T IS AN audacious and aggressive plan from the point of view of the ruling classes. The bourgeois press has even talked about the biggest shock that a Brazilian government has ever inflicted on the Brazilian economy. It should not be under-estimated.
The centre of gravity of the plan rests in the combination of monetarist measures with a battery of unorthodox policies — a small, relative and provisional price freeze and currency reform. It amounts to an application of that most venerable of capitalist anti-inflationary instruments: a recession.
This is a plan of a neo-liberal type managed and imposed by the state. It has been implemented with an authoritarianism that in fact goes beyond the constitution. This reveals how far the new government is ready to go.
The Cruzado plan took into account the fact that the workers movement had been reinforced by struggles over indexed sala-
ry readjustments. By changing the rules, the government is trying to freeze the existing relation of forces to the detriment of the workers.
It is essential for the success of the Collor plan that the workers movement be defeated. This makes the plan explosive: it is being imposed at a time when the movement is able to resist, and even destroy the plan.
Collor's most useful weapon against
PLAN COLLOR TE LOTSCH inflation is recession, which will be both the cause and consequence of the defeat he wants to inflict on the working class. It will be the cause via the unemployment that the plan entails, by the dismantling of the material base of combative sectors and by gigantic blackmail. It will also be the consequence, since it involves the destruction of important defensive mechanisms for the workers and seeks to create a situation where the movement cannot impose political alternatives.
The anti-popular earthquake envisaged by Collor is a recession to contain inflation.
The complex and sophisticated measures of the government must be analyzed as a function of the way in which the government is managing the transition to recession.
The plan attacks inflation at three levels: by means of monetary reform; by tax reform; and by price and wage controls. This is a new combination, not seen in previous plans.
The monetary reform (the replacement of the cruzeiro by the cruzado) is intended to control the quantity of money; it means a sharp reduction in liquidity. The creation of this new currency, supported by an enormous reduction in internal debt, has placed $115 to $120 billion that was previously in circulation in the hands of the
Central Bank. This is hitting economic activity and leading to a fall in prices.
The monetary reform involves the suppression of interest via the transformation of one currency into another through sales organized by the Central Bank. In the course of these sales, the bank determines how much the person who has been temporarily expropriated will lose in the exchange. It is in the management of this remonetarization that, according to some experts, the key to the success of the plan lies. It is on this very difficulty that the plans of the Argentine president
Menem came to grief. And it is at this stage that the pressures of the big vested interests who supported
Collor for the presidency can be brought to bear.
The tax reform of minister Zelia is another novelty.
The government wants to attack the public deficit.
Starting from a deficit of
8% of GDP, Zelia wants to get to a surplus of 2%.
According to the calculations of Mauricio Borges, an economist from the University of Minhas Geras, the measures taken will affect 7.5% of the GDP (the moratorium on domestic debt will affect 2.5%, the reduction of stimulants such as subsidies
4% and reform of the administration the other 1%). Adding on the resources produced by the reform of the inheritance laws, the annual deficit can be done away with.
As for the reform of taxation, Borges considers this as the least ambitious measure, intended essentially as an antiinflation measure, since the main proposals involve an increase in already existing taxes. Thus, although the tax base has been increased, drawing in land rent and capital gains, the tax reform is far from reaching the ceiling paid by the bourgeoisie of the capitalist countries.
The price controls are less dramatic.
The idea is for a certain freeze on prices that have been artificially raised just before the plan. Furthermore, the fate of the wage controls will depend to a large extent on the level of resistance of the unions.
Borges draws from his analysis of this set of measures the conclusion that they can break the tendency to hyper-inflation and control inflation in the short term, but at the cost of a sharp recession provoked
BRAZIL by the contraction of the domestic market and also by a drop in export activity, due to the impact of free exchange on dollar costs, which, he says, will strike the weakest export sectors and limit their ability to act as a counter to the contraction of the national market.
He also believes that there will be no automatic regaining of economic impetus in the period that follows the recession. Contrary to the propaganda being put out by Collor and his advisors, market forces will have difficulty in giving a new impulse to development. Since 1930, the state has taken on the role of stimulating the cycles of the Brazilian economy and the private sectors of capital have acted only when the economic upturn is already visible.
Imaginings of neo-liberal theorists
Despite what the fashionable neo-liberal theoreticians imagine, Mauricio Borges considers that the structural characteristics of the Brazilian economy mean that the Brazilian state will have to recover its capacities as investor in order to set a new upturn going, but the present measures do not guarantee that this will happen. The package will, with difficulty, clean out the public deficit. But for a recovery to then get off the ground, more profound measures are required such as a tax on the big fortunes.
A recession that will contain inflation but cannot guarantee a new upturn: that is how this economist at least sees the results of the Collor plan.
Collor is selling his plan by claiming that it will benefit 90% of the population while negatively affecting only 10%. In an interview in Em Tempo 3 Borges refutes the Collor version. The bourgeoisie is well prepared for the package, it has taken reasonable measures by accumulating reserves, and its money is at work outside Brazil. The most dynamic sector in the recent period, the export sector, is responsible for the existence of a large part of the "hidden" economy —estimated by the Getulio Vargas Research Foundation as some $50 billion.
Big capital will not be the principal victim. The big losers will be the middle layers. And is the government in fact attacking big capital? This is not how things appear to US Treasury Secretary Nicholas Brady. He believes that the measures "turn Brazil towards the modern world" (Folha do Sao Paolo, March 17, 1990). The American and English banks 1. A coalition created for the second round of the presidential election in December 1989, grouping the majority of the left around the candidacy of Luis Inacio da Silva, known as Lula, candidate of the Workers Party (PT). (see IV 178) 2. The cruzado plan was the work of the Sarney govemment in February 1986, to counter the danger of hyper-inflation. 3. Em Tempo, organ of the Socialist Democracy ten- 23 dency of the Workers Party. May 7, 1990 • #184 International Viewpoint
BRAZIL have also been singing the plan's praises.
With the concessions on questions of foreign trade (freeing of imports, end to export subsidies), the adoption of free exchange rates and a return to negotiations with the IMF, foreign capital has also been given an important tool in the form of provisional measure 155 which authorizes the conversion of IOUs for Brazil's foreign debt into shares in state enterprises being privatized.
Today, the international financial system is taking on new functions to compensate for certain losses incurred as a part of the new measures. From now on, conversion sales of new cruzados into cruzeiros will play a central role in the economy. Banks will play the part of intermediaries between different clients, developing perhaps a whole new parallel "cruzeiro market" for these transactions.
Another point is worth serious attention: the banks are obliged to buy the privatization shares. On what conditions? To what extent? To acquire which enterprises? At what price? In reality the capital in the national financial system is the most ready to take part in the privatization process. This explains the stimulus given to the acquisition of these much coveted enterprises. According to the General Secretary of the Ministry of the Infrastructure (Industry), Paolo Ximenes, the privatization of the steel industry will start with the most profitable outfits: Usi minas and Tubarao. With the resources obtained from the sales, other enterprises will be prepared for privatization. (Jornal do Brasil, March 18, 1990).
Limitations on withdrawals from banks
The losses suffered by wage-owners, small owners, bosses, and middle layers are already significant. Collor has firmly limited withdrawals from current and savings accounts. This may be some sort of ploy for negotiations with Congress. But what is clear is the great gentleness with which big capital is being treated and the violence of the attacks on the intermediate layers.
The recession imposed by the pact is also a direct consequence of the timidity used in the confiscations directed against those who have been benefiting from the inflation. The recession, leading to loss of jobs and falls in wages, will mean draconian losses for the 90% of the population who Collor claims will benefit.
At the moment the population is assessing the plan from the point of view of the whether it has a real impact on inflation. The Collor plan differs from previous plans given the fact that it may have a real success in the fight against inflation. This is why it is necessary to keep a close watch on who wins and who loses from the package, while at the same time seri24 poply adeningled e hav strandes and ously defining defensive strategies and International Viewpoint #184 • May 7, 1990 the way in which the attacks on the workers and the people are being perceived -a process that is neither homogeneous nor synchronized.
Today, the middle layers, including the small entrepreneurs, and the worst paid sectors of the working class are the first to understand the real import of the plan. They feel the injustice of the confiscation of their savings and bank accounts, of being treated like speculators. The Worker proposals IN RESPONSE to the Collor plan, the National Executive Committee of the Workers Party has decided to present a serles of alternative measures to stem the crisis gripping the country, while preserving working class living standards. We publish below extensive extracts from the document. DOCUMENT
NDIFFERENT to the worsening of the crisis and the acceleration of inflation during the last days of the Sarney government, president Collor is now proposing laws, decrees and measures that are in contravention of established laws in order to achieve an economic readjustment....
With this plan, the Collor government is trying to make us believe that everyone is making the same sacrifices to get the country out of its disastrous economic situation, when in fact the plan will strike and marginalize the most disadvantaged, by putting the economy at risk of an imminent recession, with the well-known consequences: unemployment, poverty, disorganization of production and a social crisis....
The main lines of the plan preserve the agro-exporter model and submit the economy to the diktats of the International Monetary Fund (IMF), by continuing the payment of the external debt. This risks making any attempt to stabilize the economy or to successfully control inflation worthless.
The PT reminds the population of the promises made by Collor concerning wages: discussion of the subject with the participation of the workers and no change in the
For most wage earners, however, things will not become so clear so fast. The loss in wages will not be felt until April, when wages will be computed according to the March inflation figures.