Brazil's economic soap opera. Finance minister in drama over strapped economy

Brazil's latest crisis reads like a pulse-quickening cops-and-robbers movie plot. Finance Minister Mailson da Nobrega plays Eliot Ness; the rest of the government, the Untouchables. Only the story is becoming a never-ending soap opera, ratings are dropping, and the price of popcorn is skyrocketing.

High drama held breaths last month in Bras'ilia, when Mr. Nobrega almost quit his job. He would have been President Jos'e Sarney's fourth finance minister to resign in less than four years. But at the 11th hour, the President asked Nobrega to stay and expressed his support for him. That scene is over, but experienced political analysts expect more of the same to follow.

The problem is an old one: how to cut government spending and keep bureaucrats and politicians happy. Over the next few months, the pressure on the minister to find an answer is only likely to worsen.

On the one hand, businessmen and bankers are pressuring Nobrega to take long-term action to cut inflation, which topped 24 percent in July. To do this, he must cut public spending and borrowing, a prime source of inflation.

There is also pressure from the Brazilian Congress. Legislators are finishing up a new constitution, which shifts revenues from Bras'ilia to local governments. This means that the 1989 federal budget, now being drafted, must include even bigger spending cuts.

Nobrega has promised the International Monetary Fund (IMF) that he will cut the federal budget deficit to 5 percent of gross domestic product this year, and to 2 percent in 1989.

At the same time, bureaucrats and politicians are protecting their turf. Caught up in November's municipal elections, many of them are demanding more federal spending and immediate action on inflation - to get votes for themselves or their favorite candidates. They also don't want to lose the funds they already have.

At stake is the future of Brazil's sluggish economy, which badly needs foreign funding to keep pace with a growing population, now about 140 million. To get the funding and lighten the burden of a $121 billion foreign debt, Brazil must convince creditors and investors that its economy can be made to work.

A man of integrity, Nobrega has had to make promises to win allies. Last spring, he told private creditors and the IMF that Brazil would cut its 1988 and '89 public deficits to bring down inflation. This helped to win over creditors, who have agreed to reschedule $62.5 billion worth of private debt and come up with $5.2 billion more in loans. It also helped to win over the IMF, set to lend Brazil $1.4 billion. But the funds won't flow as scheduled this fall and winter unless Nobrega can deliver.

The public deficit stayed within bounds the first half of this year. But as inflation surged in July and fed back into the deficit, the minister's promises became problems. He still needs to make more cuts and find new sources of revenue.

In the process, the minister is meeting resistance on several fronts. May, June, and July, for example, brought several costly strikes by federal workers. The worst was a month-long mail strike in Sao Paulo. Letter carriers got a 35 percent pay increase, which Communications Minister Antonio Carlos Magalhaes extended to all of Brazil's 175,000 communications workers.

Other federal workers took their pay complaints to court, and won. Under Nobrega's very nose, the finance ministry's federal savings bank, Caixa Econ'omica Federal, gave its employees a raise by disguising it as a loan, adding to the government's need to borrow funds.

These pay gains flouted a decree made in April prohibiting unreviewed federal pay increases. In response, the finance minister announced a 30-day audit to uncover and measure illegal increases. But since at least three ministers are at fault, the audit will probably only aim to prevent future transgressions, rather than punish past ones.

Nobrega has some supporters, though. Two weeks ago, for example, Citicorp chairman John Reed, on a visit to Brazil, praised him publicly. ``The [debt restructuring] agreements would not be impossible without the minister, but they'd be much more difficult,'' he told a Sao Paulo newspaper. Citicorp, Brazil's largest creditor, has lent the country $3.9 billion.

Now, as the minister negotiates the 1989 budget, he'll need Mr. Sarney to say no to powerful ministers. They are helping the President stay in power as many of his original supporters in Congress and state government dissociate themselves from him and the economy's problems.

Businessmen, both foreign and Brazilian, are backing the finance minister. They are concerned about the consequences on debt negotiations, investor confidence, and economic policy if Nobrega quits.

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