Way Clear for Sarney to Refocus Brazil’s Battered Economic Policy

The resignation of his finance minister has given President Jose Sarney of Brazil a needed opening to refocus official economic policy in the face of a formidable array of domestic and foreign critics.

Sarney is seeking not only to save the economy from a damaging crisis but also to salvage the prestige of Brazil’s first civilian administration since 1964.

Discontent among businessmen, labor leaders, consumers, politicians and foreign creditors has undermined government credibility, a needed ingredient for any successful economic program. Many analysts believe that the removal of Finance Minister Dilson Funaro was an inevitable first step toward restoring credibility.

Funaro, 53, announced Sunday that he had submitted his “irrevocable” resignation. His successor, and any changes in economic policy, have yet to be announced.

‘A Passing Episode?’

“If his resignation is only a substitution of persons, and not a redefinition of the state’s global policy in the economy, it will simply be a passing episode,” commented Mauricio Tragtemberg, a professor at the Getulio Vargas Foundation.

It will be difficult for Sarney to make any deep changes in economic policy. The Brazilian Democratic Movement, the party that gives the government its main political support, is committed to Funaro’s basic policy of economic growth at any price.

Since the beginning of the year, the price Brazilians are paying includes inflation averaging 15% a month. This has fed a wave of strikes by labor unions, which complain of rapid deterioration in workers’ purchasing power.

Meanwhile, Brazil’s foreign trade surplus has averaged $175 million a month so far this year, down from monthly levels in the range of $1 billion last year.

Some economists say that austerity measures are needed to stabilize the economy and correct imbalances, but the Brazilian Democratic Movement rejects any austerity measures that could curtail economic growth, which was officially measured at 8.2% in 1986.

In February, the government announced the suspension of interest payments on about $70 billion in loans from foreign banks. Sarney said then that Brazil would not sacrifice economic growth to pay the debt.

The party endorsed the debt moratorium but has put increasing pressure on Sarney to come up with a more workable economic plan. Apparently recognizing that the government team’s credibility was part of the problem, some politicians in the party began calling for Funaro’s removal.

“He was used by the (party) and then became a scapegoat,” Roberto Macedo, president of the Sao Paulo Assn. of Economists, said. “The question is to see whether the new minister will be able to put together a coherent program.”

Veto Power Demanded

Ulysses Guimaraes, chairman of the party, has made it clear that the party will insist on veto power in naming the new minister.

“The Finance Ministry has to remain with the party,” Guimaraes told reporters Sunday in Brasilia, the capital. He said that economic policy should be coordinated “by a party, and not by a person.”

But a banker in Rio de Janeiro said Monday that Sarney is likely to seek more independence from party dictates in selecting a new finance minister and in formulating future economic policy.

“It stands to reason to imagine that Sarney wants a free hand,” the banker said. He said it is too early to tell whether Funaro’s resignation will make Brazil “easier to negotiate with from a foreign viewpoint.”

New Credits Wanted

In talks with foreign bankers about conditions for resuming debt payments, Funaro took a tough position, refusing to negotiate Brazil’s domestic economic policy. Brazil wants additional credits and softer terms for repaying existing debts, but many bankers are reluctant to extend credit unless Brazil imposes austerity measures aimed at economic stability.

Economic belt-tightening would risk new blows to the already battered popularity of Sarney and the party.