Danielle Garcia

Eco 357L

S. Karene Witcher, “IMF Stifles Brazil, Economists Charge,” Wall Street Journal, May 01, 1984

Summary:

Celebrations over first-quarter economic results in Brazil are premature considering the austerity measures imposed by the IMF. Economic deterioration could lead to the country’s fourth consecutive year of recession. Further deterioration translates into more poverty and pressure to ease the austerity, undermines the credibility of other IMF austerity programs, and raises questions worldwide about the ability of the Brazilian government to repay principal on its debt.

The IMF plan for Brazil depends on a rapid reduction in inflation through the reduction of monetary growth. Although there isn’t a specified inflation target, implication points to lowering 1984 inflation to less than 100%; however, first quarter inflation measured at an annual 230% rate.

This is the fifth agreement between the IMF and Brazil since 1983. So far, Brazil has not been able to comply with any of the pacts due to its high inflation.

If Brazil succeeds this time in reducing its money supply growth, it will do so at the expense of higher domestic interest rates, which in turn will plunge privately owned Brazilian businesses into bankruptcy, followed by a reduction in consumption, a slowing economy and rising unemployment. Lack of credit affects private companies’ long-term growth, slows Brazilian exports, and affects the country’s competitive edge.

Critics agree that politically Brazil cannot afford to hold onto its planned levels; it will be forced by an angry populace to relax its grip on credit.