Brazil Acts to Halt Record Price Rises : Some Food Prices Frozen, Issuance of Currency Curbed

Brazil’s finance minister, reacting to a record monthly increase of 16.2% in the cost of living, has adopted drastic measures to halt the inflationary issuance of new money.

The rise in the official consumer price index for January pushed Brazil’s annual rate of inflation to 238%. An earlier official estimate of the January inflation rate, put out recently by the Brazilian Institute of Statistics, indicated that it would be only 15.7%.

The government’s first reaction to the January inflation figures was to freeze the prices of rice, beans, bread and beef. Then President Jose Sarney refused to transfer scheduled payments to Brazilian states and cities.

Rising inflation in Brazil has been worrying foreign creditors and has delayed refinancing of the country’s $100-billion foreign debt, the world’s largest.

Central Bank’s Power Curbed

Finance Minister Dilson Funaro, presiding over a meeting of the National Monetary Council, stripped the government-owned Bank of Brazil of the authority to cover government deficits by obtaining limitless transfers of cruzeiros from the central bank.

Under this longstanding practice, by which governments have circumvented budget limits, the Bank of Brazil issued the cruzeiro equivalent last year of $4.5 billion. The money provided low-cost credit to farmers, financed exports, subsidized wheat imports and paid for other government outlays not covered by budget revenue.

But under the pressure of January’s record inflation jump, Funaro decided to turn off the money tap. He ordered the central bank to transfer resources only up to the amount generated by fiscal revenue and planned borrowing.

Savings Accounts Affected

This would mean tighter control by the Finance Ministry of government spending. The goal is to bring the monthly rate of inflation down to 10% by April, Funaro said.

The finance minister also took over 25% of new investments in savings accounts in the National Mortgage Bank. As a result, the money will be available for the purchase of government securities, helping finance this year’s $25-billion federal budget.

The measures against monetary expansion are expected to stabilize interest rates, which have been rising, because less government borrowing from the public will be needed to balance the budget.

Previously, Funaro has emphasized expansionary policies intended to encourage economic growth and to increase the standard of living. Brazilian workers last year achieved real wage gains, relative to inflation, for the first time in five years.