Sep 9, 1998

BRAZIL: CRISIS MAKES PROTECTIONISM A HOT TEMPTATION

Rio de Janeiro, Sep 7 (IPS/Mario Osava) -- International financial insecurity feeds protectionist temptations in countries like Brazil, forced to cut their trade deficit to reduce vulnerability.  

Plunging commodity prices sparked by the Asian crisis strikes the developing countries hard, especially the large oil, mining and agricultural exporters, while their markets are bombarded by cheap goods from countries with devalued currencies. 

Here, import restrictions appears a tempting alternative, particularly in countries which have tamed rampant inflation rates and are trying to consolidate monetary stability, where devaluation could be a disastrous setback. 

The effects of the crisis have already hit industrial goods, worsening the situation in Brazil. Its main export item, vehicles and auto parts, suffered a fall of 8.2% from July to August.  

"Only with great effort" will the sector be able to export $5 billion this year, said Jose Carlos Pinheiro Neto, chairman of the National Association of Automobile Builders, amending forecasts of six billion before the trouble. One obstacle is devaluation, which has made Asian products 20% cheaper, causing "an amazing increase in their competitiveness," complained Pinheiro Norte.  

Brazil's government, which initially predicted exports up 11% this year, cut back the forecast to five or six percent, reported Secretary of the Foreign Trade Chamber, Jose Roberto Mendonca.  

With imports slowing, and not growing as expected, the trade deficit this year may not surpass $6 billion.  

It is now widely accepted that foreign dependency must be reduced, both to avoid more damage from foreign crises and to allow accelerated growth of the national economy.  

With an annual deficit of around $30 billion in the foreign current accounts, Brazil depends on a regular flow of foreign capital. This prevents economic expansion, as the immediate consequence is an increase in importation and greater foreign imbalance.  

The official aim to double exports to $100 billion in 2002 would break this impasse were it achieved. And this is the reasoning behind the carefully controlled gradual devaluations of around 0.5% a month, with the government operating various promotion programmes. 

However, the international financial crisis renders this unviable, making the resources used for Brazil to finance its foreign debt hard to come by, a situation which demands immediate action - like the increase in interest rates announced Friday to contain capital flight. 

Communications Minister, Luiz Carlos Mendonca de Barros initially warned the changing situation was serious enough to demand restrictions on imports, but the strong reaction against this forced him to amend his statement to cover only "predatory imports" with the application of commercial defence laws.

Foreign Minister Luiz Felipe Lampreia spoke of possibly negotiating an increased common external tariff on some items with the other Southern Cone Common Market (Mercosur) members, as this is currently below the maximum allowed by the World Trade Organisation (WTO). 

The left-wing opposition alliance - with a campaign in full swing to prevent the reelection of President Fernando Henrique Cardoso on October 4 - have a far more dramatic view of the crisis and demand stricter control on imports. 

Barriers to "superfluous" goods and the use of all possible mechanisms, like anti-dumping measures, safeguards, regional agreements and reciprocity demands, are all included in the opposition programme, which discards currency devaluation at this critical moment for its impossible handling prospects. 

A right-wing opponent, deputy and former planning minister, Antonio Delfim Netto, also stopped calling for a change to the "exchange trap" Brazil fell into in 1994 and 1995 when using the overvaluation of the real as an anti-inflation mechanism. 

Netto. who was responsible for the massive devaluations made to tackle the foreign debt crisis of the early eighties, said that the "only way out" now for Brazil is to increase exports through subsidies to compensate for unfavourable exchange rates -- despite possible fights with competitors and the WTO.