Yes, We Have No Cruzeiros

By Christine Gorman

There was virtually no money in Brazil last week. The stock exchange in Sao Paulo registered zero transactions on Monday. Shopping centers were deserted, restaurants empty. Cash-strapped companies laid off thousands of employees. Most flights on Varig, Brazil's international air carrier, and Vasp, the domestic line, were either canceled or flew empty.

The cash crunch was deliberate, the result of new President Fernando Collor de Mello's desperate all-or-nothing attempt to "obliterate" Brazil's inflation spiral, which hit a monthly rate of 73% in February. The severe clampdown, which the President unveiled just hours after his inauguration on March 15, went into full effect last week. By presidential decree, the plan freezes 80% of the country's banking and investment accounts; no one can withdraw more than $1,200 from savings for the next 18 months. And to cement his reform, Collor replaced Brazil's latest currency, the new cruzado, with the cruzeiro, at a rate of 1 to 1.

While many Brazilians have spent their cashless week standing in line trying to withdraw funds at banks, others have learned how to barter for food. Anxiety runs high: the number of people admitted to hospitals in Rio because of chest pain has doubled over the past several days. Yet Collor's shock treatment has actually boosted his popularity. Elected with 43% of the total vote last fall, he has 80% of citizens supporting his new reforms.

To make his plan work, Collor, 40, will have to overcome a stubbornly resistant economy. Under former President Jose Sarney, Brazil tried to implement three anti-inflation programs in four years. All failed, mainly because as soon as the reforms were announced, consumers rushed to buy goods, creating a new surge in inflation. They were betting that the government could not control prices, and they were right. Thanks to Collor's freezing of assets, that shopping surge seems unlikely to happen this time. But labor leaders have vowed to strike if the President follows through on plans to sell or close 188 state-owned businesses. The President's program would eliminate an estimated 50,000 of 700,000 government-paid jobs.

The President suffers from narrow political backing in the Brazilian Congress as well. His National Reconstruction Party controls only 22 of the 495 seats in the lower house. Unofficially, half of all members back his proposals. But the legislators are up for re-election in October and face enormous pressure from their constituents who worry about whether they will get their frozen assets back. "The poor are demanding I vote for the package, but the middle class will kill me if I do," says Congressman Luiz Henrique.

For Collor, the challenge is to persuade his citizens that the current reform plan is not like all the others, to be abandoned when things get tough. "I am driving a packed bus at 150 km per hour, headed for a cliff," Collor told a group of legislators last week. "Either we put on the brakes and some people get a little bruised up, or we go over the edge and we all die."

With reporting by Laura Lopez/Rio de Janeiro