Brazilians Stay Wary of Collor’s Inflation Cure : Economy: President’s plan put an immediate halt to soaring prices. Now consumers, merchants and laborers await the long-term consequences.

They battled the fiercest inflation Brazil has known--the doorman, the engineer, the bank worker, the economist, the storekeeper. Now the beast is at bay, but they know the fight is not over.

The doorman, Francisco Andrade, smiled as he recalled how inflation suddenly stopped in mid-March. Prices were rising at a rate of more than 80% a month when newly inaugurated President Fernando Collor de Mello imposed an instantly effective package of price freezes and other emergency measures.

“It was a great relief because the way things were going, prices went up by the day, every day,” said Andrade, who works at an apartment building in Rio’s seaside Leblon neighborhood.

A thin man with gray hair and deferential manners, Andrade struggles to support his wife and teen-age son on a salary of about $60 a month. The hyper-inflation was devouring half his buying power in less than a month.

Then came relief. Then new concern.

Andrade is worried because prices are going up again. Unofficial figures put the monthly rate at about 3% in April and from 5% to 8% in May. Is the beast returning?

“If prices keep going up, it will come back,” Andrade reasoned. “We’ll just have to see how things are in three more months.”

The doorman has good cause for worry. Economists say keeping inflation under control while avoiding recession and unemployment will be a difficult if not impossible task. Yet that is the government’s goal.

Whether Brazil succeeds or fails will have continental repercussions. Because this country has the biggest and most heavily industrialized economy in South America, its ups and downs can boost or retard development in neighboring nations.

And two major neighbors, Argentina and Peru, are watching the Brazilian experience closely for pointers on how to deal with their own ravaging inflation.

The engineer, like many Brazilians, thought he knew how to do it. Whenever he received payments as a private consultant, he quickly put the money into the “overnight” financial market, where interest usually kept pace with inflation rates.

Before Collor’s inauguration in March, the engineer heard rumors that the new administration would impose a freeze on funds in the financial market. So, he switched about $30,000 to savings accounts, which also paid high interest rates.

“I told my wife, ‘Even if no work comes in for the rest of the year, we have enough to live on,’ ” said Urbano Mena, who specializes in petrochemical and transport engineering.

When Collor froze all but small savings accounts as well as most “overnight” funds, Mena suddenly was short of cash. He and his wife need $500 a month for living expenses, and Mena is putting another $500 a month into a retirement policy that will be paid off in January, when he turns 65.

Because of economic austerity brought on by the Collor plan for fighting inflation, Mena’s consulting work has dried up. He has had to borrow money from a son, cut household spending to a minimum and even sell a pair of ivory tusks he bought years ago in Africa.

“Thank God my wife has a job,” he said. She makes about $450 a month.

Mena deeply resents the freeze, which he calls a confiscation, but he agrees that the hyper-inflation had to be stopped.

“To live with inflation the way it was before is a complete misfortune, and the future was black,” he said. But he criticized the government for freezing the savings of middle-class Brazilians with a measure that Collor said was aimed at big speculators on the financial market.

“To get the big birds, they killed off all the little birds,” Mena said. “The big birds lost some feathers but weren’t hurt.”

When business executives warned that workers could not be paid because of the freeze, the government extended millions of dollars of credit to help meet payrolls. “For me there is no line of credit,” Mena complained.

And the engineer echoed the

doorman’s worry about returning inflation.

“This country hasn’t tamed the monster of inflation,” Mena said, adding darkly: “If all this has been in vain, it will go down as the biggest robbery in history.”

The government bank employee, like many of Brazil’s public servants, is afraid Collor’s anti-inflation program will exact too heavy a price. The government has vowed to reduce its payroll by one-third, cutting more than 300,000 jobs, and Collor has ordered his ministers to compile lists of the ones to go.

At the National Bank of Economic and Social Development in downtown Rio, employees went on strike earlier this month to protest plans to lay off nearly 200 people. The striking employees milled around a patio decorated with tropical plants under the bank’s 22-story building of smoked glass and concrete.

One of the strikers, a stocky man with curly hair, grumbled that the layoffs were part of a publicity campaign aimed at spotlighting government austerity.

“They are arbitrary dismissals,” the employee said. “It isn’t to streamline the government machinery, it is firing for numbers. They want to show numbers for television and the newspapers.”

The employee said he was 48 years old, worked as an administrative assistant and had been at the development bank 16 years. A hand-lettered sticker on his striped sport shirt said, “No Layoffs.” He refused to give his name, saying he feared reprisals.

“We are all afraid of the Collor government,” he said. “It is a fascist government.”

The Collor plan threatens not only jobs in the public sector but also those in private industry. The official Brazilian Institute for Geography and Statistics measured unemployment in April at 4.8%, the country’s highest rate since 1985.

The National Confederation of Industry said industrial production fell by 15% in April compared with the same month last year. The newspaper Jornal do Brasil has reported that government officials are expecting a decline of 2% or 3% in Brazil’s gross domestic product this year.

Labor leaders, while concerned about job losses, also protest that the Collor plan has failed to make up for losses in buying power due to inflation since mid-March. Wildcat strikes have flared up around the country, but a general strike planned for last Tuesday was called off for lack of support.

The economist said that the Collor plan could be rendered ineffective by labor courts if they require employers to readjust wages according to inflation indexes.

“Compulsory wage indexing is a very negative element for feeding inflation,” said Carlos Langoni, one of Brazil’s leading economists and the president of a financial consulting firm.

Langoni said it will also be difficult for the government to eliminate its inflationary budget deficit, even with massive layoffs and spending cuts. With the economy in a slump, he said, social security costs will increase and government revenues will decrease.

“If this happens, I think the whole plan will suffer a tremendous setback,” he said.

Another economist, Gustavo Franco, said much of the money that the government took out of the economy with the savings freeze has leaked back in through legal loopholes and official concessions. The increased monetary liquidity has helped revive inflationary pressure, he said.

Franco, a young professor at Rio de Janeiro’s Catholic University, said the government should “prolong the liquidity crunch, even increase it, and run a small recession that is necessary to counteract the inflationary pressures.” Without such measures, inflation will reach 20% a month by the end of the year, he predicted.

Langoni said a more prolonged recession will be needed to control inflation. “I don’t know whether the government is prepared to accept the political cost of this prolonged recession,” he mused.

The storekeeper said the Collor plan has caused a drop of 50% in business at the fancy home furnishings shop where she works. Her son owns the store, and the family has had to reduce its living standards because of the slump.

“We don’t spend without thinking,” said Mildred Santos. “All superfluous spending has been cut.”

But she said the sacrifice was necessary. “We couldn’t go on the way we were. I am totally in favor of the plan.”

The store was empty of customers. Some still come in, Santos said, “but they buy very carefully, which I think is what Collor wants. . . . I think people are living through a time that the country needed to get its balance.”