Point of VIEW.

A purely analytical perception...


BRAZIL

AN ACCIDENT WAITING TO HAPPEN

 

Continued from page 2

How Russia Did It 

Diametrically opposed to Brazil’s systematic liquidation of state owned assets was Russia, which effectively gave away the store immediately after the Berlin Wall came down. So anxious to please the Western financiers were the Russians, that through their disastrous coupon system, the prize resources of the country were hastily redistributed to the very people that were running the factories and businesses in the first place.  Worse yet, the peasants, not really understanding the value of what they had been given, traded the perceived worthless pieces of paper that they were given for valuable really consideration such as cigarettes and canned goods. Well-placed individuals were able to buy up the certificates en masse, purchase the state's assets for a pittance and, the same people are still in charge when the music stopped playing.  

The Environment

 The policies of both the International Monetary Fund and the World Bank, helped destroy a good part of the planet’s frail infrastructure. The creation of inferior and injurious infrastructure became their "Holy Grail" and uprooting of populations, destruction of species and rerouting of natural resources became a way of life.  No we aren’t trying to say that these were evil people or that they even planned things that way. It is just that there were many economic considerations that they did not take into consideration when they drew up their plans to create a better civilization.

 The majority of past projects funded by the major international lending institutions are in four ecologically sensitive areas: agriculture, rural development, and construction of power plants and roads. Expansive projects like hydroelectric dams in Latin American rainforests, government-sponsored migration into previously undeveloped areas, and single cash-crop agricultural and industrial expansion are some of the past projects that have not only destroyed the environment, but have also threatened the existence of many of Brazil’s indigenous native tribes. These projects have been designed to promote migration and development to remote areas. Unfortunately, many of these projects have failed and left the countries they were supposed to help with large foreign debts and environmental problems.  ([1]

For example, in the 1970's and 80's, Brazil used money borrowed from international lenders to promote migration into the interior of the rainforest. The government built large dams and roads that created easy access into the central regions of Brazil. The Brazilian government also offered subsidies to people who were willing to migrate into the rainforest. Many ranchers saw this as an opportunity to increase cattle grazing grounds, while simultaneously receiving tax credits for clearing thousands of acres of virgin forest. All of this mostly unnecessary development has caused increased foreign debt, runaway inflation, deforestation of Brazil's rainforest and the loss of many indigenous tribes.

 

 

Today, after years of development, Brazil has been blessed with one of the largest foreign debts of any third world country, as well as chronic problems of disease and overpopulation that are linked to environmental degradation. Farmers who could not support themselves in the rainforest have migrated to large cities looking for work, shelter and food just in time for Brazil’s worst drought of the century. Kind of an economic double header with devastating results.

 Unicef reported one of the strangest statistics on record when Halim Girade, the Brazilian health director announced that the country’s drought and the corresponding food shortage in the northeastern cities have led to a substantial increase in child prostitution. The effects of El Nino have been particularly harsh in this area, Girade reported that; “The situation is getting worse, the rivers and ponds have dried up, and cattle are dying, children are being hired to collect water, which is now 60 kilometers away, and girls are turning to prostitution.” It is obvious that Brazil would have been better served by letting its farmers stay at home and dig wells than burning up the virgin Amazon forest in a futile effort to beat back the jungle.

 “Rio de Janeiro is a continuing source of petty crimes committed by street kids barely out of pajamas. Shopkeepers pay the cops to pick off the toddler thieves like coyotes o a Wyoming sheep farm. About five children are murdered a day, according to the University of Sao Paulo. Treated like vermin, most street urchins have a short life span. Many work for drug dealers; they sniff glue and gasoline to kill their hunger pangs. There is little sympathy on behalf of Rio’s citizenry for these prepubescent dope peddlers, and it’s unlikely that the police, who know them off on a regular basis, will be convicted for what is generally viewed as a socially beneficial act. It is estimated that there are 7 million kids living on the streets I Brazil. Hunted by death squads like rats in a sewer, they subsist by begging, stealing and deionizing themselves on petrol-based solvents. Are they a treat? You bet.” ([2])

The World Bank's lending policies have not only been injurious by themselves.  As a powerful policy maker, its decisions influence various other lending institutions. The projects it funds and its role in shaping development policy through funding research, training, technology transfer, planning and other forms of support for borrowing nations has established policy for leading institutions for the past 40 years. Unfortunately, this type of development strategy has only hurt third world countries and Brazil may lead the hit parade. 

However, Brazil came in for its share of the blame, relative to its disinterest in harnessing wildlife traffickers. These environmental criminals are more often then not given either no sentence at all or light sentences when they are apprehended. Moreover, the Amazon region is such a marvelous breeding ground for wildlife that it also represents numerous species of animals that are either extinct elsewhere or are only indigenous to this region. There is a demand for these species for a number of reasons. Certain people feel that various parts of the bodies are cures for declining sexual powers, many of the world’s zoos desire these species because this may be the only place in which they can be found, ancillarily, many of these animals are provided to people to serve as highly exotic pets.  

Moreover, numerous of these animals have plumage which is in great demand for wearing apparel and for other ornamental reasons and many find that just plain hunting wild animals gives them great pleasure. Markups of 100 times or more are not unusual when the animals are sold to the illegal exporter and then to the consumer. “Animal trafficking is the third leading illicit trade in the world, surpassed only by drugs and weapons, according to international law enforcement reports…Brazil, with its enormous biodiversity, is a major source of the animals. The country is estimated to represent at least 10-percent of the global trade, or $1 billion.” ([3]

Brazil comes in for more than its share of abuse from environmentalists. The country’s resources are bountiful but much of these assets are deep in the jungles. Because of the country’s extreme poverty, many of the people have chosen to look for gold in the interior region where many have become fabulously wealthy. Getting into these locations means traveling light; there are no paved roads where these explorers go, but there are Indians still living in most of these regions who depend on nature to supply them with food, shelter and water.  

The average prospector’s equipment includes his pick and shovel and some mercury to mix with the gunk that makes up the small pools of water he creates in his search of gold. When he is done looking for gold in one dish he spells the worthless contents back into the water and repeats the process endlessly. What eventually results in this seemingly innocuous process is what is called mercury poisoning. The mercury tends to get into the environment, destroying valuable resources and caused sickness or death in both the prospectors and the Indians. Once infested with mercury, it is extremely difficult to remove it.  

Eventually the fish which live in the area become infected with the mercury; both the Indians and the prospectors live off the fish causing an ongoing problem. “Brazilian scientists announced the first cases of mercury poisoning in 1994. Tests revealed that fishermen living on the banks of river Tapajos, a tributary of the Amazon river, had concentrations of mercury in their bodies ad hair of as much as 151 particles per million (ppm) - far above the World Health Organization danger limit of 6 ppm. Visual impairment, loss of hair, severe headaches, impotence and involuntary movements of arms, legs and muscles are all symptoms of mercury poisoning. ‘Mercury poisoin9ng goes on for many years. It’s not easy to cure and can even affect unborn babies in pregnant women,” said Dr. Fernando Branches, one of the Brazilian researchers.”[4] 

Guys With Big Bucks  

The capacity to garner market share by literally throwing infinite amounts of money at the target is one of the more successful strategies developed by multinationals. This approach doesn’t allow breathing room for the opposition and is carried out with such surgical precision that the game is over before the other team has even touched the ball. Desiring to penetrate the soccer market for its athletic shoes, Nike ([5]), unbelievably purchased the entire Brazilian National Soccer Federation in one large gulp for an inconceivable $200 million. In essence, this would represent, in the United States, something akin a corporation purchasing the National Basket Ball League, the National Football League and the Major Baseball leagues and all of their franchises and players in one deft stroke. This probably is something that economically even William Gates couldn’t pull off. After all, “Brazil is the one country that has never missed a World Cup, the people whose game defines soccer, the land that gave us Pele.”[6] 

Nike, probably the "ugliest" American multinational, demonstrated that money is nearly everything when playing the global game, by capturing some of the world's best teams and players in one motion. From here on in, you can bet that the Brazilians will be seeing liminal and subliminal Nike commercials in their sleep. A selected number of world famous Brazilian athletes ([7]) will tour the globe, shouting the praises of wearing Nike's on the Soccer field, to all that are within earshot, and whether you agree with the strategy or not, they have made one of the best deals on record. ([8]

Nike’s move was hardly discrete when compared with quiet investments made by others, such as the rapid-fire investments made by Anheuser-Busch in Kirin, Japan’s largest brewery, Antarctica, the top beer seller in Brazil and Tsingtao, one of the largest beer manufacturers in China. In similar fashion to Nike, Anheuser has wired the sporting calendar to the degree that hardly a sporting event takes place in North American without the Beer Company’s trademark, solidly visible. Anheuser is the premier advertiser in American Car Racing, Boxing, Hydroplaning, Motorcycle Racing, Baseball, Football, Hockey and Basketball. Their dirigible even hovers over stadiums in which sporting events are taking place so that no matter where you are watching the game, you are exposed to their advertisements. They are now using the same game plan in 60 different countries worldwide, inundating the populace with their slogans and products.

 

Speaking of soccer, interesting enough would you believe that: “The transfers of Brazilian soccer players to foreign clubs ‘are possibly being used as a guise for money-laundering.’ Adrienne Senna, president of the Finance ministry’s Council to Monitor Financial Activities, sad on Thursday. (11-23-2000) While this is a little hard to believe, even knowing what life in Brazil is like, it turns out that the 24 First Division clubs that make up the cream of Brazilian Soccer, owe an amazing, $114.7 million the country’s social-security system. In addition, it appears that when several of the Brazilian teams sold players to clubs in other countries, they neglected to report some $50 million to the Brazilian Government. 

Among other measurers, the senators have asked both the Central Bank and the Federal Revenue office to disclose the accounts of business people and former players acting as agents for active players and involved in sponsorship of sporting events and organizations.”[9]     

Brazil is always going to get it right some other day, and that day is always right around the corner, Fernando Collor, ex-president of Brazil, on March 21, 1996 said something similar to what everyone else has been saying for decades, "In 1989 I stood at a crossroads and led Brazil into the 20th century. Today Brazil is at a new crossroads facing the 21st century - a sleeping giant with an economic potential that many have equated to the United States 70 years ago. When the giant awakes, and it will; when it stretches; and it will; when it reaches that potential, and it will, Brazil will stand along with the United States as a world superpower as a partner in world democracy, prosperity and peace."  

As with all sleeping giants, their eternal rest avoids facing harsh realities and so it is a land with great promise and many dreams. Brazil has been blessed with assets beyond conception and yet there is almost nothing to show for the billions of dollars that have been invested in its infrastructure. The National Geographic Atlas of the World, 1995 put Brazil into prospective.

The motto, "Ordem e Progresso---Order and Progress" appears on the flag of the nation that encompasses about half the Amazon rain forest, home to 150,000 Indians and countless plant and animal species. The lesser-known Pantanal region is South America's largest wetland. Road building, mining and construction, often funded by the World Bank, the European Union, and Japan, provide opportunities but at great cost. Construction of Highway BR-364 carried many farmers to Rondonia where the soil lost productivity when stripped of its nutrient-rich forest cover. Controversy over the opening of frontiers has placed some highway projects on hold. 

During the 1980's gold miners in Roraima polluted rivers with mercury and invaded the territory of the Yanomami, an indigenous people. As Indians succumb to imported diseases, their cultures also die, and knowledge such as the medicinal value of tropical plants is lost. In 1991, the government demarcated 93,000 kilometers for the Yanomami.

 Havoc in the forest mirrors disarray in the capital, Brasilia. Years of military dictatorship gave way to civilian rule in 1985, followed by democratic elections in 1989. Though reforms have begun, progress is slowed by constitutional questions, political corruption, and a seesaw economy: Brazil's foreign debt is the largest among developing nations. Shanties in Rio de Janeiro symbolize the problems facing the world's fifth most populous country, where 70 percent of the citizenry struggle to meet minimal nutritional needs. These problems have revived the secessionist movement by the more developed southern states of Rio Grande do Sul, Santa Catarina, Parana and Sao Paulo. A bit of analysis would show the anomalies that are part of day to day life in Brazil. 

For example, government workers do not pay taxes, and yet assuredly make up the largest single segment of the workforce. On the other hand, they also make up the largest coherent voting block in the country. Thus, Brazil's leaders have had what could be called weakness of the heart when it has come to rectifying the situation. Another remarkable problem, is the fact that Brazil is extremely interested in fostering emerging companies and products and in doing so, has enacted protective tariffs that are so all-encompassing and repressive that in the Brazilian Government’s belief, foreign competition will not be able to snuff out these nascent industries of tomorrow. While an excellent theory in practice, it does not work in principal because of the hole in the dike that exists in Paraguay.

Importers of foreign goods evade these restrictions by bringing in the products illegally from Asuncion in Paraguay. Thus, Brazil has lost the ability to collect reasonable taxes, while the protection that it sought to offer its new industry falls by the wayside. Yet, no one seems willing to do anything about the black market that exists in Paraguay, which could be stopped in a second if authorities determined to do so. Importation cannot compete with the black market but even if it could, effectively, Brazil adds insult to injury by forcing imported products to set high minimum prices and obtain hard or impossible to acquire licenses before products can be brought in. 

One industry that has been particularly hard hit by the literal embargo that Brazil protectively places on imports is the automobile industry. Counterband cars cannot be delivered to Paraguay and then to Brazil so the embargos that Brazil sets on goods entering the country is particularly effective in that arena. Thus, many foreign manufacturers have set up shop in Brazil. General Motors, Ford, Volkswagen, Fiat, DaimlerChrysler, Toyota, Nissan, Peugeot Citroen, Honda, Renault and Mercedes-Benz have all setup shop in this country. However, the duties that keep imported products out also keep up or substantially increase of the price of necessary end products that are critical to the manufacturing process.  

Coupled with inflation and consistent recessions, Brazil offers an attract but dangerous market for the major auto makers. In addition, due to the fact that Brazil keeps a lid on imports from other countries, in most places protective tariffs have been initiated against Brazilian products. Thus, although, the country represents an attractive market in itself and with its membership in Mercosur, a free trade pact with Argentina, Paraguay and Uruguay with Bolivia and Chile being associate members,  brings a large portion of South America into the equation, a world class car emanating from this emerging country is difficult to imagine.  

“However, neither has Mercosur, nor economic reform, transformed Brazil’s export performance. Between 1989 and 1999, India’s exports increased by 128%, China’s by 271% and those of the United States by 91%, while Brazil’s rose by a paltry 40%. Brazil’s share of world trade is smaller than in the mid-1970s. Brazil is less poor than India, China or Russia, but it is in some ways less open: its total trade amounts to a lower share of gross domestic product (GDP) than in any of those countries.”[10]

Brazil has poured money into its infrastructure, or better put, the World Bank has at Brazil’s request has poured money into Brazil's infrastructure, and yet after the projects had been completed, it was found that it was prohibitively expensive to transport goods from one part of the country to another that most companies don't even bother to attempt it. As an example of the exorbitant cost of trans-shipping within Brazil, FedEx is so pricey that its cost has become a hot topic at the board meetings of many large corporations. Believe it or not, on several occasions, questions came up over the perceived abuse of the utilization of FedEx, and often things have literally gotten so heated that its use has caused directors to come to blows.  However, the alternative in most cases is not having the packages shipped at all, which can result in something far worse. 

There have been numerous bloodied noses and bruised egos over the expense of this service.  However, FedEx is not the only product whose use has become prohibitive, every check written by anyone in the country is taxed at a relatively substantially rate, and it appears that this tax is still on its way higher. Talk about stifling business, Brazil, with all of its deliberations about reform cannot seem to solve the simple problem of getting enough money into the treasury to encourage business not kill it off altogether. 

 In the recent, old days, when inflation was running at a rate of 20% percent or more each month, wages had to quickly be turned into hard goods or the money would disappear. Businesses were loath to allow long term financing (over a week) on credit purchases because, as their currency (the real) depreciated, the business was being paid back with ever diminishing buying power. If businesses allowed the financing costs to continue too long, they found that they had effectively built a loss into the transaction. Yet, if the retail arena was a disaster because of inflation, banking conversely was both worse and better depending on what side of the track you were on. 

 The majority of the banking that goes on in Brazil is conducted by government-owned institutions whose only reason for existence in inflationary times, is supplying money to governmental agencies by their collateralized lending against future tax collections (anticpacoes de receita orcamentaria) in most cases for the use of politicians to run for office. Since Brazil customarily does not allow its senior politicians to hold office more than one term, it is important to the office holder's power base, that a person of his choosing gets the post, assuring his assistance in their eventual run for a higher office or as insurance policy against getting indicted for bribery or fraud committed while holding the job. Thus, incredible amounts of money are spent on new projects just before election time to get the new guy elected and most of the campaigning is paid for by borrowings at government banks.    

 Each new Brazilian President appoints a new finance minister, who immediately upon taking office has his hands tied tightly behind his back by his boss. These masochists for pay, holding this particular office have all been, only window dressing for decades. Inconceivably, since 1985, Brazil has had the equivalent of a new finance minister each and every year an almost frightening statistic. It becomes even more overwhelming when you consider that only one party has held office in the country during that period However, Brazilian Presidents have historically found it much easier to blame the finance ministers for the country's seemingly unsolvable problems than to admit that they have some culpability. Universally, all candidates for the highest office in Brazil run on a ticket of cleaning up the country’s debts and creating a surplus in the treasury.

 Candidates how really know little or nothing about economics use a lot of fancy words to convey how the impossible task of getting the economy back on track is going to get accomplished. Their ultimate public failure in accomplishing the lofty goals that they have set, usually comes sooner rather than later. Historically, this has infuriated the people and it doesn’t take long before they become restive when they learn once again that they have been taken for a ride and that inflation will be spirally higher along with taxes. The country’s president, facing the choice of getting tarred and feathered over they problem or finding a whipping boy on whom he can unload the blame, ops for the later. Thus, taking the office of finance minister has become an opportunity for people with clean reputations to get totally tarnished by their own party as well as the country’s media. 

In most cases the job becomes so difficult and they are made to look so bad that being finance minister of the country is probably their last political stop. Being aware of the fact that they will soon become totally expendable, finance ministers have recently started demanding ever more substantial perks in exchange for the expected ultimate embarrassment that the office will eventually bring to them. Finance ministers in Brazil have proven the old adage that, for everything in life, there is indeed a price.  In this office, it is a very large one.

 Moreover, the same thing may be said of Central Bank heads whose job life expectancy has been if anything, a tad shorter. The folks that run Brazil’s Central Bank have no independent life whatsoever and are overruled whenever the Brazilian President has another, more pressing agenda. They either do what they are told or are summarily dismissed.  Thus, by alternatively firing the finance minister and the central bank head every six months, the President has had a constant source of new fodder to use when he addresses his constituents at blame laying time.  It is an interesting to note the fact that in almost two-decades, that the citizens of this country haven’t yet gotten wise to what is going on.  

One of the former presidents of the Brazilian Central Bank, Francisco Lopes has recently been accused by Veja, the top newspaper in Brazil of selling information on secret plans by the government to abandon a fixed exchange rate for the Brazilian currency. He was apparently $1.6 million dollars in cold cash for this information. This act alone may have been bad enough, but the float caused the real collapse. This set up another set of circumstances that compounded the problem. It seems that a Mr. Salvatore Alberto Cacciola is a Brazilian banker with an Italian heritage. 

His bank lost substantial money because of the substantial drop in the Brazilian currency. He told Mr. Francisco Lopes in no uncertain terms that he felt that his losses should be covered by Lopes personally and if he did not do it punctually, he would release tapes of a Lopes - Cacciola conversation that would prove that the president was releasing confidential information on the Central Banks matters to his associates in exchange for large payoffs. 

Things became so hot for Lopes and the Brazilian Government that he was summarily dismissed after a stay in office of only one month. Brazil's then president Fernando Henrique Cardoso said it all when referring to the Lopes situation, "he did everything wrong during his brief tenure." The end result of this sordid affair was that Lopes was fired, Cacciola went to jail and Cardoso was extremely embarrassed and voted out of office. A really sad state of affairs, but this then  is banking Brazilian style.



[1] “The IMF and the World Bank share a weakness in creating macroeconomic strategy plans/programs in concert with national governments and identified beneficiaries. The World Bank notes that the commitment of borrowers to funded operations has received little attention in the past, but also acknowledges that host-country participation and commitment of operations are essential to success.” Perspectives on the Role of Science and Technology in Sustainable Development, Congress of the United States.

 

[2] Robert Young Pelton’s, The world’s Most Dangerous Places, Fourth Edition Harper Resource, 2000.

[3]  Environment-Brazil: Wildlife Traffickers Elude Punishment, Inter Press Service English News Wire, 4-12-2001

[4] Environment-Brazil; Mercury Curse Continues to Haunt Gold Miners, Beauty Lupiya and Jens Kristensen, Inter Press Service, English News Wire, 8-6-1998

[5]  $9 billion in sales worldwide and $20 in sales from each and every man, woman and child in the United States.

[6] Amid Inquiry Into Corruption, Brazil Battles Wrath of Blatter, International Herald Tribune, Rob Hughes, 11-15-2000

[7]  One of the players, Ronaldo, was voted world soccer player of the year at age 20.

[8] Nike’s success has been so overwhelming that other advertising programs are analyzed in relation to the athletic shoe manufacturer. In this regard, countries are attempting to tidy up a rather tarnished image.  “According to market research, many people associate Britain with poor labor relations, low-quality products and late deliveries. That just won’t do if Britain wants to market itself as a modern, high-tech country. ‘We have to do for Britain what Nike did for athletic shoes’. 

 

 

[9]  Soccer-Brazil / Fraud, Government Suspects Player Transfers Are a Guise for Money-Laundering, EFE News Services, 11-23-2000

[10] Brazil’s 500 years of solitude, The Economist, 4-22-2000

 

 

 

 

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