The IMF Grinch

[Robert Weissman <rob@essential.org>]

Brazil Austerity Measures Expected


          Filed at 5:42 p.m. EDT

          By The Associated Press

          SAO PAULO, Brazil (AP) -- With soon-to-come economic
          austerity measures expected to spell recession and more
          unemployment, retailers in South America's biggest city are
          bracing for the worst Christmas season in years. 

          During the last two months of the year, sales were expected to
          drop by almost 10 percent compared to the same period in
          1997, he said. 

          ``It is almost certain that higher taxes will be part of the
fiscal
          austerity measures to be announced,'' said Elvio Aliprandi,
          president of the Sao Paulo Chamber of Commerce. ``This means
          less money in the consumer's pocket.'' 

          Making matters worse, Aliprandi said, is the fact that many
          retailers will have to lower prices ``to avoid inventory costs
and
          generate sufficient cash flow to stay in business.'' 

          Brazil has been a major casualty of the global economic
crisis,
          marked by loss of investor confidence and strong outflow of
          capital. The country's foreign reserves have fallen below $50
          billion from $70 billion at the end of July. 

          In an effort to prevent a collapse of the nation's currency,
the real,
          and stem capital flight, interest rates were hiked to 50
percent a
          year. To curb the country's ballooning budget deficit -- equal
to
          about 7 percent of gross domestic product -- recently
re-elected
          President Fernando Henrique Cardoso promised spending cuts
          and, possibly, more taxes. The new austerity measures are
          expected to be ready by Oct. 20. 

          The promise of new austerity measures has kept Brazilian
          markets following a downward trend, with most investors
          standing on the sidelines waiting for some definition of what
that
          plan will entail. 

          But on Thursday, markets got a surprise boost when the U.S.
          Federal Reserve cut short-term interest rates by a
          quarter-percentage point, citing ``growing caution by lenders
and
          unsettled conditions in financial markets.'' 

          The country's biggest stock market, Sao Paulo's Bovespa soared
          on the news, closing up 6.7 percent. The smaller Rio de
Janeiro
          stock exchange closed up 4.9 percent. 

          With more than 50 percent of retail sales made on installment
          plans, high interest rates will continue to scare off
consumers even
          after the holiday season, said Marcel Solimeo, the chamber of
          commerce's chief economist. 

          ``Fear over an uncertain future will also keep buyers away
from
          stores,'' Solimeo added. 

          More taxes, he warned, could be counterproductive. 

          ``They will reduce the country's economic output and as a
          consequence the government's tax revenue will drop,'' Solimeo
          said.