Brazil reels from `the vodka effect'

THE LATEST cover of the Brazilian news magazine Exame (Exam) carried a simple picture of a fried egg on a black background. "Estamos Fritos?" (Are We Fried?) it asked in bold red letters.

The magazine was referring to Brazil's current financial crisis, which has governments, financial institutions and investors jittery in the wake of the meltdowns in Asia and Russia.

Robert Rubin, US Treasury Secretary, said Brazil was the subject of "intense focus" throughout last week by the American administration, while the International Monetary Fund was mulling over what Brazil's Finance Minister, Pedro Malan, described as a "crisis prevention programme, not a rescue package".

Inside, Exame headlined its cover story with another question: "Will Bill save us?" President Clinton's remark last week that he would support Brazil helped the recovery of the Sao Paulo stock exchange, the biggest in Latin America. It had just endured its largest drop in response to the Russian rouble crisis. "The vodka effect," papers here called it.

But less optimistic statements, warning of financial collapse in Brazil, notably the international investor George Soros's comment that this country was "in the eye of the storm", sent the stock exchange, the Bovespa, on a roller-coaster ride in the past few days.

Better-off Brazilians continued to move their money abroad throughout last week to the tune of up to $1bn a day, even though they could get almost 50 per cent interest in Brazil since the government upped rates a week ago to try to keep cash in the country. Few believed the rumours that the cash-strapped IMF would scrape together $100bn to bail out struggling Latin American nations.

Complicating the crisis is the fact that Brazil faces general and presidential elections two weeks from tomorrow.

His critics say President Fernando Enrique Cardoso, running for a second term, is sweeping both problems and solutions under the carpet until the 4 October election, in which he is considered a certainty.

Whether or not that is true, Mr Cardoso is, oddly enough, cashing in on the crisis politically. His popularity soared in the week after the latest crisis, giving him 49 percentage points in the polls to 22 per cent for his nearest opponent, leftist former union leader Luiz Inacio "Lula" da Silva. Pollsters predict Mr Cardoso's support would constitute well over 50 per cent of valid votes cast on 4 October, the threshold for avoiding a second-round run-off.

"People just seem to think he's a better bet than Lula for handling the crisis," said Jose Fucs, executive editor of Exame. "It's a bit like Margaret Thatcher at her peak."

Mr Cardoso, 67, is a tall, suave, telegenic, multilingual intellectual and author educated at La Sorbonne. Mr da Silva, 52, a secondary school drop-out, former lathe operator and union leader, is a street-smart politician but has trouble articulating his policies, other than attacking those of the government, particularly on privatisation.

"Lula? For the love of God, he's ignorant. I'd prefer Fidel Castro," said Lourival Almeida, a taxi driver who, like nearly all Brazilians, expressed almost total uninterest yesterday in the crisis they consider, at least so far, as one affecting only wealthy speculators.

"Do you think our team took money to lose the final against France?" was his main concern. "Ronaldinho (little Ronaldo) should never have been on the pitch.

"For most Brazilians, this is not a crisis. Defeat in the World Cup was much worse. People were crying in the streets," said Mr Fucs.

"Most people here don't invest in stocks the way they do in the US or Britain. Businessmen are worried.

"People in debt are having big problems. But other people are living their lives. People here believe in what we call `jeitinho brasileiro' (the Brazilian way); that the world's not going to fall apart - that things may look bad but we can work it out.

"Look, in the middle of a so-called crisis, you have a privatisation worth nearly $1bn," he said, referring to Thursday's sale of the Sao Paulo state energy company Bandeirante de Energia.

He noted that the Brazilian economy, with a GDP of $800m, is many times the size of Russia's, that US investors have tens of billions in Brazil and that the US exports around one billion dollars worth of goods here a month. "Yes, if Brazil went down, it would have major repercussions in the US, Europe and the world. But are we fried?

"No, but we'll have to pay a price. Next year will be even tougher, with recession and possibly negative growth of 1 or 2 per cent. A country like Brazil just has to grow."

Commenting on the crisis, and Mr Cardoso's response to it, many Brazilians used a favourite local saying.

"He's pushing with the belly," they said, meaning he was stalling for time, putting off the most important decisions until after he is presumably re-elected.

Some economists predicted a devaluation of the currency, the real, by up to 10 per cent after the election, although the government strongly denies that will happen. Almost all said that Mr Cardoso would have to take tough fiscal measures to cut the budget deficit, currently a crushing 8 per cent of GDP.

Some warned of social upheaval if Mr Cardoso does not act soon to address Brazil's underlying problem, the vast rich-poor divide.