Rising Unemployment Seen as Peril to Brazil’s Recovery, Social Stability

Miriam Costa was in no mood to talk economics as she waited in an unemployment line here this month, hoping to find work, as she has every week since losing her job with a construction company in March.

The Brazilian government’s latest efforts to tame the economy have produced just one effect she cares about: She’s lost her job. So have 700,000 other Brazilians since austerity measures were imposed last October. Unemployment is now at a 14-year high.

“The company said it was having financial difficulties so they fired several workers,” said Costa, 25, a bilingual secretary. “Now it’s hard to get another job with a decent salary. The government has no idea what’s happening with the people.”

In a bid to ward off the effects of the Asian economic crisis and stop a run on Brazil’s currency in October, the government doubled interest rates to as high as 40% in October. That and other moves brought stability, replenished foreign reserves and drew praise from economists who applauded Brazil for escaping the devaluations suffered by the fallen Asian tigers.

Interest rates have subsided some, but the resurgence of trouble in Asia, especially in Indonesia, prompted Brazilian rates to surge again on Monday and contributed to the stock market’s biggest one-day drop in six months.

But many Brazilians might have preferred the disease to the cure. Those interest rates also made cars, appliances and housing unaffordable. The resulting fall-off in demand has caused a five-month recession and hundreds of thousands of layoffs over the last six months.

The latest government data showed unemployment hitting 8.9% nationwide in March, the highest since March 1984. Joblessness was even higher in industrial areas, hitting an astronomic 18% in Sao Paulo, the country’s manufacturing hub. About 220,000 industrial jobs have been cut in Brazil since October.

Meanwhile, despite a modest victory in Congress last week, the effort of President Fernando Henrique Cardoso to trim Brazil’s bloated system of pension benefits--a key source of the nation’s worrisome budget deficit--continues to encounter heavy political resistance. The pension system operates at a $9-billion annual deficit.

The budget deficit, headed to as high as 7.5% by the end of this year, threatens the government’s campaign to tame the hyperinflation and devaluations that have dogged it for two decades.

But the increasing unemployment is the grimmest news because, if prolonged, it could introduce an element of social instability that will threaten Brazil’s fragile recovery in the short term and economic reforms over the longer haul.

Economists such as Luis Fernando Lopes of Banco Patrimonio in Sao Paulo fear that jobs won’t rebound to precrisis levels until 2000 at the earliest.

“I see many people going broke, that is really increasing,” said Pedro Paulo Pontes, a 34-year-old lawyer who was fired two months ago. Standing in a downtown Rio de Janeiro unemployment line, he said Brazilian economic reforms have not produced enough “good results, especially regarding jobs.”

Joblessness is also being pushed up by the ongoing modernization and privatization of Brazil’s economy after decades of protectionism and inefficiency, said economist Paulo Levy of the Institute of Applied Economic Research in Rio de Janeiro.

Higher efficiency and better technology often cost jobs in the short term, Levy said, before leading to productivity gains, prosperity and more jobs in the future.

The “re-engineering” of Brazil’s economy is being fed by a flood of foreign investment in auto plants, computer factories and bottling facilities, among others, that last year totaled $16 billion. Despite Brazil’s problems, that flow of cash shows no signs of abating, said Julia Rauner Guerrero, principal commercial officer at the U.S. Consulate in Sao Paulo.

“The ship is not going to turn in a few months. The companies have a longer term view than that,” Rauner Guerrero said, referring to the allure of Brazil as an under-tapped consumer market with 160 million inhabitants.

For the next year or two, the government can pay its deficits with proceeds from the privatizations, which will total $20 billion this year alone. But once the state-owned utilities, ports and transportation facilities have all been sold off, what then?

The other good news was that Brazil’s foreign trade imbalance at last is shrinking: It has dropped to $1.6 billion for the first three months of 1998, compared with $2.5 billion last year. A 14% rise in agricultural exports such as soybeans, coffee and cotton, is largely responsible, said Lopes of Banco Patrimonio.

But the only deficit on Jose Carlos de Souza’s mind Wednesday as he waited in an unemployment line was a personal one. Since he lost his job as a porter last month, the 32-year-old father of two has had to turn to friends and relatives for financial help to make ends meet.

“A lot of friends have lost their jobs,” said De Souza. “Things are really taking a bad turn.”

Times researcher Paula Gobbi in Rio de Janeiro contributed to this report.

* RIPPLE EFFECT: Latin American stocks follow Asia sharply lower, as dollar soars. Market Savvy, D5

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Out of Work

Brazil’s unemployment rate leaped to a 14-year high in March. Percentage of unemployed: 8.9%

Source: Datastream

Researched by Jennifer Oldham / Los Angeles Times