Brazil & Argentina: Big Two in Trouble

BRAZIL & ARGENTINA

Brazil and Argentina, the two biggest nations in South America, are both suffering from the same disease—political unrest based on economic difficulties, as well as (to put it the other way around) economic trouble brought on by politics. Of the two, Brazil’s economy is in much the worse shape.

At his press conference last week, President Kennedy bluntly outlined the situation in Brazil: “almost unprecedented” inflation, boosting the cost of living 50% within a year, causing “the most severe dislocations. I think that the Brazilian government is aware of the strong concern that we have for this inflation, which eats up our aid and which, of course, contributes to a flight of capital and therefore diminishes rather than increases the stability of the state.”

Roll the Presses. Inflation is a familiar and painful word to Brazil. From 1956 to 1961, Juscelino Kubitschek, a President in a hurry to develop his nation, printed carloads of currency to finance industrial projects and build the inland capital of Brasilia. His presidential successors, first the erratic Jânio Quadros and now Joao Goulart, an opportunistic labor leader, have kept the presses rolling—as much to catch up with prices as to continue building Brazil. At the accelerated pace inflation has lately taken, an end must come some time soon, and Goulart undoubtedly knows it. But politics is politics. Supported by the left, Goulart hopes to end an unworkable parliamentary system in a January plebiscite, and return Brazil to its old presidential system, with himself in charge. His enemies on the right accuse him of deliberately provoking a “social explosion” in order to make himself a dictator.

When Goulart took office, some 275 billion paper cruzeiros were in circulation; in 14 months, he printed 150 billion more, and will probably have to run off another 75 billion to cover Christmas bonuses for workers. The cruzeiro, which stood at 280 to the dollar when Goulart came in, is now at 825. Some $900 million worth of foreign debts comes due next year, and Goulart’s government faces an internal 1963 budget deficit of more than 600 billion cruzeiros (see chart).

To come anywhere near making ends meet, the country needs massive help from outside—and of course expects to get it from the U.S. Fortnight ago, as collateral for emergency loans, Brazil shipped its last $80 million worth of gold to the Federal Reserve Bank in New York. International oil suppliers have agreed to wait till next year to be paid for this year’s imports. Such measures should enable Brazil to live on a hand-to-mouth basis until early 1963. After that, it presumably depends on another bailout by the U.S. Last week President Kennedy made it clear that U.S. help depends on how much Brazil helps itself: “There is nothing really that the U.S. can do that can possibly benefit the people of Brazil if you have a situation which is so unstable as the fiscal and monetary situation within Brazil.”

Out with Mr. Austerity. Argentina, on the other hand, has been subjected to a conscientious effort to restore its good name economically. But the political risk involved seemed to be too much for the military men who have ruled the country since their coup against Arturo Frondizi last March. At the center of the struggle was Economics Minister Alvaro Alsogaray, who once labored for Frondizi. A politically ambitious and hard-working economist, he has been working to right the country’s foundering wheat and meat economy. The long years of Peronism, coupled with drought and disease, have reduced Argentina’s wheat and meat stockpiles; cattle herds have dropped by 2,500,000 since 1956. The inevitable result: a shortage of export income, an empty treasury.

Alsogaray’s remedy was austerity. To restore credit, he raised taxes, tightened imports, won promises of help from the U.S. Most of these were commendable emergency measures. But all the while, bankruptcies mounted, and government payrolls were weeks in arrears. Loud grumbles came from the unemployed—many of them Peronistas with memories of the good old days of subsidized steak under exiled Dictator Juan D. Perón. who now lives in Spain with a pretty young bride. At last, fearing the wrath of the Peronistas at presidential elections promised for next June, the military men took the only step they could think of. They forced Alsogaray to resign.

Getting rid of Alsogaray solved nothing, even if his name had become anathema. With or without Alsogaray, Argentina has little choice but to press on with austerity if it hopes to curb the same sort of runaway inflation (prices are already up nearly 60% this year) that afflicts Brazil.