Legacy of Woes

Five years ago Brazil's President Juscelino Kubitschek unlocked Brazil's treasure chest, hauled out fistfuls of cruzeiros and headed west, into the empty interior. He covered a lot of ground--establishing the new capital of Brasilia, creating an auto industry turning out 140,000 vehicles a year, increasing the gross national product an average of 6% a year, increasing steel production and power output. The trip was expensive: as Kubitschek prepares to clear out of Brasilia's Palace of the Dawn, the chest he leaves is a Pandora's box of fiscal troubles (see chart) for incoming President Janio Quadros.

Last month Kubitschek's money presses clanked out 4.4 billion cruzeiros worth 1/2-c- U.S. each, will probably add another 10 billion this month to meet year-end expenses. Total money in circulation: 194 billion cruzeiros--nearly three times the amount when Kubitschek took office. Brazil's builder-spender increased the internal debt more than five times, more than doubled the foreign debt. As a result, the balance of trade has slumped from a $194 million surplus in 1956 to deficits as high as $283 million in the succeeding years.

To keep the inflation-ridden economy from collapsing, Kubitschek must juggle his debts faster and faster. Caught short of dollars two months ago and faced with a six-month, $87.7 million repayment installment to the Export-Import Bank and the International Monetary Fund, Brazil arranged a six-month payments moratorium--but the next Brazilian ad ministration will have to resume payments. To meet the internal demand for dollars, the Bank of Brazil recently started selling (at a discount) certificates for dollars deliverable within 90 days. The first batch of $80 million must be redeemed in dollars beginning Feb. 1, the day after Quadros' inauguration.

Quadros' most grotesque legacy from Kubitschek is the outgoing President's 1961 budget, presented last week. By vastly underestimating expenses and conjuring up imaginary income, Kubitschek's budget wizards produced a fictitious surplus, estimated at 520 million cruzeiros. Even that "surplus" lasted only until Congress met to consider the matter and added more than 1,000 amendments (among them: deputies doubled their living allowances, voted themselves four all-expense round trips to Rio every month). In the blithe realization that it will be Quadros who will have to whittle the monster budget down to unpopular reality, Kubitschek signed the document, and then proceeded to open the permanent civil service rolls to an estimated 10,000 cronies and party hacks.

* Actually those of Thomas de la Rue & Co. Ltd. of London, which last year stopped printing 1 and 2 cruzeiro notes when someone discovered that they cost Brazil 1.2 cruzeiros apiece.

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