Toward a New Economics

Brazil is famous as the lost continent of economics. It has ignored all the rules, maintained a giddy inflation of 40% to 80% per year, built up a foreign debt of $3 billion, and seemed to be operating on four basic Brazilian principles: 1) God is a Brazilian, 2) confidence is a good racket, 3) paper is the stuff money is made of, and 4) the Americans would always bail them out anyway.

All that is changing. Having kicked out Leftist Joao Goulart, Brazil's new President Humberto Castello Branco is determined to put his country's economic house in order once and for all. To do the job, he has chosen Roberto de Oliveira Campos, 47, a brilliant economist and diplomat, who was Brazil's Ambassador to Washington until last December, when he quit in disgust at Goulart. As Minister of Economic Planning, Campos knows just how big a task he faces. In 31 months of Goulart, the value of the cruzeiro plummeted 83%, and the cost of living rose 340%. The confidence that had always helped Brazil grow in spite of itself disappeared--and so did many outside investors. Private foreign investment went from $85.1 million in 1960 to a trifling $4,500,000 last year.

Historical, Not Hysterical. Campos is far too shrewd to dream that he can turn the economy around overnight. "Our actions are based on historical-not hysterical--concepts," he says. Inflation is obviously the primary target, and as a first step, Campos hopes to slow the spiral to 70% this year. Even that would be a major victory, considering the current rate of 30% for the first quarter. By early 1966, if all goes well, he plans to get it down to a "normal"--at least for Brazil--10% to 20% annually.

For a starter, the new government has canceled Brazil's $200 million-a-year wheat and petroleum import subsidies, cut the national budget 30%, and is promoting a bill that will create a National Monetary Council for stabilizing finance and trade policy. It also intends to cut back commercial credit for businessmen, hold down those famous 100% wage boosts Goulart liked to pass out to unions, expand exports by offering credit insurance.

A $500 Million Boost. The government's mightiest weapon, however, promises to be an emergency tax law to reduce the estimated $1.1 billion budget deficit for 1964. That, says Castello Branco, is "the primary cause of our inflation," and he has already rammed through Congress a bill to increase revenues by $500 million or more this year.

Under the bill, every company has 90 days to revalue its assets to bring them into line with the inflated value of the cruzeiro. The companies will then be required to pay a capital gains tax on the new figures. They can either pay in cash or, for a sweetener, buy a stake in the new Brazil by putting the money in short-and medium-term government bonds paying 6% interest. The government also firmly intends to collect some $23 million in back taxes.

To make the point crystal clear, Castello Branco's tough old War Minister Artur da Costa e Silva went on TV last week to remind everyone that the military will stand for no monkeyshines. "Go and pay now, gentlemen," he warned, "so that we do not have to come and get it from you. You owe a great deal to the revolution; and the government needs that money."

Planning Ahead. The strong measures have brought wounded howls from many Brazilians. But most businessmen are no longer in love with inflation and are ready to go along. "Inflation," says Sao Paulo Industrialist Paulo Quartim Barbosa, "is an illusion of grandeur and a guarantee of catastrophe." As for foreign investors, they were busy dusting off all the expansion plans pigeonholed while Goulart was in power. Willys-Overland do Brasil, the country's largest automaker, plans a $30 million expansion, Volkswagen is investing another $21 million in its Sao Paulo plant, Argentina's Bunge & Born is ready to go ahead with a $16 million superphosphates plant, Columbia Ribbon & Carbon plans an $8,000,000 investment, and Holland's Philips Lamp is set to build a $10 million TV picture-tube factory.

In the last month alone, executives of 35 major U.S. corporations have been scouting Sao Paulo, and this week six leading Brazilian businessmen will travel to New York--at Banker David Rockefeller's behest--to talk with 100 other U.S. prospects. "Only by creating wealth," says President Castello Branco, "can we distribute it justly among all Brazilians. We intend to support and stimulate capital."

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