National Agenda : Brazil Gets Impatient With New President : Franco is failing to put the country’s financial house in order, economists claim. They see more ‘stagflation.’

When President Itamar Franco came to power in October after the impeachment of Fernando Collor de Mello, Brazilians hoped that the government would start coming to grips with Brazil’s pressing economic problems. Those hopes are fading as Franco fails to organize a convincing offensive against a painful recession and inflation of more than 1,000% a year.

Two Franco finance ministers have struck out so far, and expectations are gloomy for a third one now at bat. But the main problem is not the ministers, according to many analysts, who say the president is not only ignorant on economic matters but impetuously disdainful of sound advice.

“The crisis is Itamar,” said Gustavo Franco, a Harvard-trained economics professor at Rio’s Catholic University. “He’s horrible. I don’t have a good thing to say about Itamar, not a single one.”

Itamar-bashing has replaced Collor-bashing as the national blood sport. And the diminished confidence in Franco’s leadership makes it all the harder for him to guide the country out of the dismal depths of “stagflation.”

So, as other Latin American countries make progress in efforts to put their economies in order, Brazil appears to be drifting perilously close to hyper-inflation and economic chaos. Many Brazilians find cruel irony in the fact that this is happening to the Latin American country that once seemed best-suited for economic greatness, with its large population and abundant natural resources.

“This is not the Brazilian destiny,” said economist Carlos Langoni. “We have everything to be a very rich country.” Like many other analysts, however, Langoni sees little chance of turning Brazil around in the remaining 22 months of Franco’s presidency.

Franco “was not prepared to be president and has no clear idea of what Brazil needs in social and economic terms,” Langoni said.

Brazil’s economic decline dates back to the early 1980s, when the country was under military rule. Industrial production is now 7% less than in 1980 and still dropping, while per-capita income is 5% less and also dropping.

The economy shrank by nearly 1% in 1992 and by a total of about 4% in the first three years of this decade. Inflation in 1992 was 1,129%.

Hopes for a turnaround have been repeatedly dashed. Jose Sarney, a civilian who served as interim president after the military relinquished power in 1985, temporarily revived economic growth and brought down inflation by freezing prices. But Sarney’s economic program fell apart, stagflation returned, and when he left office in 1990, prices were shooting up by a hyper-inflationary rate of 80% a month.

Collor also temporarily controlled inflation, but it has been running at more than 20% a month for the last year. It was 29% in January and 24% in February, according to an official index.

After the lower house of Congress impeached Collor at the end of September, holding him responsible for a multimillion-dollar corruption scheme, then-Vice President Franco became acting president. Collor finally resigned in late December, and Franco was sworn in to finish the term.

Each of Franco’s first two finance ministers resigned in disagreements with the president before presenting a full economic plan. Paulo Haddad, the second one, quit after only 61 days in the post.

After consulting hurriedly with a closed circle of advisers--none of them economists--Franco appointed Eliseu Resende as the new finance minister, setting off alarm bells among politicians and economists.

Resende, 64, had been a faithful servant of the 1964-1985 military regime, heading the national highways department and then the Ministry of Transportation. In those capacities, he played key roles in several grandiose construction fiascoes such as the $1.5-billion Trans-Amazon Highway, largely abandoned to washouts and jungle overgrowth, and the $2-billion Steel Railroad, which never was finished.

The government auditing tribunal convicted Resende for financial irregularities in his tenure at the highways department, and critics claim he favored friendly contractors with lucrative contracts.

In 1982, Franco accused Resende of using public funds for a political campaign, but by 1986 the two were political allies.

Franco served 16 years in the Senate before becoming Collor’s running mate in the 1989 presidential campaign. According to campaign insiders, Franco threatened to quit the ticket more than once in flashes of temperament over small matters.

As president, Franco has continued to give evidence of a prickly and unpredictable personality. After the latest change of finance ministers, published rumors said the president was severely depressed and had considered the possibility of resigning.

Most economists agree that inflation can only be conquered if the government eliminates a chronic fiscal deficit by spending no more than it receives in revenues. Franco has promised a fiscal reform but so far has done little more than push for congressional approval of a tax on bank withdrawals and transfers.

Franco also promised to privatize inefficient and heavily subsidized government corporations. Privatization, however, has been delayed by a review of rules governing the selloffs.

Early this month, the head of the privatization effort quit, saying the administration had improperly “disrupted and interrupted” the program.

According to a report by the newspaper Folha de Sao Paulo, nearly 60% of Brazilians live on $60 a month or less per person. Inflation hits the poor majority hardest because they have no indexed bank accounts and investments to compensate for the constant avalanche of price increases.

“Social problems are very close to unmanageable. It’s a very dangerous situation,” said Helio Jaguaribe, head of the Rio-based Institute for Social and Economic Studies. But Jaguaribe said the social problems cannot be tackled without putting government finances in order.

Gustavo Franco, the Catholic University economist, agreed. “We’re not going to stabilize under Itamar,” he said, outlining a likely scenario for the future:

President Franco, desperate to control inflation, imposes a price freeze within three months, but it doesn’t work for long. A few months later, inflation is running wild. It reaches 30% a month by January, 1994, when a new campaign for the presidency goes into full swing. Political pressure for greater government spending fuels hyper-inflation of 150% a month by the time a new president is inaugurated in 1995.

Not all analysts foresee such dismal developments, but even some government officials are far from optimistic. Jose de Andrade Vieira, Franco’s minister of industry and commerce, said in a recent speech, “I confess that I don’t see light at the end of the tunnel.”

Wild Economic Ride

President Jose Sarney brought down Brazil’s inflation and boosted growth after taking office in 1985--but not for long. The same thing happened to President Fernando Collor de Mello, who took office in 1990.