Brazil’s Economy Teeters on Verge of Collapse


The Brazilian economy has been teetering on the edge of collapse since last August. The billions of dollars in loans made by the United States and the International Monetary Fund have failed to stop the collapse of Southeast Asia and Russia. Another $41.5 billion was pledged at the end of last year to save Brazil.

While this latest domino to begin tipping over may yet be temporarily stabilized, steering the world economy back toward some measure of equilibrium and avoiding a generalized global collapse is extremely unlikely.

As of Jan. 27, Brazil’s reserve fund has dwindled from $75 billion to, perhaps, $30 billion. (Figures cited vary from one news publication to another.) Brazil has also used up the IMF’s first allotment of $7.1 billion of its pledged bailout money.

And in just the last eight business days before Jan. 27, the country’s currency, the real, lost a third of its value; government bonds have fallen to half their face value. And worse, in accord with U.S./IMF policy, further payments on their $41.5 billion pledge will not come until their austerity demands are met.

Seven years of economic boom followed President Cardoso’s tying the real to the dollar. A triple digit rate of inflation* before his election was almost instantly reduced to single digits afterward.

This resulted in a flood of foreign investment and a vast expansion of credit. “Curing” its hyper-inflation by maintaining a dollar in its reserve fund for every real in circulation allowed Brazil’s deficit to be hidden while its credit climbed way beyond the value of its assets. Thus, the country found itself with diminished ability to pay off lenders when their loans are called in.

Eventually, currency traders, sensing that the real was really worth less that its peg to the dollar, triggered a panic selling of reais** for dollars. And as happened in Asia and Russia, Brazil’s currency went into free fall. That, in turn, let the air out of Brazil’s economic boom.

Business Week, one of corporate America’s advocates, notes that “there is no end in sight to the financial crisis gripping the world economy….” The piece, which first appeared in this magazine’s international editions, was reprinted in the Jan. 25 New York Times under the headline “Latin America: The Fire Next Time.”

This big business magazine’s gloomy but accurate assessment hits the nail on the head. The following excerpt captures Business Week’s perception of Brazil’s and the world’s economic crisis:

The IMF no longer knows how to stave off or mitigate crises. … But the larger reasons for failed IMF policies in Brazil are these: We live in a deflationary world-defined by overcapacity and insufficient demand. The austerity policies forced upon countries by the IMF in return for loans transform bad debt problems into economic debacles. … The austerity policies of the IMF and the U.S. Treasury aren’t part of the solution. They are part of the problem.

But that’s only half of the current crisis in Brazil. While the IMF’s conditions for aid continue to be “part of the problem,” their austerity “solution” is meeting stubborn resistance from the Brazilian working class.

High level of class consciousness

The Brazilian working class is unique in that its level of class consciousness and combativity have been on the rise for more than a dozen years.

The Workers Party, which rose from a small vanguard to a mass workers’ political movement in this past period, is only the most visible expression of the high level of class consciousness of Brazilian workers. However, like most mass workers’ parties in the world today, its leadership lags far behind the consciousness of its worker vanguard.

The Jan. 17 edition of The New York Times reported on the impact of the crisis on Brazil’s industrial workers. The report describes the takeover on Jan. 5 of a Ford auto plant by 2800 laid-off assembly line workers and their still-employed comrades.

Larry Rohter, the Times reporter, describes the impact of the crisis on the country’s workers: “For Brazil’s 275,000 auto workers, once considered the elite of the working class, that means hard times after years of hard-won improvements in their standard of living. ‘Yesterday, I was dreaming,’ reads the bumper sticker on a car parked outside the Ford factory here [referring to the recent economic boom]. ‘Today, I can’t even sleep.'”

Twelve days after Rohter’s report, Ford had not yet moved against the workers occupying their plant. Capitalists, of course, know that failure to forcefully and effectively respond to such methods of struggle will lead to more of the same.

Thus, it’s not hard to see that if this crisis persists, unemployment and other hardships will mount to ever more dangerous levels. Historical experience teaches that when workers have had a taste of higher living standards and a better life for them and their families, the reality of being pushed back to their previous condition can have highly undesirable consequences for capitalists.

Workers, after all, have been known to conclude that if their bosses can’t keep the economy going and provide workers with the means of a decent livelihood, they may just have to do it themselves!

The need for workers’ leadership

It’s these factors that most explain why the capitalist government headed by President Fernando Henrique Cardoso has been stymied so far in efforts to impose austerity on the workers.

The powerful state governors have been paralyzed. Fearing an explosive worker backlash, they have so far foiled Cardoso’s plans by refusing to go along with the austerity conditions required by the U.S./IMF bailout.

But if the economy continues to sink and unemployment and other hardships increase, class struggle and even social revolution is in the cards. How it turns out in Brazil, of course, depends on many variable factors-primarily that of leadership.

In this regard, Brazil’s workers have an advantage over most. There are at least two sizeable and influential Trotskyist working class parties in Brazil-the United Socialist Workers Party (PSTU) and Socialist Democracy (DS).

Either one of these revolutionary socialist parties (or it is to be hoped, both joined together) have the capacity to grow into a mass revolutionary workers’ party in the course of the coming social upheavals.

Of course, success will depend on the very difficult task of applying intelligently and consistently the lessons of working-class successes and failures upon which the social laws of class-struggle strategy and tactics are based.

(Update: The Jan. 30 New York Times reported that the “real tumbled well past the psychological barrier of two to the dollar. The currency, which lost just 7.5 percent of it value last year, has plummeted 43 percent in less than three weeks after the government abandoned its policy of defending the real’s value by purchasing it with dollars in the foreign exchange market.”)

* Before Cardoso was elected president, Brazil’s currency declined as much as 30 to 40 percent per month.

** “Reais” is plural in Portuguese for “real.”

Related Articles

Behind Sam Bankman-Fried’s Cryptocurrency Crash

FTX’s plunge from $32 billion to bankruptcy and the collaping value of cryptocurrencies shows the speculative casino nature of the capitalist economy, where unimaginable wealth is driven by fictitious capital.

Summer Strike Wave Hits Britain

In Britain, the working class is experiencing a wave of strikes and “Industrial Action” from some of the largest established unions in the country, activity that disrupts the economy. These striking unions have made political demands in recent years to renationalize mail, rail and the electric grid.