from Sao Paulo to the poor northeast carried 1,700 passengers a day, twice the usual number.

Gustavo Franco, an economist at Rio’s Pontifical Catholic University, said a downturn was necessary to curb inflation.

″Once the cost of living comes down, it is relatively simple to restart growth,″ he said. ″We have a very strong economy with a solid industrial base.″

Luiz Carlos Bresser Pereira, a former finance minister, said: ″The government has taken necessary steps to permanently bring down inflation. First we need to stabilize the economy, then the government should implement ... policies to help the poor.″

Herbert de Souza, director of the Brazilian Institute of Social and Economic Analysis, is less sanguine.

″With the poverty we’ve got, Brazil can’t take a deep recession,″ he said.

″The first impact of the plan may have helped the poor, but that is temporary and will be erased with a recession. The measures are now popular because people are looking at the immediate impact and not consequences.″

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