What: The International Monetary Fund announced a $42 Billion
loan package designed to help stabilize Brazil's flailing economy.
Where: Brazil
When: November 13, 1998
Background:
After a century of intermittent military rule, Brazil in 1989 stages its first free presidential elections in 29 years. Following his election, inagural president Fernando Collor De Mello plunges the Brazilian economy, eighth largest inthe world and largest in South America, into its worst recession in 50 years. After his impeachment on corruption charges, De Mello's replacement appoints Fernando Henrique Cardoso Finance Minister. Over the next fiveyears Cardoso preceeds to bring down inflation from highs of %3000 to nearly zero by 1994. He is elected president in '94, and the Brazilian economy prospers until mid-1997 when the Brazilian stock market begins to show signs of poor performance, causing a panic which ultimately leads to the collapse of the Brazilian currency, the 'real'.
Although stock performance begins to falter in 1997, probably a result of investor anxieties over events in Russian and Asian markets, international concern does not reach public attention until early fall 1998, when investors, fearing a repeat of foreign market instabilites, begin to funnel billions of dollars in currency reserves out of the country. As the economic anchor of South America, analysts fear that the collapse of the Brazilian market could plunge the entire continent into recession, with negative repercussions worldwide.
In the midst of this economic turmoil, Cardoso's term expires. He campaigns for a second term calling for strict economic reformson aimed at capping government spending, reforming tax codes, and restructuring the national pension program, which consumes a dangerously large percentage of the Gross Domestic Product (GDP). Cardoso is re-elected, a move hailed by economists and world leaders as an indication of Brazil's willingness to accept the type of reform which proved problematic in Russia a year previously. However, less widely reported are results of the Territorial and Legislative elections, in which several anti-reform candidates are elected, thus forcing Cardoso to attempt economic reforms through a tenuosly organized four party coalition.
Following Cardoso's election, an agreement is worked out between Brazilian Finance ministers and IMF officials to supply 42 billion dollars in loans to the beleagured state over a period of several years. The first payment, 9 billion dollars, is invested in the treasury in an attempt to peg the value of the 'real' at a fixed rate against the dollar. This effort fails, and the Brazilian Central bank is forced to devalue its currency. Meanwhile, the Legislature has refused to pass the first of Cardoso's austerity measures, an increase in civil servant's contributions to their pension plans.
In mid-January 1999, facing rising interest rates, inflation and unemployment, the Legislature finally passes a first round of reforms, sensing that Cardoso has turned public opinion against the body, positing them as spineless pols willing to sacrifice the future of the country for political gain. But in the weeks following the vote, currency values continue to drop and the interest rate central bank raises interest rates twice in the last weeks of January. Public opinion quickly turns against Cardoso as the effects of his reforms begin to be felt throughout the country. His implication during the spring of '99 in a scandal involving privatization of the nations telecom systems further erodes public support.
Growing dissatisfaction with the President culminates on August 26th
in a 100,000 strong protest in the capital city of Brasilia in which protestors
call for Cardoso's resignation. Although Cardoso dismisses the protests
as 'directionless,' the following week he introduces a $580 billion spending
package which he claims will produce 8 million jobs. Analysts say the plan
is obviously a response to public dissatisfaction, but its merits remain
unclear.
Timeline:
September, 1998-Economists begin to voice concern over faltering Brazilian economy. Brazilian Finance Ministers and IMF officials begin to enter "intensified dialogue."
October 4, 1998-Fernando Henrique Cardoso wins re-election bid for Brazilian presidency.
November 13, 1998-IMF officials announce $42 Billion loan package for Brazil
January 1999-Despite IMF loans, Brazil is forced to devalue currency, sending stockmarkets plummeting worldwide.
Spring 1999-President Cardoso implicated in Telecom privatization scandal.
August 26, 1999-100,000 protestors descend on Brazilian capital, Brasilia, to protest rising inflation and unemployment.
August 31, 1999-President Cardoso presents new spending package in response
to public unrest.