Brazil: A squeeze on workers as President departs for US

After two back-to-back economic austerity packages, Brazil skids into July with an angry populace demonstrating in the streets and a reproving international community shaking its head at the nation's inability to put its house in order.

Overenthusiastic economic forecasts and a failure to pare government spending are behind Brazil's latest economic woes.

The International Monetary Fund (IMF) in late May found Brazil had not lived up to its end of an agreement to trim its debts and spending in exchange for a $ 411 million installment on a $4.9 billion bailout package this year. The finding also chilled private bank loans to the country.

When Brazilian economic planners scrambled to rectify this predicament - by lowering the ceiling on salaries, eliminating profit-sharing, and cutting employee benefits - Brazilians took to the streets. Employees are angriest about ''disindexation,'' or ending the policy that adjusted salaries to the rate of inflation.

Such steps affecting average workers are highly sensitive in a country where the minimum salary is less than $50 a month and inflation is running upwards of 120 percent.

This situation pushed President Joao Baptista de Oliveira Figueiredo out onto a political tightrope. On one side are workers and the unemployed marching in the streets against the austerity moves, crying for a moratorium or at least renegotiation on Brazil's $90-billion foreign debt. On the other side are the banks that think the cuts are too modest.

''Something's got to give,'' said a top official in a leading international bank here. ''It's not going to be the banks this time,'' he adds.

The country's financial predicament was precipitated largely by world recession, government overspending, a drop in demand for its key exports, and reluctance of major banks to extend further credit to a nation already deeply in debt.

President Figueiredo has implored Brazilians to ''be patient'' while the nation trys to straighten out its economic problems, but over the last two weeks the largest demonstrations in 15 years shook Rio and other cities. One day, rush-hour traffic in Rio de Janeiro was snarled for hours as 50,000 protestors marched down the main traffic artery shouting nationalist slogans: ''Out with the IMF'' and ''moratorium now.''

Last week, announcing the second round of austerity moves after the IMF had rejected the government's first effort, a weary-looking President went on television saying: ''We have to transform the objective to contain inflation into a national obsession.''

Brazil and Mexico are Latin America's two biggest debtors - each owing over $ 80 billion. One Western diplomat here says Mexico has made more progress since December, because the price on its oil exports did not drop as far as was expected and because it implemented more stringent austerity measures than Brazil.

Brazil has had further unsettling news: President Figueiredo travels to the United States mid-month for a medical exam, and possible heart surgery. Analysts hope the situation will not grow worse while he is away. He leaves his vice-president, Aureliano Chaves, a civilian in a republic of technocrats and army officers.

Opinion in Brasilia is divided over how to handle the debt. University of Sao Paulo economist Celso Martone, echoing both sides of the political spectrum, says: ''I don't know if this government is capable or willing to take the steps necessary to get the economy back in control.''

Meanwhile, it's virtually certain that more cuts will be made and more Brazilians laid off. And more demonstrations are expected.

''I don't think we're talking about massive social disorder,'' says a Sao Paulo banker. ''But it does raise the question of whether abertura (as Brazilians call the nation's slow steps toward democracy) can survive. I would like to think it could. But I'm doubtful.''

In April those same doubts became world headlines, as Sao Paulo exploded in three days of riots, sparked at least in part by the region's record unemployment rate (31.1 percent combined unemployment and under-employment). The nation's military troops were poised for intervention.

Now, three months later, unemployment is worse and other cities are tense.

''It's an old saying that Brazilians are blessed with a reserve of patience, '' says William Crane of the US consulate in Rio. As the economic crisis squeezes tighter, that saying is looking older all the time.