Brazil Sticks to Economic Plan Despite Setback : Early Reports Show Big Inflation Rise in March

A sharp increase in the cost of living has undermined the Brazilian government’s latest plan for controlling inflation, but officials vow that they will press on with the proposal.

The program of consumer price controls and government spending cuts, imposed Jan. 15, reduced inflation from an official monthly rate of 28.8% in December to 3.6% in February. But according to preliminary calculations for the month ending March 15, inflation resurged to between 6% and 7%.

President Jose Sarney expressed “perplexity” this week at the March rate and warned that economic stability is important for strengthening Brazil’s democratic institutions.

“If hyper-inflation defeats us, it is the institutions that will be the first victims,” Sarney said through a spokesman.

Finance Minister Mailson Nobrega insisted that the March increase does not mean that the anti-inflation program, the so-called summer plan, has failed. “Although worrisome, it is not a threat,” he told reporters Monday. “It was an accident along the way that should not repeat itself in the future.”

Government Spending Blamed

The March inflation rate was strongly influenced by increases in rents, used car prices and other consumer costs that are not closely controlled, Nobrega said. In a television interview Tuesday, he promised tougher controls and added, “We believe we are correct and the results will appear.”

Mario Amato, president of the Industrial Federation of the State of Sao Paulo, blamed the resurgence of inflation on government spending. He said an increase of 22% in the monetary base since Jan. 15 “indicates that the government continues to spend more than it should.”

Part of the summer plan was a government pledge to eliminate its budget deficit if the Congress would approve personnel cuts. The Congress declined, however.

Some economists say major causes of official overspending and persistent inflation are heavy payments on Brazil’s $115-billion foreign debt and high domestic interest rates. In the past month the government has borrowed at monthly interest rates in the range of 20%.

“The interest rates should have been contained from the beginning of the plan,” economist Carlos Alberto Longo said. He said the March inflation rate of more than 6% is “proof that the plan did not work and that once again the workers are the losers.”

Wages Negotiated

A wage freeze included in the plan has raised waves of labor unrest and strikes. On Tuesday in Rio, bus drivers and train crews started a strike that left the city without its main means of public transportation.

Government, labor and business officials are negotiating the amount of a proposed wage increase that employers could pay without increasing consumer prices. The increase would be aimed at restoring the purchasing power that has been eroded from wages by inflation. Business leaders say the increase should be about 10%, while labor leaders are demanding 50%.

Since it succeeded a military regime in 1985, Sarney’s civilian administration has imposed three price control programs. After the failure of the second in 1987, inflation soared to a record 934% in 1988 and economic output failed to increase.