Brazil and other developing countries are closely watching how the US stock market crisis will affect them. Some analysts say that Brazil is at an historic crossroads, and that the drop may push it to opt for a freer economy and more liberal trade laws. These analysts surmise that, as occurred in the Great Depression of the 1930s, economic turmoil and decline may actually push Brazil to take new approaches to stimulate economic development. But more pessimistic observers are skeptical this will occur.
If the stock market fall brings on a recession, as some economists predict, Brazil will be hurt on three fronts: its foreign debt, its exports, and investment from abroad.
In the short term, Brazil and other debtor nations will benefit from a drop in interest rates which has accompanied the market slump. Because their loans are tied to the prime rate in the United States, Latin American nations pay less to service their debts when rates are declining.
But the long-term outlook for interest rates is unclear. If rates rise, as some analysts predict, interest costs on Brazil's $111 billion foreign debt will rise as well. This week Brazil is closing negotiations on the end of its eight-month moratorium on interest payments to private banks. A cap on interest rates, to avoid just this kind of situation, has been one of the demands in Brazil's negotiations for new loans.
The market slide may be helping along the debt negotiations themselves, however. The shaky US financial situation will be slightly less worrisome for many creditor banks when Brazil begins paying interest again. It is expected to do so this month.
The US is Brazil's biggest trading partner, accounting for about a third of all exports. Americans are expected to buy almost $7 billion worth of Brazilian goods this year. But a recession in the US would cut demand for imports from developing nations. Delio Seixas, technical director at the Brazilian Exporters' Association said Brazil stands to lose from 20 to 30 percent of this income next year if the US economy falls into recession.
Exporters here say Americans are expected to pare their consumption of Brazilian products such as shoes, orange juice, and auto parts. Commodities such as coffee won't be as badly hurt, they say.
Brazil is also concerned about legislation in the US which could cut trade. Laerte Setubal, former president of the Brazilian Exporters' Association and an important exporter of processed wood products, is concerned about a rise in US protectionism.
``In 1929, the Depression brought on an exaggerated feeling of nationalism about the US economy,'' he said. ``There was a slogan: beggar thy neighbor. This is what is happening today.''
The Omnibus Trade Bill, which is expected to arrive on President Reagan's desk in the next few months, would restrict trade with countries that sell more to the US than they buy, or that restrict imports of US goods. Brazil, noted Mr. Setubal, falls into both categories. At the same time, the US is preparing to adopt import restrictions on up to an estimated $100 million worth of Brazilian footwear, textiles, and aircraft in response to Brazil's policy protecting its computer industry against US-made imports.
Foreign investment in Brazil has been falling off recently because of the country's own political and economic instability. Now, American and other investors just won't have the money to put into the country, according to different economists here.
The planned launch in February of the Brazil Fund, a new US-based fund that was expected to invest an estimated $100 million in the Brazilian stock market, has been postponed.
Already, Brazilian exporters are preparing for the worst, holding back on expansion plans and new hiring. Many say they hope to find new buyers in the European Economic Community to substitute for American customers. But Setubal noted that a recession in the US would probably spread to Europe. He added that Latin American countries, at long last, may be forced to learn how to trade with each other.
Some Brazilians say history might just repeat itself - and surprise the pessimists by providing an opportunity for progress. In the '30s, the depression rocked coffee prices, and ruined the Brazilian economy. But, when the drop in income took the prices of imported goods out of reach, Brazil had to industrialize.
``In 1930, we shut out the outside world,'' said Paulo Rabello de Castro, editor of a monthly publication on the Brazilian economy, Conjuntura Economica. ``Now, we do have to lessen our financial dependence, but we must also increase our technological and trade ties with other countries. The Brazilian economy is too closed.''
Mr. Rabello de Castro asserts that Brazil's economic and political resources are concentrated among too few sectors of society. With the return to democracy in 1985, this began to change. Now, the economy is coming to the end of the post-depression development phase, to take its place among the world economic powers.
Many Brazilians agree the economy must open up but doubt it is time to drop nationalist restrictions on foreign investment and on imports such as computer equipment.