Brazilian President Outlines Economic Rescue Plan (fwd)

[Robert Weissman <rob@essential.org>]

Brazilian President Outlines Economic Rescue Plan


By Anthony Faiola
Washington Post Foreign Service
Wednesday, October 28, 1998; Page A24 

BUENOS AIRES, Oct. 27Brazilian President Fernando Henrique
Cardoso gave a broad outline on national television tonight of the austerity
measures he says Brazilians must endure to save the battered economy of
Latin America's largest nation.

Standing before charts depicting spending on Brazil's bloated public sector,
Cardoso proposed what he called an "unprecedented" package of budget
cuts, social benefits reform and limited tax increases. He estimated that
public sector cuts would represent about $7.43 billion of the $20 billion in
savings or new revenue he must produce in 1999 to meet a target set by the
International Monetary Fund and other international lenders, which are
negotiating with Brazil over terms of a $30 billion loan.

Cardoso, who faces stiff resistance to his plan in Brazil's Congress, issued 
a
plea to the Brazilian people to support him even if his plan hits their
pocketbooks. But he also promised that tax hikes, which will be outlined
tomorrow by the finance minister, would attempt to spare the poor.

"If we pass our reforms, by next year, we'll return to state of normality 
and
continue attracting foreign investment," he said. 

Cardoso seemed to dismiss devaluation rumors that hit Wall Street and hurt
the value of the dollar today by telling the nation that he was "elected to
protect the real," as the local currency is called.

Although the specifics of his plan will not be released until Wednesday --
and presented to Congress on Thursday -- his address tonight outlined in
broad terms his formula for halting the economic instability in Brazil, 
which
has become the latest target of financial chaos that has swept over East
Asia and Russia. Economists say a collapse in Brazil, the world's eighth
largest economy, would be devastating to global markets. 

Sources close to the government provided key details to the most
controversial parts of Cardoso's plan. Among other things, he intends to
propose a tax hike from 11 percent to 16 percent on retirement and other
social benefits, at least for public-sector employees. Meanwhile, retirees
whose pensions are substantially above the average -- and who today don't
pay tax on their benefits -- would be required to pay 11 percent.

Cardoso will also suggest raising the tax Brazilians now pay for financial
transactions -- such as writing checks -- from .2 percent to .3 percent or 
.35
percent. He will also propose balanced budget legislation to tighten control 
of
public spending from the federal to local levels.

The package, the bulk of which requires congressional approval, will be
extremely difficult to pass and implement. Cardoso lost political allies in
several key states, including Rio de Janeiro, in Sunday's runoff elections, 
and
several legislators have said they will fight Cardoso's plan. 

"He's going to have a hard time getting this approved as is," said Deputy
Miro Teixeira, head of the Democratic Labor Party. "We already collect too
much in taxes in Brazil. The problem is how we spend it. I don't think the
package corrects those fundamental problems."

Indeed, experts say the real danger for Cardoso is having the package
watered down by Congress. The three-year austerity plan is key to closing
the loan deal with the IMF and other lenders. To qualify, the government
must cut its public deficit, now almost 7 percent of GDP, almost by half,
posting a primary budget surplus, excluding debt costs, of 2.6 percent of
GDP in 1999.


          ) Copyright 1998 The Washington Post Company




 






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10/28/98 13:27:25
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