TIBURON, CALIF. — Many Brazilians probably thought Christmas came early this year after learning that, with American encouragement, the International Monetary Fund (IMF) had just approved a loan of $30 billion for Brazil. Reading in the press about all this money raining down, it seems as if Brazil must be awash in dough and getting ready to throw one of its famous big parties.
But news financial news has a perverse way of not being what it seems to be, especially lately. So let's examine the facts.
The IMF and the Inter-American Development Bank, a kind of mini-World Bank for the Americas, will make $7 billion available to Brazil by the end of the year. The rest will be available only if Brazil behaves itself.
Why is Brazil being given money in the first place? President Bush and Secretary of the Treasury Paul O'Neill have made it very clear all along that they don't believe in bailing out countries à la Clinton. To them, this is against the basic rules of capitalism, and it increases irresponsible financial behavior, both on the part of debtor countries and financial investors who would borrow and lend without measure, counting on international assistance when crunch time came.
But the money being provided to Brazil will not be in Brazilian hands for long, if at all. Brazil will have access to these funds to pay its creditors primarily international banks, and, high among them, American banks. Brazil already has a huge external debt of $264 billion, of which $25.6 billion is owed to American financial institutions close to $20 billion to Citigroup and FleetBoston combined.
In addition, American car manufacturers have billions of dollars invested in Brazil, and if the country's international credit is impaired, they will be on the front lines of those affected. It is easy to imagine that interested parties, who also happened to be generous campaign contributors, helped modify the no-bailout administration stance.
Once again, the champions of capitalist rhetoric have fallen short. Those who want the profit from capitalism but not the risk have gotten the upper hand. And now they are engaging in the sort of verbal gymnastics that used to be the province of Marxist ideologues: If the banks fail, so will the entire system. But the only thing that would collapse for certain would be the fortunes of those running the banks.
Limits and safeguards have been built into the loan to guarantee that Brazil uses the money for its intended purpose. It will not be doled out before the forthcoming October elections in which Jose Serra, the government's candidate and the favorite of the international banking community, is sinking in opinion polls. The delay in the availability of funds aims at forcing whoever is elected to accept the terms of the loan, a preventive measure to assure compliance.
Such heavy-handed tactics have been effective in countries in the region that had neither the will nor the means to offer any resistance to the IMF and the interests it represents. Further south, Argentina squirms under IMF pressure, but Brazil may be a harder nut to crack. That it is the 10th-largest economy in the world makes trying to force Brazil along a path it doesn't want to travel a perilous proposition.
Brazil has a dynamic native entrepreneur class that has grown largely without help from foreign enterprises. These local businesspeople know how much they would lose if making room for foreign investment is placed above real economic growth. They also know that those controlling the IMF the US, Japan, and Europe protect their own national interests while paying lip service to market freedom.
Brazil may not buckle easily under IMF threats that, if implemented, would carry worldwide negative implications. And if the Brazilians refuse to put international financial interests above their own, if they challenge the terms of the IMF loan, a crisis of major proportions could follow.
Francisco Jose Moreno is president of the Center for Strategic Assessments.