Brazil

Here is a interesting asnalysis:
Today's Wall Street Journal (January 19, 1998) carries a solid analysis by

George Melloan of the IMF's role in "fixing," actually precipitating, the

events leading Brazilian currency devaluation. He writes, in part:



"Congress succumbed in October and a grateful IMF handed Brazil a $41

billion IMF package. But Brazil went the way of the Asian tigers anyhow....

Brazil still had some $45 billion in October when the IMF proffered its new

credit line and dispatched a $9 billion first tranche. This was supposed to

show the markets that Brazil could easily defend its admirable Real Plan,

which pegged the real to the U.S. dollar but allowed a very gradual

devaluation.



"The markets were not impressed. What's a lousy $54 billion in a global

foreign exchange market that turns over at least $1.5 trillion every day?

The only people who were impressed were Brazilian politicians, for whom $41

billion looked like a lot of money, quite enough for them to go on merrily

spending as if there would be no tomorrow, funding welfare programs and

pork-barrel projects. The markets, instead of looking at the IMF bailout,

were looking at the behavior of the politicians, the swollen Brazilian

budget, its vast and heavily featherbedded public sector and its $300

billion in debt that was compounding rapidly because of the high interest

rates the central bank was using in a vain effort to defend the Real Plan.



"The silence at the Treasury and the IMF last week was surely because those

institutions knew that they had sold Congress a bill of goods. This was not

a time to bluster, but rather a time for damage control. Francisco Lopes,

Brazil's new central banker hired to do the dirty work, had ill-advisedly

declared that the devaluation was consistent with the IMF deal last October.

That must have embarrassed Camdessus and company, who have taken a lot of

flak for promoting those disastrous devaluations in Asia. Mr. Lopes and

Brazilian Finance Minister Pedro Malan were summoned to Washington, perhaps

to try to help Mr. Camdessus, Mr. Rubin and Mr. Summers work out a

better-sounding story.



"But finding a better-sounding story isn't easy. The string of disasters

midwifed by the global money managers since 1997 is reflective not only of

misjudgments but of a fatal flaw in the existing "architecture." ...[A]

president who spends most of his working hours figuring out how to buy votes

with public money is not likely to be very critical of a multilateral agency

that does pretty much the same thing. It subsidizes two very influential

constituencies, international bankers and the profligate politicians who

preside over such places as Russia, Indonesia and Brazil.



"These bankers and politicians got the IMF's number a long time ago. They

knew that institutions, like natural organisms, fight for self-preservation.

The IMF keeps itself in business by winkling money out of rich nations such

as the U.S. and handing it out to the poorer brethren, who usually are poor

because of gross economic mismanagement. In this age in which income

transfers are deeply imbedded in politics, the IMF doesn't lack for clients.



"What is absent is any convincing evidence that this has made the world a

better place. Africa appears to be regressing, despite the billions poured

into it by the IMF, U.S. aid agencies and the World Bank. Asia, acting

partly on IMF and Treasury advice, took a big step backward, in terms of

living standards, with the 1997 devaluations, as did Mexico in 1994. The

Brazilian and Russian governments, living well beyond their means, were

shielded from reality for far too long. The people in such places now must

pay a price and their politicians will blame everyone but themselves,

including Bill Clinton and Michel Camdessus.



"The IMF has proved that it is impossible to get good conduct from

politicians by subsidizing their bad conduct. President Fernando Henrique

Cardoso made himself very popular when he killed hyperinflation and gave his

country a solid currency with the Real Plan. But he didn't follow through by

reforming government itself. Had there been no international safety net

supplied by an act of Congress, he might have seen fit to work harder. There

should have been plenty of evidence around that a monetary policy alone

cannot compensate for governmental indiscipline.



"So it's back to the drawing board for the U.S. Treasury and the IMF. Will

they really come up with some new "architecture" this time, something like

going out of the global management business? Don't count on it."

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