Brazilians cope with mortgages in 100% inflation

Do home mortgages exist after 100 percent inflation?


Brazil's 18-year-old experiment in unified national housing policy has made it possible for middle- and even some working-class families to own their own homes with the aid of government-secured mortgage loans, despite an inflation rate which, at its peak two years ago, hit 110 percent.

The secret is monetary correction, a form of indexing that adjusts every kind of financial value from mortgage payments to wages with the relentlessness of inflation itself.

Like other countries, the mass of money for most Brazilian mortgages comes from personal savings accounts. The National Housing Bank reported recently Brazilians maintained $19.5 billion in personal savings as of July 1982, ranking this country fourth in the world for gross savings.

Unlike many other nations, however, Brazil's personal savings system is entirely controlled by the federal government, which uses the money, along with community mortgage loans.

By the time 1982 ends, those loans will have totaled $6 billion, of which roughly half will have gone to 15-year, 10- percent-interest mortgages for middle- and working-class families. The breadwinners of those families, however, will pay only a fraction of the interest theoretically due on such loans in an economy whose rate of inflation is 95 percent.

Brazilian mortgage holders pay a fixed amount per month keyed to the dollar value of their mortgages, at current rates about $550 on a $40,000 loan. After 12 months, the payment increases, in local currency terms, by a rate roughly equivalent to the cost-of-living index for the year. But because of the systematic devaluation of Brazil's currency, the cruzeiro, the monthly payment remains about the same, in dollar terms, as the year before. So does the breadwinner's salary, being automatically ''corrected'' by the same index.

Meanwhile, the National Housing Bank is doing some correcting of its own, jacking up the total value of savings and unemployment insurance deposits by the same rate used to ''correct'' all the other elements of the system, so that each element retains the same relation to all the others as before, but at a higher nominal level.

Wasily Leontief, the Nobel Prize-winning American economist, explained the process during a visit to Rio last year with a metaphor. ''Once I watched a man walk a tightrope between the 40th floors of the twin towers of the World Trade Center,'' he said. ''Then, a couple of years later, I watched the same man walk a tightrope between the 100th floors. To him, the number of floors doesn't matter. The tightrope is the same.''

What the policymakers haven't succeeded in doing, however, is alleviating Brazil's awesome backlog of housing for the poor.

''This year we are going to build 700,000 more houses (for the poor),'' Interior Minister Mario Andreazza declared recently. ''However, even at that rate, we will still be 5 million houses short by 1985.''

Mr. Andreazza admitted that the 1985 backlog would be far greater than the 3. 5 million he had predicted for that year back in 1979, when he first took office as part of the new administration of President Joao Baptista de Oliveira Figueiredo. The reason for the shortfall, Mr. Andreazza explained, is ''an annual increase in demand for low-income housing on the order of 500,000 units.'' Even with projected increases in public housing construction, to 1 million units per year by 1985, it will be difficult to cut into the present housing shortage with demand growing ''at a ferocious annual rate,'' according to one Interior Ministry official.

And what is meant by substandard housing in Brazil is quite different from the term as understood in the United States.

Many of the 7 million Brazilian families who fall into the ''substandard housing'' category actually have no housing at all. In Rio de Janeiro, a half dozen families live under the masonry arches of an 18th-century aquaduct which, until recently, was considered a downtown tourist attraction. Roman Catholic officials in Rio and Sao Paulo permit hundreds of families in each city to spend their nights huddled against the closed doors of churches. They quietly ask the homeless to leave at daybreak, but permit them to return at night.

But most of the 35 million Brazilians who are officially ''victims of substandard housing'' continue to inhabit the immense, fetid favelas of Rio, Sao Paulo, Salvador, and other big cities.

One such slum is the sprawling system of 17 shack cities lining Rio's Guanabara Bay and extending all the way from downtown to the city's industrial parks district beyond the new International Airport. An estimated 250,000 Brazilians live in these claptrap wood, tin, and cardboard hovels, many of them built on rickety stilts over the calm waters of the inner bay. The favela dwellers use the most primitive of all sanitation systems, the slow, quiet tide of the bay itself, which is usually black and fetid with the slums' sewerage. For this reason, the largest of the 17 slums is called Slum of the Tide.

Fifteen hundred of Interior Minister Andreazza's 700,000 units of public housing went to the Mare Favela dwellers this year. By next year the federal government's program to ''urbanize'' Mare will be completed when another 8,000 units are delivered. But even then only one-fifth of the region's families will have been moved to the colorful little houses being built a few kilometers away along Avenida Brasil, the polluted highway leading to Rio's industrial parks.

Even Andreazza admits the program is inadequate. The problem, he says, is money. Each of the tiny houses (average area 34 square meters) costs the government $3,000. But the new homeowners will only pay the symbolic sum of 10 percent of one minimum salary per month over a period of 15 years. Since the government-enforced minimum salary is a bare $85 a month, the Interior Ministry can never hope to recover the cost of construction. Nor do its policymakers intend it to.

The huge gap between what Brazil's poor can pay and the money the government needs to provide housing for everyone can only be closed with the aid of federal government appropriations, of which some $3 billion have been made available this year.

But even then, officials admit, many of the working poor will be left behind in the favelas.

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