Brazil Squeezed Into Recession

Collor's attack on hyper-inflation continues, teaching new realities to consumers, businesses

SWEATERS, T-shirts, skirts, and shorts are nicely displayed in the downtown storefront. ``Take advantage of our introductory spring/summer prices,'' implores a banner over the entrance to the small, empty store.

``Buy today and pay only on Dec. 12 with your ELO credit card,'' pleads a hand-lettered sign. A salesgirl stands ready in the doorway. But the most important element in this downtown tableau is missing.

Customers ``have no money, this is very clear,'' says store owner Lillian Ghelman. ``They stop at the window, they like the merchandise, but they don't buy.''

Brazil's recession began deepening last month, with serious effects on companies and consumers. In Sao Paulo alone, 286 companies began bankruptcy proceedings last month. A wage squeeze and real interest rates (after inflation) as high as 8 percent a month were the main causes.

Nationwide, at least 10 prominent companies last month filed for protection from creditors, laid off workers, or mortgaged assets to pay debts.

Government officials say they do not intend to help businesses in financial trouble, and that current tight monetary and fiscal policy will continue to be used against inflation. Cost-of-living wage increases will remain a private affair, without government intervention. Measures to alleviate the impact of the recession on poor, unskilled workers, are being considered, according to the economy ministry.

The fight against inflation is harder and longer than planned, partly because of increased prices on petroleum imports. Officials now expect inflation to fall below current levels of 14 percent a month only around March, and say the recession may last until mid-1991, at least. Meanwhile, they urge new business and consumer attitudes.

``I renew my appeal to business people to avoid passing cost increases on to prices,'' said President Fernando Collor de Mello in a televised speech to his cabinet Oct. 29. ``Smaller profits are the only chance for survival tomorrow.''

A government advertising campaign features shoppers who compare prices before they buy, or even forego purchases that are too costly. The ads are part of Mr. Collor's attempt to retrain consumers for a new economic environment. Earlier, comparison shopping was self-defeating because real values were hard to determine and prices rose faster than consumers could get around from store to store.

Deciding to forego a purchase is getting easier for most Brazilians, strapped as they are. Looking wistfully at a pair of Bermuda shorts in a shop window, Sandra Maria da Silva says she hopes to buy them next month. In her job as a reservations clerk at a travel agency where she has worked 10 years, Ms. Silva earns $400 a month. Her family's prime breadwinner, she spends a third of this on food. The shorts cost $23. ``I want to leave my job, I'm not earning enough,'' she says. ``I would like to study English but can't afford to.''

Hard times are adding new legions to the ranks of Brazil's poor, researchers say. While in 1985, 40 percent of the population was poor, professors at the University of Campinas expect the 1990 rate to have grown to half - 70 million - of the Brazilian population.

For the last four months, the monthly minimum wage of $60 has not been enough to buy the government-designed ``basic-basket'' of 13 food and consumer products, according to a union-financed research group, Dieese.

Retailers have been among the first businesses to buckle. The big Rio de Janeiro retail chain, Casas Pernambucanas, filed Oct. 22 for creditor protection, citing debts to suppliers totaling about $111 million, and an undisclosed debt to banks. Pao de A,cucar, the country's largest supermarket chain, raised $100 million with the mortgage of its headquarters and credit from its operation in Portugal, to staunch losses and help pay its 8,000 suppliers a $60 million debt. And Mesbla, the No. 2 department store, got a $25 million capital increase from shareholders to ease its shaky finances.

Economists and businessmen say that retailers are feeling the pinch first because inflation previously masked bad management and high operating costs. In times of high inflation, retailers invested incoming cash in the high-profit money market before paying suppliers. Now that inflation has dropped from an 80 percent high in March, the real costs of doing business are apparent.

Embraer, an aircraft manufacturer that supplies many United States regional airlines, on Oct. 31 announced the layoff of 4,100 workers, a third of its work force, and a 50 percent wage cut for high salary earners.

``Lots of companies are going to fold,'' predicts the local president of a United States advertising agency. ``This situation was necessary, it's a touch of reality. Companies had too many employees, without knowing what for. The change that this country will undergo is very important.''

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