[stop-imf] NYT: Brazil Collides With I.M.F. Over a Plan to Aid the Poor (fwd)

[Robert Weissman]

February 21, 2000
New York Times

Brazil Collides With I.M.F. Over a Plan to Aid the Poor
By LARRY ROHTER
RIO DE JANEIRO, Feb. 20-- A new Brazilian government plan to spend more tha=
n
$22 billion on social programs in the next decade has led to a squabble wit=
h
the International Monetary Fund, which argues the money should be used to
reduce Brazil's indebtedness rather than to fight poverty.
The unusually public dispute has added to the unpopularity here of the
I.M.F., which in the past has been accused of provoking recession in Brazil
and trampling on the country's sovereignty. It has also given President
Fernando Henrique Cardoso badly needed political help, forcing opposition
parties to line up behind him and potentially strengthening his hand in
continuing talks with an I.M.F. now more leery than ever of being seen as
heartless.
Brazil and the I.M.F. reached agreement in November 1998 on an emergency
three-year $41.5 billion rescue package, the terms of which were modified
early last year after Mr. Cardoso was forced to allow the national currency=
,
the real, to be devalued by 40 percent. The accord calls for the Brazilian
government to cut spending and raise taxes, and sets targets and timetables
for actions like reducing public sector debt and selling state-owned
companies.
But nationwide municipal elections are scheduled for October, with the
presidential and legislative races to follow in 2002, and the government
coalition is eager to offer voters something more than continued austerity.
In addition, Mr. Cardoso promised in his 1998 campaign that if elected to a
second term, he would take steps to lessen the country's chronically skewed
income distribution and other social inequalities.
Though living conditions for the poor improved in the 1990's, economists
calculate that at least half the work force in this nation of 165 million
still earns the minimum wage of $77 a month or, in the case of millions
working off the books, even less. According to government statistics, the
poorest 10 percent of the population accounts for only 1 percent of nationa=
l
income, while the richest 10 percent receives nearly half.
As presented to Congress, the government's plan calls for at least $2.25
billion a year over the next 10 years to be funneled into a Fund to Combat
and Eradicate Poverty for additional spending on things like education,
health and infrastructure. Minister of Finance Pedro Malan maintains that
money gained from privatization and new luxury taxes will enable Brazil to
finance the program without deviating from the I.M.F. agreement.
In an interview with the Brazilian news magazine Veja last month, before th=
e
dispute erupted, the United States secretary of the treasury, Lawrence
Summers, said that the government here "in the long term, needs to invest
massively in the Brazilian people," citing education as a top priority. But
in an interview last week with the Dow Jones news service, the I.M.F.
representative in Bras=EDlia, Lorenzo Perez, said the government plan
"established a precedent that could become dangerous."
"Brazil already spends a significant amount of money on social programs," h=
e
said. "This money has to be used more effectively."
The Brazilian reaction was sharp and immediate, with the government and the
opposition demonstrating a rare unity. Leaders of the leftist Workers Party
called for Mr. Perez's expulsion, while Mr. Malan said "the allocation of
budgetary resources has never been a theme of discussion with the I.M.F. an=
d
is not within its area of competence."
A day later, Mr. Perez reversed course, saying that after further study of
the plan, "I don't think its implementation would involve macroeconomic
risks."
That appeared to be the end of the matter. But on Feb. 13, the departing
managing director of the I.M.F., Michel Camdessus, left Brazilian officials
seething anew over remarks he made at a United Nations trade conference in
Bangkok, apparently unaware that Mr. Perez had retracted his original
criticisms.
"We in the I.M.F. believe that what is important in the strategy of a count=
r
y is not to get rid of the problems of the poor by doing some charity from
time to time," he said. "What we see as more important is to make room in
the budget of the government and of the states for increased social spendin=
g
on a permanent basis."