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The IMF and the Brazilian economy: partners or cordial enemies?
 / Marcelo Lara Resende - [Email-version, electronic ed.] - [Bonn, 2001] - =
44 KB, Text &amp; Image file
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The IMF and the Brazilian economy: partners or cordial enemies?
 / Marcelo Lara Resende - [Email-version, electronic ed.] - [Bonn, 2001] - =
44 KB, Text &amp; Image file
. - (Studies on international financial architecture ; 2001,1 : IMF special=
 : e-mail-version)
<br>Electronic ed.: Bonn : FES Library, 2001
<br><br><font size=3D"-1"><i>=A9 Friedrich-Ebert-Stiftung</i></font>
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<p>
</p><ul>

<p><a href=3D"https://library.fes.de/fulltext/iez/01041.htm#E9E13">Introduc=
tion</a>
</p><p><a href=3D"https://library.fes.de/fulltext/iez/01041.htm#E9E14">The =
crisis in context</a>
</p><p><a href=3D"https://library.fes.de/fulltext/iez/01041.htm#E9E15">The =
IMF diagnosis </a>
</p><p><a href=3D"https://library.fes.de/fulltext/iez/01041.htm#E9E16">The =
IMF solution</a>
</p><p><a href=3D"https://library.fes.de/fulltext/iez/01041.htm#E9E17">Revi=
siting the crises </a>
</p><p><a href=3D"https://library.fes.de/fulltext/iez/01041.htm#E9E18">An i=
nadequate strategy</a>
</p><p><a href=3D"https://library.fes.de/fulltext/iez/01041.htm#E9E19">Orth=
odox IMF, unorthodox solution</a>
</p><p><a href=3D"https://library.fes.de/fulltext/iez/01041.htm#E9E20">A ne=
w pattern?</a>
</p><p><a href=3D"https://library.fes.de/fulltext/iez/01041.htm#E9E21">The =
Meltzer Report and others </a>
</p><p><a href=3D"https://library.fes.de/fulltext/iez/01041.htm#E9E22">Demo=
cracy and development at the IMF?</a>
</p><p><a href=3D"https://library.fes.de/fulltext/iez/01041.htm#E9E23">Conc=
lusion and reservations</a></p></ul>
<br><br>


<p><font size=3D"+2">THE IMF AND THE BRAZILIAN ECONOMY:<br>PARTNERS OR CORD=
IAL ENEMIES?</font>
</p><p><font size=3D"+1">Marcelo Lara Resende</font>

</p><p><br><br>
</p><p align=3D"RIGHT"><i>=84Blaming victims is an appealing evasion of res=
ponsibility, especially when the victims are far from virtuous. But when si=
ns are as heterogeneous as those of Latin American regimes of 1980, one won=
ders how well the exemplary mass punishment fits the alleged individual cri=
me." </i>
</p><p align=3D"RIGHT"><b><i>Carlos F. Diaz-Alejandro </i></b><i>(1984)</i>


</p><p align=3D"CENTER">
<a href=3D"https://library.fes.de/fulltext/iez/00769.htm#E9E12"><img src=3D=
"https://library.fes.de/images/digbib/d_prev.gif" border=3D"0" alt=3D"Previ=
ous Item"></a>
<a href=3D"https://library.fes.de/fulltext/iez/01041.htm#I0"><img src=3D"ht=
tps://library.fes.de/images/digbib/d_oben.gif" border=3D"0" alt=3D"Page Top=
"></a>

<a href=3D"https://library.fes.de/fulltext/iez/01041.htm#E9E14"><img src=3D=
"https://library.fes.de/images/digbib/d_next.gif" border=3D"0" alt=3D"Next =
Item"></a>

<a name=3D"E9E13"></a></p><p align=3D"LEFT"><font size=3D"+1">Introduction<=
/font><br><br>
</p><p>It is difficult to paint a clear picture of the heated debate concer=
ning the role of the International Monetary Fund (IMF) toward its member co=
untries and the financial community.  However, it is possible to paint an i=
m-pressionistic picture of the controversial in-fluence of the IMF in Brazi=
l, especially when the population, once again, is experiencing not only the=
 benefits but also the painful side effects from the most recent stand-by a=
greement signed with that institution on November 13, 1998.  With regards t=
o what the international financial community sees as the worst sin attribut=
ed to the Brazilian economy, perhaps the statement made a decade and a half=
 ago by Professor Diaz-Alejandro of Yale University is not completely off t=
he mark.=20
   <font size=3D"-1"><i>[Diaz-Alejandro, Carlos F.  =84Latin American debt:=
 I don=92t think we are in Kansas anymore". Brookings Papers on Economic Ac=
tivity .  Washington: Brookings Institution, number 2, 1984.]</i></font>
	<br>   In that case, it is in fact necessary and urgent to discuss the pre=
sent and future roles of the IMF.
</p><p>As early as 1982, faculty members from the Economics Department at t=
he Rio de Janeiro Pontifical Catholic University=20
   <font size=3D"-1"><i>[Pontif=EDcia Universidade Cat=F3lica do Rio de Jan=
eiro (PUC-RJ]</i></font>
	 pointed out alternatives to the traditional IMF prescription to spare the=
 national economy from the corrosive effects of the international crisis.=
=20
   <font size=3D"-1"><i>[(a) D=EDvida externa, recess=E3o e ajuste estrutur=
al: o Brasil diante da crise . Persio Arida (org.). S=E3o Paulo: Paz e Terr=
a, 1982). (b) =84Alternativas para enfrentar a crise". Marcelo Lara Resende=
. Ci=EAncia Hoje   (Year 1, no. 6), May/June 1983.]</i></font><br>
		  Many of these econo-mists are, or were, among the designers and enforce=
rs of the economic policies now in effect, including Pedro Malan.=20
   <font size=3D"-1"><i>[Andr=E9 Lara Resende, Edmar Bacha, Eduardo Modiano=
, Francisco Lopes, Jos=E9 M=E1rcio Camargo, Persio Arida, Regis Bonelli, an=
d Winston Fritsch.]</i></font><br>
	   However, as far as the policies inspired by the IMF are concerned, some=
 of these economists have forgotten what they defended in the past and, in =
this way, may repeat what they criticized before they had the opportunity t=
o govern us.=20
   <font size=3D"-1"><i>[=84Ponto de ruptura",  Marcelo Lara Resende.  Ci=
=EAncia Hoje  (vol. 25, no. 149), May 1999.  ]</i></font><br>
	   Malan=92s view =96 the current Minister of the Treasury - for example, =
was that =84(=85) the credibility of the government with the Brazilian soci=
ety must not be less than the credibility it tirelessly seeks with the inte=
rnational financial community".=20
   <font size=3D"-1"><i>[=84Recess=E3o e negocia=E7=E3o". Pedro Malan, pg. =
116. ]</i></font><br>
		There is no better way to describe the emblematic concept of national sov=
ereignty, without which it makes no sense to speak of country, nation, or c=
itizenship.=20
</p><p>What is the macroeconomic logic behind the adjustment programs <i>su=
ggested</i> by the IMF, which was once criticized by the faculty of PUC but=
 is now supported by a government that is made up of a few of these former =
critics?  Should the role of the IMF continue to be that of <i>smoothing ou=
t</i> liquidity squeezes (balance of payments) and exchange rate fluctuatio=
ns in member countries? Or should the IMF be transformed into a <i>lender o=
f last resort</i>, within a new structure of the international financial sy=
stem? Should the Fund prevent crises or manage them?  Should it play a dire=
ct role in the development policies of its member countries, or should it s=
imply interact with the World Bank and the private capital market?  The ade=
quacy of the diagnosis and the effectiveness of the <i>suggestions</i> made=
 by the IMF to heal the fiscal and external accounts, and thus stabilize th=
e economy of the assisted countries have not always worked as expected.  Th=
erefore, it is indeed advisable to contrast the orthodox diagnosis and ther=
apy associated with the IMF with unorthodox alternative proposals, which fa=
vor economic growth, in order to solve the still frequent payment crises, i=
ncluding in Brazil.
</p><p>There is a consensus about the urgent need to reconsider the course =
of the IMF as well as strong pressure for more democratic control within th=
e institution, which was created after the Second World War at the Bretton =
Woods Conference, during which the institutional framework of the internati=
onal financial system now in effect was developed.  By the way, this intern=
ational framework also needs a structural reform. Since many questions abou=
t the IMF have been raised by countries all over the world, it is no longer=
 easy to dismiss such criticism as circumstantial or temporary, or to label=
 it as politically and ideologically motivated.  In order to understand Dia=
z-Alejandro=92s proposal and to put into context speculations about the cou=
rse of a new IMF, it is necessary to make a better analysis of conditions a=
round the world which brought about, or aggravated, the recurring payment c=
rises, especially in Latin America.  For, es-sentially, the crises that con=
tinue to jolt developing countries are not very different, for example, fro=
m the crisis that plagued them in 1982.  Therefore, it is necessary to reev=
aluate not only the usual diagnosis (high fiscal and commercial deficits du=
e mostly to wasteful governments given to excessive inter-ventionism) but a=
lso the recessive therapy generally associated with the IMF.
</p><p align=3D"CENTER">
<a href=3D"https://library.fes.de/fulltext/iez/01041.htm#E9E13"><img src=3D=
"https://library.fes.de/images/digbib/d_prev.gif" border=3D"0" alt=3D"Previ=
ous Item"></a>
<a href=3D"https://library.fes.de/fulltext/iez/01041.htm#I0"><img src=3D"ht=
tps://library.fes.de/images/digbib/d_oben.gif" border=3D"0" alt=3D"Page Top=
"></a>

<a href=3D"https://library.fes.de/fulltext/iez/01041.htm#E9E15"><img src=3D=
"https://library.fes.de/images/digbib/d_next.gif" border=3D"0" alt=3D"Next =
Item"></a>

<a name=3D"E9E14"></a></p><p align=3D"LEFT"><font size=3D"+1">The crisis in=
 context</font><br><br>
</p><p>The scarcity of capital in less developed countries vis-=E0-vis its =
abundance in developed nations, in spite of the financial risks, makes fore=
ign debt a useful tool to shore up economic growth, as long as it is well m=
anaged.  However, the composition of capital flow from developed to less de=
veloped countries has changed since the nineteen-seventies.  Financial capi=
tal has increased to the detriment of direct investments; although in Brazi=
l, for example, in the last few years, the amount of direct investment has =
been growing significantly:  roughly US$ 30 billion just in 1999.  This new=
 composition of capital flow has increased the dependence on foreign money =
and the obli-gations towards debt service in debtor countries.  Consequentl=
y, it also increased the vulnerability of the system to exogenous shocks, e=
specially after the advent of globalization, which facilitated the inter-na=
tional movement of short-term capital.
</p><p>The first and second oil crises in 1973/74 and 1979/80, the worldwid=
e recession, and the high interest rates confirmed in practice what was fea=
red in theory. The evidence that the inter-national financial system was in=
 jeopardy (1980/81) became clear when the problem of foreign debt manifeste=
d itself globally in 1982 with more than thirty heterogeneous countries hav=
ing difficulty in honoring their debts. By allowing the expansion of intern=
ational loans, the recycling of petrodollars made possible the survival of =
the system after the first oil crisis, but it was not able to guarantee the=
 flow of resources necessary to stave off subsequent shocks. Even during th=
at time, analysts had different opinions about the nature of the crisis.  S=
ome diagnosed the problem as severe (solvency) and argued that the crisis c=
ould not be resolved by traditional methods and required measures to <i>all=
eviate </i>debtor countries. Other analysts diagnosed the problem as tempor=
ary (liquidity) and discouraged radical measures as they considered small t=
he debt risk for the international financial system.
</p><p>The fact is that he financial emergencies observed since 1982 were n=
ot permanently resolved by the <i>remedial packages</i>, especially when th=
e recessive and cumulative effects of the <i>conditionalities</i> associate=
d with such packages are taken into consideration, for they are, in fact, a=
 further drain on fragile and tumultuous countries.  Although fiscal virtue=
 is not their forte, there is indication that some debtor countries, includ=
ing Brazil, by sub-mitting themselves without criticism to con-ditions that=
 are not always efficient, or by trying to satisfy the rigid performance cr=
iteria that come as part of agreements with the IMF, are also paying for th=
e crimes of others. Innocent victims?  When contrasting the effort towards =
settling accounts to the difficult situation in some Latin American countri=
es, Diaz-Alejandro=92s words seem plausible. For when a crisis emerges, the=
 creditors, shielded by the IMF, force debtor countries into taking drastic=
 monetary and fiscal measures, regard-less of the actual degree of responsi=
bility these countries bear in generating the crisis, or of the painful sid=
e effects that such measures have for society.=20
   <font size=3D"-1"><i>[=84 When crisis hit, the IMF and other lenders giv=
e highest priority to restoration of credibility and confidence in the curr=
ency under attack.  They require the victim country to take drastic restric=
tive monetary and fiscal measures, whether or not irresponsibility in these=
  policies brought on the crisis.  Since these measures damage the economy,=
 business, and banks, they may not restore confidence.  Lenders of last res=
ort are essential and should concentrate above all on replenishing liquidit=
y ." James Tobin, Annual World Bank Conference of Development Economics (19=
98).]</i></font>
=20
</p><p>The violent nature of these measures hurts the economies in question=
, since their well-intentioned efforts fail to restore the trust of the cre=
ditors themselves, who, almost always with the pragmatic agreement of the g=
overnments involved, force these economies into an often self-destructive b=
ehavior. The frequent eco-nomic, social, and political disturbances in Lati=
n America suggest that the region may eventually lose even its <i>surgical =
condition</i> without which the appropriate and, in fact, necessary macroec=
onomic adjustment becomes impossible. Therefore, it does indeed make sense =
to reconsider the role and performance of the IMF, including in Brazil.=20
</p><p align=3D"CENTER">
<a href=3D"https://library.fes.de/fulltext/iez/01041.htm#E9E14"><img src=3D=
"https://library.fes.de/images/digbib/d_prev.gif" border=3D"0" alt=3D"Previ=
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<a href=3D"https://library.fes.de/fulltext/iez/01041.htm#E9E16"><img src=3D=
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Item"></a>

<a name=3D"E9E15"></a></p><p align=3D"LEFT"><font size=3D"+1">The IMF diagn=
osis </font><br><br>
</p><p>The public debt as a proportion of the gross national product (GNP) =
is increasing in most of the world.  In developed countries the debt is mos=
tly domestic.  In developing countries and in former socialist countries th=
e greater portion of the debt is foreign and its extraordinary growth is at=
tributed to an inadequate fiscal policy.  The reasoning is that the pressur=
es that stimulate the increase in spending do not foster the simultaneous i=
ncrease of taxes necessary to finance them.  The imbalance between revenue =
and expenditure is financed through monetary expansion and domestic and for=
eign loans.  According to the IMF, this adjustment policy results in the ac=
celeration of inflation.  Initially, because inflation is unexpected, a tem=
porary drop in real interest rates results in an equally temporary reductio=
n of the ratio of debt to GNP. This gives governments the illusion that it =
is possible to continue to expand the debt without problems. However, expe-=
rience has demonstrated that the economic agents end up adapting themselves=
 to the inflationary context.  As a last resort, such policies raise inflat=
ionary expectations and, through the reaction of the monetary authorities, =
raise the real interest rate which, in turn, distorts the allocation of res=
ources, hurts economic growth, and increases unemployment - the greatest ev=
il in any economy.=20
</p><p>Excessive public debt has domestic as well as international conseque=
nces.  In the first case, the main result is that an increasing portion of =
national savings is used to finance chronic fiscal deficits, to the detrime=
nt of healthier private enterprises, a phenomenon known as <i>crowding out<=
/i>. In the second case, uncontrolled growth of public debt increases the r=
isk of an abrupt retraction by the international financial market as in 198=
2 and 1997, since cautious agents look to reduce their exposure (their comm=
itment to assets) in heavily indebted and potentially problematic countries=
.
</p><p>The IMF recognizes that an expansionist fiscal policy can have benef=
icial effects for economic performance for a period of time, especially in =
a recessive environment. However, the Fund also believes that fiscal defici=
ts hurt economic performance because they bring about an in-crease in publi=
c debt, negatively affect expec-tations, and reduce investments, making sus=
tainable economic growth inviable.  In the presence of high fiscal deficits=
 of structural origin (not due to cyclical movements of the economy), of hi=
gh real interest rates, and of low economic growth rate, the problem become=
s chronic. Deficits become cumulative and increase the public debt in relat=
ion to the GNP. Brazil=92s public debt, for example, hovers today in the vi=
cinity of 50% of the GNP. In the absence of measures to revert the vicious =
circle, economic, social, and political stability in the countries involved=
 is at risk, and that diminishes the trust of pragmatic creditors, both dom=
estically and abroad. At best, they start charging more, and, at worst, den=
ying the necessary resources to shore up development where the risk is high=
 or increasing.  From this point on, the path and the time to reach an acut=
e payment crisis are short.  A public debt that will not stop growing coupl=
ed with high real interest rates is an explosive combination.  Brazil=92s r=
ecent experience shows that such a situation makes interest payments the on=
e element of  public expenditure that grows the most.=20
   <font size=3D"-1"><i>[ =84(...) the federal, internal public debt in the=
 form of securities continues growing, as much in absolute as in relative v=
alues.  By the end of last December, it was equal to R$415 billion, having =
jumped to R$439 billion by the end of March, with a growth exceeding in 5,8=
% that of the GNP for the same period.  As for dollar figures, 1995 began w=
ith a debt of 75 billion dollars against international reserves of 36 billi=
on dollars.  In March of this year, the debt was already R$251 billion agai=
nst reserves of R$39 billion" (sic). Free translation from =84Culpa apenas =
dos juros?",  Cl=E1udio Haddad, Valor Econ=F4mico , July 7, 8, and 9, 2000.=
]</i></font>
=20
</p><p>In spite of the IMF=92s usually sensible macro-economics, after a ce=
rtain point, the severity of the problem makes any additional effort to adj=
ust the economy based solely on orthodox methods useless. From then on, the=
 obstinate attempt, year after year, to generate larger and larger primary =
budget surpluses (interest pay-ments excluded) is counterproductive.  Its d=
e-flationary effect towards the economic en-vironment (businesses) paradoxi=
cally does not make viable the trust (first domestically, then abroad) in t=
he country in question. That being the case, to insist on the painful adjus=
tment in-spired by the IMF becomes like shooting oneself in the foot. There=
fore, under certain circumstances, besides being technically ques-tionable =
and politically unsustainable, as the faculty at PUC once argued, the macro=
-economic strategy suggested by the IMF becomes ineffective and particularl=
y un-desirable in countries like Brazil due to the damaging effect which th=
e autophagic vicious circle exerts on an already unjust distribution of nat=
ional wealth, one of the world=92s worst.=20
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<a name=3D"E9E16"></a></p><p align=3D"LEFT"><font size=3D"+1">The IMF solut=
ion</font><br><br>
</p><p>The not always effective solution proposed by the IMF is simple and =
painful: in order to reduce the fiscal deficit and to contain the explosion=
 of public debt, it is necessary to increase taxes or to reduce non-financi=
al expenses and, in this manner, compensate for the snowballing increase of=
 interest-bearing expenses - the untouchable debt service. In spite of the =
political difficulty, the IMF warns that postponing the implementation of s=
uch measures would aggravate the problem. The traditional way out, through =
monetization of the deficit and of the public debt, is impossible over a lo=
nger period in an economy with an inflationary tradition which is, as a con=
es-quence, predictably indexed, formally or in-formally. If it is necessary=
 to adjust the eco-nomy, full indexation, in order to preserve the real rev=
enue from all economic agents, is impossible: It is a matter of distributiv=
e incom-patibility. For the IMF, the difficulties in debtor countries are a=
 result of the excessive absorption of real resources from abroad.  That is=
, they result from the excess aggregate expenditure in relation to the dome=
stic product in real terms. The problem is that these countries insist on s=
pending more than they have. The excess expenditure is attributed to high g=
overnment spending, as if these were always superfluous and compressible <i=
>ad nutum</i>.
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<a name=3D"E9E17"></a></p><p align=3D"LEFT"><font size=3D"+1">Revisiting th=
e crises </font><br><br>
</p><p>Since it is possible, now and then, to find alternative explanations=
 for the payment crises, it is also reasonable to technically question the =
diagnosis and the measures proposed by the IMF. It would do well to remembe=
r that, in part, the chagrin experienced by Brazil, or by other debtor, non=
 oil exporting countries, for instance, was aggravated by the abrupt de-ter=
ioration in the terms of trade that took place in 1973/74 and 1979/80. And =
that, without mentioning the harmful impact on the respec-tive balance of p=
ayments caused by the increase of international interest rates driven by th=
e upward movement of the basic rate in the United States, which reached abo=
ut 20% a year in the late seventies and early eighties.
</p><p>A recent example of the inappropriate action by the IMF is the case =
in Japan. When the speculative bubble burst, the unfounded eupho-ria of the=
 real estate market was followed by recession, having implications for Japa=
n=92s economy, or for the region as a whole, which are not yet resolved. In=
 fact, only recently did Asia begin to emerge from the poorly adminis-trate=
d problem that culminated in the crisis of 1997, with repercussions through=
out the world, especially in Brazil. Essentially, the Asian crisis was also=
 a result of the imprudent and abrupt slowing down of the regional driving =
engine: Japan. Today, the consensus is that the restrictive action taken by=
 the IMF, based on a faulty diagnosis, aggravated the problem. The IMF indu=
ced Asian countries to reduce demand, when it was necessary to increase it.=
  Something that symptomatically went unno-ticed by its technicians.
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<a name=3D"E9E18"></a></p><p align=3D"LEFT"><font size=3D"+1">An inadequate=
 strategy</font><br><br>
</p><p>Faced with the impossibility of obtaining <i>relief</i> from high fo=
reign debt (which, generally, is indexed just as domestic debt), countries =
like Brazil found themselves obligated to go from net importers to net expo=
rters of real resources.  At that point, it became necessary to effect-tive=
ly adjust the economy. The transition is painful, particularly because the =
transfer of real resources abroad has to be absorbed inter-nally, through t=
he reduction of aggregate expenditure (consumption, investments, and govern=
ment spending). The problem is a dif-ficult one, since no country or segmen=
t of society willingly absorbs losses.   And it is not easy to choose and t=
o comfort the inevitable losers, since everything has its breaking point, i=
ncluding fiscal and monetary restraint. =20
   <font size=3D"-1"><i>[ =84A ruptura no mercado internacional de cr=E9dit=
o",  Andr=E9 Lara Resende, pg. 41.]</i></font>=20
</p><p>The known IMF prescription attempts to force an indebted economy to =
reduce expenditure, especially through the reduction of the public deficit,=
 in order to obtain the real resources necessary to eliminate, or minimize,=
 the deficit in the current account of the balance of pay-ments. Such polic=
y is not decided upon demo-cratically and mainly reflects the interests of =
the developed world, especially those of the IMF=92s biggest shareholder - =
The United States.  In practice, the IMF tries to ensure that com-mitments =
with the international financial sys-tem are honored according to contracts=
.  In so doing, beyond the waste imposed on assisted countries (the unemplo=
yment of machines, people, and natural resources), this under-standable, al=
beit not always adequate strategy, is particularly harmful in a global cris=
is scenario. When recessive measures are im-posed simultaneously and repeat=
edly on so many debtor countries, they do not  bring about a permanent solu=
tion if the crisis is nearly generalized, as was the case in the eighties. =
In this case, such measures are also apt to jeopardize the good operation o=
f the in-ternational financial system itself. When their effects are evalua=
ted in the context of a global, general equilibrium model, it is clear that=
, by reducing its imports, each country in difficulty also reduces the expo=
rts of at least one of its commercial partners. Persisting with such strate=
gy would make it difficult to break the vicious circle.
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<a name=3D"E9E19"></a></p><p align=3D"LEFT"><font size=3D"+1">Orthodox IMF,=
 unorthodox solution</font><br><br>
</p><p>How is one to break the Gordian knot which, further tightened by the=
 conditions imposed by agreements with the IMF, has been paralyzing develop=
ing countries for a long time, including Brazil=92s cyclothymic and still v=
ulnerable economy?  By the way, an economy that, with respect to economic g=
rowth, has just lived through the end of a second partially wasted, if not =
completely lost, decade - that of the nine-ties. It is necessary to advise =
against easy or immediate solutions. They are nothing but pan-aceas. The tr=
ue solution (medium<b>-</b> or long-term) requires unorthodox attitudes, wh=
ich will permit molding the productive structure to the new relative prices=
, as well as to other current conditions in the changing international mar-=
ket. The paradigm changed and continues to change rapidly. The IMF also nee=
ds to moder-nize itself in order to become, among other things, a true lend=
er of last resort<i>.</i> As such, it should concentrate its efforts on res=
toring the liquidity of member countries. Besides, the Fund should start re=
cognizing and taking into account particularities of countries as well as t=
he internal and external circumstances which condition economic policy, esp=
ecially after the irreversible globalization.=20
</p><p>The definitive solution for the crisis in Brazil (or in other indebt=
ed countries), besides not being unique, is viable only over a long period,=
 as long as it is pursued through measures that are different from the <i>a=
d hoc</i> steps (more emergency-minded than structural) which have been imp=
lemented by implicit or explicit pressure from the IMF. Such measures are a=
l-ways imposed at particularly acute moments in the recurrent payment crise=
s, when it is no longer possible to contest them. The popular perception, h=
eaded by opposition parties, unions, and Brazil=92s National Confederation =
of Bishops (CNBB), for example, is that the IMF=92s basic macroeconomic ori=
entation does not always make sense over a longer period.  Frequently, besi=
des not helping to structurally balance finances and, in this way, permanen=
tly stabilize the economies of assisted countries, the therapy imposes a ve=
ry high social cost, which, however, is seen as useless, from a Pavlovian s=
tandpoint. This cost is evidenced by the low rate of economic growth, by th=
e high unemployment rates (open or disguised), and by the growing scarcity =
of resources, even for urgent social spending.
</p><p>In fact, this seems to have been the logic that permeated the conclu=
sions reached at the con-ference that took place at PUC in 1982, which was =
unanimously supported by participants and summarized by Persio Arida, the o=
rganizer of the compiled works. In Arida=92s words: =84First, recession as =
a strategy is inadequate, not only in promoting the country=92s adjustment =
to the restrictions imposed by the difficulty in obtaining foreign currency=
 loans, but also in reducing the public deficit. Second, it is neces-sary t=
o overcome the naive terms of the political dilemma of austerity versus re-=
negotiation through a careful evaluation of the costs and benefits of each =
alternative when faced with international scenarios with any degree of plau=
sibility. Third, it is of pressing importance to maintain the public invest=
ment rate and to stimulate private investment through planning policies tha=
t are not short-sighted, which will permit the realigning of the country=92=
s productive structure. Fourth, suc-cessful external adjustment presupposes=
 internal adjustments in the form of changes in the fiscal parameters and i=
n relative prices compatible with the search for distributive equity."=20
   <font size=3D"-1"><i>[Free translation from the original =84Introdu=E7=
=E3o",  P=E9rsio Arida, pgs. 11-12.]</i></font>

</p><p>Therefore, for some time, the Brazilian people have suspected that, =
instead of indiscriminately cutting public expenditure, including invest-me=
nts, as proposed by the IMF and is being done by the government, the countr=
y should be investing in recycling its industrial facilities and in its cit=
izens, both paralyzed by an economic policy that, in some respects, is in f=
act self-destructive and denationalizing.  Recently, the perception by an e=
xpressive segment of the population, including one or other member of the g=
overnment, is that such policy, although successful up to now in controllin=
g inflation, has failed so far with regards to development, perhaps for bei=
ng excessively based on standardized <i>suggestions</i> by a biased IMF. In=
 the final analysis, the inexorable conclusion is that there is no possible=
 long lasting solution for the recurrent payment difficulties, including th=
e present one, outside of economic growth at rates more com-patible with th=
e needs of the country. Rates which are determined by the country=92s stage=
 of development and, above all, which are able to eliminate the cruel imbal=
ance observed in the Brazilian job market.
</p><p>Once again, in the words of the former re-searcher of the Research I=
nstitute of Applied Economics (IPEA) and professor at PUC, Pedro Malan: =84=
It should be noted that growth rates of the product below 6% would be unlik=
ely to decrease the absorption of flow, estimated at one and a half million=
 people who, every year, join the country=92s =91<i>economically active pop=
ulation=92</i>." =20
   <font size=3D"-1"><i>[Free translation from the original =84Recess=E3o e=
 renegocia=E7=E3o", Pedro Malan, pg. 107 .]</i></font><br>
		  With regards to em-ployment levels, if this was the situation in 1982/8=
3, imagine how much worse it has become since then, after two decades of pr=
o-duct growth rates being, on average, way below the line sensibly establis=
hed by the Minister of the Treasury. The dissatisfaction with the orthodox =
methods is not totally unreasonable. As a matter of fact, the economic prog=
rams suggested by the IMF do not give priority to investments and to the pr=
eservation of the employment level (the economic development), in spite of =
the sac-rifice repeatedly imposed on the population of assisted countries. =
In Brazil, for example, the unemployment rate has been reaching record leve=
ls, not to mention the underemployment or the growing <i>informalization</i=
> of the economy.  The inevitable consequence is that, for nearly two decad=
es now, the mediocre performance of the economy does not allow the absorpti=
on of citizens who want, and need, to work.=20
</p><p>The resources that are saved domestically through painful primary bu=
dget surpluses, or obtained abroad in the form of costly new loans, are use=
d almost exclusively to serve domestic and foreign debts. Even so, these de=
bts do not stop growing. And, as long as new investments are not realized i=
n adequate di-mension and in due time, the industrial facilities in Brazil =
are less and less prepared to compete in the changing and increasingly more=
 aggressive international scenario. Similarly, the difficulties met by incr=
easingly insecure citi-zens are perceptible. Faced with scarcity of social =
investment resources, they are at a growing disadvantage in relation to the=
ir competitors in developed countries regarding factors that, over a long p=
eriod, determine productive capability, competitiveness, and the well-being=
 of the people: health, education, and good quality employment for all. =20
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<a name=3D"E9E20"></a></p><p align=3D"LEFT"><font size=3D"+1">A new pattern=
?</font><br><br>
</p><p>Also in Brazil, in spite of the understandable and, in some ways, ju=
stified optimism of the official discourse (inflation has been under contro=
l since mid 1994), the traditional IMF prescription (fiscal and monetary re=
straint, liberation of the markets, and privatization) is no longer accepte=
d without reservation. After the increasingly frequent, heterogeneous, and =
severe financial crises observed in the last decade (Asia, Russia and Brazi=
l), the per-ception is that the model based only on the <i>Washington</i> <=
i>consensus </i> is not a panacea.  It is no longer possible, for example, =
to ignore the growing instability caused by the increase of short-term capi=
tal flow in a globalized and computerized world. The vulnerability of count=
ries, especially of economically unstable countries, increases when financi=
al markets are less regulated and more open.  Also for that reason, grows t=
he plea for a new global financial architecture - a new paradigm -, includi=
ng for the IMF. It is only a matter of deciding the form and rhythm which w=
ill cha-acterize the indispensable changes in the framework that was set up=
 over half a century ago.=20
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<a name=3D"E9E21"></a></p><p align=3D"LEFT"><font size=3D"+1">The Meltzer R=
eport and others </font><br><br>
</p><p>The architecture of the international financial system is being incr=
easingly questioned both by the left and the right.=20
   <font size=3D"-1"><i>[=84The international financial system: a new archi=
tecture?", Marc=EDlio Marques Moreira,  DIMAC/IPEA seminars, number 23, Jul=
y 2000.].</i></font><br>
		 Professor Joseph Stiglitz, former World Bank Chief Economist and potenti=
al winner of the Nobel Prize, for example, recently attacked the IMF.  Acco=
rding to Stiglitz, the Fund is an institution which frequently diagnoses po=
orly and imposes wrong macroeconomic adjustment programs on countries that =
it assists. This is done in a manner that is little transparent and not muc=
h according to the implicit or explicit  interests of these countries, but =
rather mainly according to the interests of the United States Treasury Depa=
rtment. =20
   <font size=3D"-1"><i>[=84What I learned at the world economic crisis.  T=
he Insider". Joseph Stigilitz, mimeo., 2000.]</i></font>=20
</p><p>Another recent criticism of the IMF stemmed from an evaluation reque=
sted by the United States National Congress from a group of experts. The re=
sult was a conservative pro-posal to cut down on the size and attributions<=
b> </b>of the IMF and of the World Bank. The so-called Meltzer Report, as i=
t is known, suggests that the IMF merely be a kind of World Central Bank - =
a selective lender of last resort to provide liquidity to pre-qualified and=
 solvent economies during turbulent, vulnerable peri-ods, when financial pa=
nic could arise. Only in the cases of systemic crises, and to avoid a great=
er evil, would the IMF indiscriminately lend resources to member countries.=
 Others, even more radically, propose the extinction of the IMF, as well as=
 of other important international financial institutions. That is what Geor=
ge Schultz, for example, did in an article written with William E. Simon an=
d Walther B. Wriston. =20
   <font size=3D"-1"><i>[Who needs the IMF?".  Wall  Street Journal , 02/03=
/2000.]</i></font>=20
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<a name=3D"E9E22"></a></p><p align=3D"LEFT"><font size=3D"+1">Democracy and=
 development at the IMF?</font><br><br>
</p><p>It is known that the IMF is not a democratic institution. The Managi=
ng Director of the IMF is chosen by the house executive committee, where th=
e decision criterion is closer  to <i>one  dollar, one vote</i> than to <i>=
one person, one vote</i>.  The voting power is distributed according to eac=
h country=92s quotas, which in turn reflect the country=92s size. The group=
 formed by de-veloping countries and former communist countries hold 40% of=
 the votes. The remaining 60% go to developed countries.=20
   <font size=3D"-1"><i>[=84Chega de negocia=E7=F5es de bastidores" (transl=
ated from the Financial Times), Jeffrey Sachs, Gazeta Mercantil, 11/18/1999=
.]</i></font><br>
		  These developed countries control the institution=92s philosophy and op=
eration, which, in practice, have been used to submit the developing countr=
ies (debtors) to the specific interest of the developed world (creditor). T=
his situation seems inadequate in a multilateral institution, where the mod=
el should approach that of an arrangement by which each country would have =
the right to one vote. For, it is necessary that the <i>burden of economic =
adjustment</i> be democratically shared in a more equitable way among unbal=
anced countries, whether they are deficit (debtor) or surplus (creditor) co=
untries.
</p><p>It is also desirable that the IMF be transformed into a true lender =
of last resort. To that end,  contrary to what is suggested by the Meltzer =
Report or the proposal headed by Schultz, the Fund would need a lot more re=
sources. That being the case, on the one hand, the IMF must be strengthened=
 in order to carry out its ob-jective in helping member countries to surviv=
e during temporary liquidity crises (short-term).  On the other hand, the I=
MF was not created to be, nor should it be transformed, even if in-directly=
, into an institution in charge of shaping the economic structure of member=
 countries through biased manipulation of conditionalities or performance c=
riteria. This would be a dys-function, for the IMF was not created for the =
purpose of <i>orienting</i> development strategies (long-term) of these cou=
ntries. Within certain limits, that is the purpose of the World Bank
</p><p align=3D"CENTER">
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<a name=3D"E9E23"></a></p><p align=3D"LEFT"><font size=3D"+1">Conclusion an=
d reservations</font><br><br>
</p><p>In spite of the noisy populist rhetoric, there is no interest in the=
 demoralization or extinction of the IMF. There is, rather, firm intention =
to improve the relationship of all member coun-tries with the institution, =
although emphasizing the urgent need to reform it. The perception is that t=
he IMF is an indispensable institution both in rescuing countries in tempor=
ary dif-ficulty as well as in guaranteeing the good operation of the intern=
ational financial system. However, opposition parties and many non-governme=
ntal organizations naturally reverbe-rate the growing and understandable po=
pular perception that the IMF needs to be rethought, restructured, and re-d=
imensioned.  It is believed that only in this way, particularly in a glo-ba=
lized environment, the institution will be able to serve the real and heter=
ogeneous interests of all member countries (the greater part of them debtor=
s) and not the specific interests of de-veloped and powerful countries (cre=
ditors) like the United States.
</p><p>Like in other emerging countries, the Brazilian government, supporte=
d by the legitimate and symptomatic popular pressure, needs to act to help =
hasten the reforms which will make it possible for institutions like the IM=
F to survive and to better treat both domestic financial systems as well as=
 independent currencies. In this respect, it is befitting to reflect on the=
 words of Professor James Tobin of Yale University at the Annual World Bank=
 Con-ference of Development Economics: =84The presumption that currency cri=
ses are just the fault of the victims is still all too prevalent among the =
statesmen of world finance and, of course, among media pundits". The laurea=
te professor went on to say=84. Effective inter-nationalization is not unmi=
tigated laissez faire. Let us encourage them [emerging countries] to build =
good national financial systems, not just open their doors ever wider."=20
   <font size=3D"-1"><i>[=84 Financial globalization:  can national currenc=
ies  survive ?".  Washington, 1998.]</i></font>=20
</p><p>Finally, in the past, the Brazilian government signed but failed to =
comply with many <i>letters of intention</i> with the IMF. On the other han=
d, the present government seems to want to fulfill, at any cost, its commit=
ment (the goals) with the important, albeit in some respects, admittedly <i=
>aged</i> institution. They are both extreme pos-tures.  Alternatively, a m=
ature relationship, of true partnership, between the IMF and Brazil, presup=
poses the ability of the Brazilian govern-ment to negotiate, and of the Fun=
d, to accept, not only emergency loans, but, above all, conditionalities an=
d performance criteria that recognize the legitimate long-term objectives o=
f a democratic and sovereign country of un-deniable importance in the inter=
national community. The IMF and Brazil are partners, even though, at times,=
 they are partners in conflict. It is better to have it this way, for it wo=
uld be worse if they were enemies, even if cordial enemies feigning a honey=
moon in Prague.  =20
</p><p><b>Marcelo Lara Resende</b> Ph.D. of the Yale University
<!-- START END -->
</p><hr>
<font size=3D"-2">
=A9 <a href=3D"mailto:wwwadm@www.fes.de">Friedrich Ebert Stiftung</a>
| <a href=3D"https://library.fes.de/fulltext/iez/support.html">technical su=
pport</a> | net edition=20
<a href=3D"mailto:walter.wimmer@fes.de">fes-library</a> | Juli 2001
</font></td></tr></tbody></table>
<!-- END END -->

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------MultipartBoundary--hWb0VuDCevDWPrdBP4PbLaBaoIb4iP0LkRmezYQ4cB------
