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It wasn’t that long ago — January 1999, to be precise — that the financial community in the United States led the world’s financial centers into panicking about the situation in Brazil. As proof of the ignorance that still prevails about Latin America, the financial difficulties that Brazil was going through were immediately thought to be a prelude to a major disaster, similar to the one Russia had experienced a short time earlier. Very few voices were raised to point out that, while Russia was a country where democratic government had not yet taken root and where both political and economic institutions were just being created and were still very fragile, Brazil was a fully functioning nation, with a vital democratic system, long-established financial institutions and a proven history of economic achievement over decades. To predict on the basis of the Russian example that Brazil’s economy would implode, and with it the economies of other nations in Latin America, was an act of “information terrorism.”
Indeed, for quite some time Brazil had been facing serious fiscal and financial problems, and over many months all of them had been thoughtfully dissected by international analysts. In March 1998 the international verdict was that president Fernando Henrique Cardoso’s administration was dealing very well with the problems it faced. It was praised for having overcome the 1997 crisis originated in Southeast Asia with emergency measures that “deserve the highest praise for being a strong response,” according to Carl Ross, New York’s Bankers Trust’s chief economist for Latin America, reflecting an opinion widely held in Wall Street.
Even as late in 1998 as October, the major international financial centers saw Brazil on a route to a safe haven. In November of that year the International Monetary Fund assisted Brazil with a credit package meant to avoid a crisis that appeared to be developing, in part as a result of events in other markets, but the world financial community was still of the view that President Cardoso was doing everything possible to sidestep the crisis, pressing Congress for measure to reduce the fiscal deficit, the most serious problem Brazil faced then.
However, that same international financial community was meanwhile undermining Brazil's economy with its loans to global speculators who were after the $63 billion in reserves in its central bank by attacking the real, the Brazilian currency, in the hope that the government would use those reserves in an attempt to defend it. But that was not mentioned in January 1999. Speculators' balance sheets are not subject to public analysis, and the speculators themselves, such as George Soros, acquire prestige as prophets of the financial catastrophes they themselves generate.
Brazil, as was expected by those who didn’t believe the Apocalypse was around the corner, not only failed to conform to those frightful predictions but has successfully navigated toward a much healthier economy than is had before.
Evidence emerged of a transformation in Brazil’s economy when early this year central bank figures showed a primary budget surplus in 1999 of $17.5 billion, more than the amount stipulated in last year’s agreement with the International Monetary Fund. The public sector debt was also within limits established in the IMF agreement. This was accomplished with a show of very strong political will that imposed strict constrictions on public spending and substantial taxes.
Last month, the Brazilian government won an important victory in its battle to reduce the budget deficit when Congress approved a bill which places strict spending limits on the federal government, states and municipalities. In another major victory for the government last week, the nation’s Supreme Court rejected by 10 votes to one a petition by opposition politicians who claimed that the law which encourages private-sector workers to retire later was unconstitutional. The enormous cost of pensions, which reached $26 billion last year, is seen by economists as the principal barrier to reforming public finances and reducing interest rates in the long term. Meanwhile, there are indications that the surge in inflation at the end of last year has dissipated, while the currency has gradually strengthened, boosted by capital inflows.
If any long-term lesson emerges from the crisis which Brazil went through a little over a year ago is that the sector that considers itself more respectable within the international financial community, which zealously cultivates an appearance of depth in its long-term analysis, soberness in its objective opinions on current events and serenity as to their vision of the future, throws all that image overboard as soon as it faces an event it had not forecasted. Economists and financial strategists immediately make theirs the superficial analysis, the interested opinions and the catastrophic vision of the future of the most crude speculators, whose actions define markets and help create conditions that work for their own benefit — something that time and again has been suffered by various Latin American countries.
Unfortunately, there is no hope that the truth that now emerges will prevent future examples of “information terrorism” originated in the United States by uninformed analysts, that so much damage can do to Latin American economies.
Claudio Campuzano is U.S, correspondent for the Latin American newsweekly Tiempos del Mundo and editorial page editor of the New York daily Noticias del Mundo. He writes weekly for World Tribune.com