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Brazil's labor unions and the business community put much of the blame for the economic turmoil on Sarney and his Finance Minister, Dilson Funaro. Ironically, only a year ago Sarney was hailed for imposing the freeze on prices. But the artificial restraints generated an intense consumer demand that put renewed pressure on the economy. Before long, production capacity that was needed to turn out exports was being diverted to satisfy domestic demand. Even so, shortages of meat, milk, eggs and many other products developed. Ignoring the ill effects of the freeze, Sarney persisted with the controls until after congressional and state elections last November. Following his party's sweeping victory, the government almost immediately proclaimed price hikes of 50% to 100% on new cars, gasoline and electricity. Earlier this month Sarney finally decontrolled all prices except those of 61 staples, including milk, bread and rice.
As inflation exploded, the government faced a barrage of protests. In response, Sarney decided to oust the president of Brazil's central bank, Fernando Bracher, who was under criticism for letting interest rates rise too high. His replacement was Francisco Gros, an economist trained at Columbia University and a friend of Finance Minister Funaro's. The appointment of Gros strengthened Funaro's grip on financial policy, but the minister has yet to convince foreign bankers that he has a viable program for straightening out the economy.
In the meantime, distress has generated disorder. Last week in Rio de Janeiro thousands of truck drivers who haul food to warehouses went on strike for higher pay, and supermarket shelves began to empty. Some truckers who tried to deliver produce got their windshields smashed as they drove through gauntlets of rock-throwing pickets. After 48 hours of disruption, the strike ended when drivers received a hefty 72% raise.
As prices and wages spiral out of control, business strategy is virtually paralyzed. Says Thomas Michael Lanz, director of a Sao Paulo electronic-tools company: "We are all lost. We can't plan, we can't set prices, we can't decide whether to hire or fire." Senhor, the widely read Sao Paulo-based business magazine, put an upside-down map of Brazil on its cover last week with the headline GENERAL CONFUSION.
Against that backdrop of uncertainty, Brazil faces what are sure to be difficult negotiations on rescheduling its debt payments. Sarney will be under political pressure to take a tough line. Says Brazilian Labor Leader Jair Meneguelli: "You can't fill the bankers' bellies and the people's bellies at the same time." On their side, the creditors may be sympathetic, and if the talks go well, will consider giving Brazil new loans. But their patience will not last indefinitely. Says a U.S. banker based in Sao Paulo: "The banks want Brazil to admit it has problems, show a feasible plan for dealing with them, and stop throwing sand in the faces of creditors."