A Mountain of Debt in Brazil

International bankers are hooked by the biggest borrower

On those frequent occasions when their country careens toward yet another seemingly insoluble crisis, Brazilians like to reaffirm their abiding faith in last-minute miraculous rescues. "God," they say, "is a Brazilian." If ever Brazil needed divine intervention it is now.

With its huge size and vast mineral resources, Brazil ought to be one of the world's most prosperous nations. Instead a series of policy blunders and punishing outside factors have pushed the colossus of the south once again into a quagmire of economic problems.

After subsiding for nearly a decade, inflation is now racing upward at the stunning annual rate of 106.8%. Ironically, that is even a little higher than the rate that prompted Brazil's generals in 1964 to overthrow duly elected President Joao Goulart and establish a military dictatorship. Meanwhile, the Brazilian cruzeiro continues to plummet in value--from 26 to 54 per $1 during the past twelve months. Unemployment is climbing, and only a fraction of the young people entering the labor pool each year ever find jobs. One consequence: alarming crime rates in the ever more overcrowded cities.

In addition to these problems, Brazil has a relatively new and even more pressing problem--piles and piles of debt. Keeping company with such indigent nations as Zaire, Peru and Bangladesh, Brazil has earned the dismal distinction of being the developing country that has plunged most deeply into deficit. At the moment, it owes the astonishing total of more than $50 billion, mainly to international banks.

Even for Brazil, which has the free world's eighth largest economy (G.N.P.: $209 billion), the burden of carrying such debt is debilitating. Just paying the interest charges on it will cost $7.3 billion this year. Unable to generate such funds on its own, Brazil must borrow to stay afloat; this year it needs an additional $12 billion, but so far has managed to raise only $6.8 billion. Yet many of the big international banks are approaching their credit limits for the country.

The man in charge of managing the crisis is Planning Minister Antonio Delfim Netto, 52, the country's most powerful official, after President Joao Baptista de Figueiredo. A cherubic, Chicago-trained economist, Delfim held the post of Finance Minister during Brazil's prosperous early '70s. He is convinced that the country can solve its problems only by aggressive growth, especially in exports, agriculture and the creation of new energy sources. Thus he is pressing ahead with development projects like the $10 billion Itaipu Dam, the world's largest hydroelectric project. As Delfim explained to TIME Buenos Aires Bureau Chief George Russell: "We are a classic case of an underdeveloped country with an excess of government spending and with difficulty in expanding exports to cover the cost of imports."

Like other oil-poor developing countries, Brazil is a victim of rising petroleum prices. Despite last year's impressive 35% rise in exports, to $9.2 billion, Brazil suffered an overall trade deficit of $2.7 billion. This year's higher petro prices are pushing its trade deficit more deeply into the red. The deficit is worse because the previous military regime flagrantly neglected the agricultural sector. The unhappy result: despite rich agricultural resources, Brazil last year had to spend $1.8 billion on food imports alone.

Delfim is fostering a revival of Brazilian agriculture through an incentive system that will grant credits and guarantee floor prices to farmers. On the petroleum front, President Figueiredo and Delfim are wooing Venezuela, Mexico and Iraq in hopes of securing assured supplies of oil.

Delfim's aim is to more than double Brazilian exports to $40 billion or so by 1984. With West German help, for example, he intends to turn Brazil into an exporter of such high-technology items as nuclear reactors. Unfortunately, most of Brazil's industry is so tightly controlled by an oppressive bureaucracy that it generally lacks the entrepreneurial spark to compete effectively in world markets.

Despite Brazil's perilous economic state, few international bankers expect that its funds will be cut off. Most banks are awash in deposits and looking for places to make safe investments. Says Vivian Morgan-Mendez, an economist at S`ao Paulo's Banco de Boston: "What other country looks better as a long-run proposition?" The answer, of course, is that many do. But Brazil has achieved that most enviable role of a debtor: it is so far in hock to so many banks that its creditors cannot allow it to go broke.

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