A columnist for Folha de S.Paulo says that Brazil is collapsing like it did in 1998.

* Originally published on the Citizenship Blog

One day after IBGE (Brazilian Institute of Geography and Statistics) announced that Brazil is experiencing a unique moment with the lowest unemployment rate for an April since 2002 (when the current methodology for calculating unemployment data began to be used) and with an increase in the average value of salaries compared to the same month last year, Folha de São Paulo columnist Fernando Rodrigues published an article stating that the current economic situation is the same as in 1998, when the country was going bankrupt.

In the text "1998 and 2014“The journalist Fernando Rodrigues states thatThere is a strong desire within the Workers' Party leadership to win next year's presidential election in the first round."Because, just like in the year that former president Fernando Henrique Cardoso was re-elected in the first round, today there would be..."Similarities between 1998 and 2014"with regard to the country's economy."

In light of the known facts, however, the text is full of "inaccuracies" about the Brazilian economy at the end of the last decade of the 20th century and in the second decade of the 21st century, despite the columnist in question working for a newspaper that has archives revealing a huge difference between the Brazilian economy in 1998 and in 2013.

The columnist repeats himself in this text, stating later on that, today, “As we know, the economy isn't doing very well, just like in 1997.”, and thus, President Dilma Rousseff, a pre-candidate for her own succession, “He will spend the entire next year avoiding debates and interviews."Like FHC did in 1998, when Brazil was going bankrupt."

Rodrigues also asks, "What will happen if there is a second round" in next year's presidential election? According to him, "Erratic economic policy, micro-decisions, and micro-outcomes will be put under analysis."and "Everything will be contradicted by the opposition.".

The text fails to mention, however, that today, unlike in 1998, when the mainstream press avoided reporting on the country's economic problems at a time when it was on the verge of collapse, this same mainstream press is constantly publishing headlines claiming that Brazil is in a bad economic situation.

The Folha columnist concludes the text by stating that “Dilma, unlike Lula, does not possess the eloquence and quick wit of her mentor in open debates."Making it clear that, in his opinion, the President of the Republic will not be able to face and win the election due to accusations that the opposition will make that are not being made today."

However, Rodrigues does not explain what economic problems the opposition might cite next year that are not being widely reported today. Nor does he explain why the press is not denouncing the country's economic problems today, problems that will only become apparent next year when the opposition is campaigning for the Presidency.

However, economic news outlets have long been hammering home the idea that Brazil is facing serious economic problems. This year alone, the mainstream press announced an endless list of economic catastrophes, the most striking of which was the claim that the country was on the verge of electricity rationing similar to what occurred between 2001 and 2002, which ultimately proved false.

Reviewing what Folha de São Paulo – where Rodrigues was already working in 1998 – published in 1998 about the Brazilian economy, what we discover is a situation that cannot be compared to today's. And it shows why FHC wanted to settle the score in the first round at any cost, which resulted in what ten out of ten economic analysts recognize as one of the biggest electoral frauds in history.

On January 28, 1998, for example, the newspaper that employs Rodrigues published an article in which then-President Fernando Henrique Cardoso assured the country that he would not devalue the real either during that term or the next, a promise he already believed he would obtain due to the strong support his government had from the same press that is now seen as an opponent of the Dilma Rousseff government.

Read excerpts from the report below.

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FOLHA DE SÃO PAULO

January 28, 1998

FHC says he will maintain the exchange rate until 'another term'

VALDO CRUZ

from the Brasília Branch

President Fernando Henrique Cardoso told Folha that he will not change the exchange rate "neither in this term nor in the next," letting slip his confidence that he will be re-elected in the next campaign.

(...)

Asked if the government could change the exchange rate in the face of external instability and to improve the economy in an election year, FHC said:

"This matter is settled (referring to the policy of gradual currency devaluations). I am not considering changing the exchange rate. I will not change it in this term or the next."

Everyone already knows that when you adjust the economy through currency devaluation, in the end, it's the wage earners who pay the price. We don't need to change anything. Right now, we're in a good position. The IMF and the World Bank said we acted correctly.”

(...)

—–

In the same edition, the then Minister of Finance, Pedro Malan, also guaranteed that the government would not devalue the real either during FHC's term or in his second term, which that government had already rightly considered a foregone conclusion.

Read excerpts from the report below.

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FOLHA DE SÃO PAULO

January 28, 1998

The exchange rate remains unchanged, says Malan.

LEO GERCHMANN

of Buenos Aires

(…) Minister Malan took advantage of his trip to Buenos Aires to comment on one of the biggest concerns of Argentinians regarding Brazil: the exchange rate. According to him, the real will not be devalued even in a possible second term of President Fernando Henrique Cardoso, because that would contradict the logic of the Real Plan (…)

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However, in one of the rare criticisms of the economy that could be found in the Brazilian press during that election year of 1998, before the election that would re-elect FHC, journalist Eleonora de Lucena, from Folha de S.Paulo, published an article that allows us to see the great difference that exists between the economy of that year and that of 2013, despite Rodrigues equating the current situation with that of 15 years ago.

Read excerpts from the article below.

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FOLHA DE SÃO PAULO

March 9th, 1998

The Real account

ELEONORA DE LUCENA

São Paulo – The number of unemployed people in Brazil grew by 52,8% last January compared to December. According to official data, 1,3 million people are looking for work in the six main metropolitan regions of the country. A record, surpassed only by the month of August 84, when the recession of the so-called "lost decade" hit rock bottom.

(...)

The current model stifles economic growth.

The strong exchange rate has created an external dependency that restricts the actions of the authorities here. Brazil desperately needs dollars to maintain its model and keep inflation low. The global crash showed the vulnerability of the system: the frantic flight of dollars seemed to foreshadow the collapse of the Real.

The solution was to raise interest rates to further reward investors who hold dollars. And, with that, save the plan—and the reelection. The cost: halting growth, cutting imports and, consequently, stimulating job cuts.

(...)

—–

The data that journalist Eleonora Lucena listed in that article calls into question the assertion by her colleague Fernando Rodrigues that Brazil's economic situation today is the same as in 1998.

The difference between today's economy and that of 1998, moreover, is not limited to the labor market. In 1998, while FHC, during his election campaign, repeatedly stated that there would be no devaluation of the real, the market already knew that this devaluation would occur. Because of this, the country was bleeding foreign exchange reserves due to the strong capital flight that was taking place.

In the same newspaper where Rodrigues writes, and around the same time he was already working there, the article "Devaluation is seen as a threat," from September 14, 1998, reveals the bankrupt state of the country that the mainstream press was hiding – among the major media outlets, only Folha published anything, but with very little prominence.

Read excerpts from the report below.

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FOLHA DE SÃO PAULO

September 14th, 1998

Devaluation is seen as a threat.

Newsroom

(...)

The rush of investors seeking protection in dollars is based on the expectation that the Brazilian government will be forced to devalue the currency in order to reverse the flow of foreign capital into the country.

The economic team of Fernando Henrique Cardoso's government has always ruled out this possibility and this year has maintained a monthly devaluation of 0,6% for the exchange rate. On its own initiative, the government would not take such action, but the fear is that it may have no alternative.

Capital flight this month has already exceeded US$10 billion, and many economists estimate that international reserves could reach US$45 billion in the second half of the month. Remember that not long ago they totaled US$74 billion.

—–

Just to put today's situation into context in relation to that of 1998, according to data from central bank As of last Friday, May 24th, the country's foreign exchange reserves stood at $375 billion. January 2003When Lula took office, he inherited foreign exchange reserves of 37 billion dollars from his predecessor.

But even so, the reserves that FHC left at the end of his government were still greater than those of January 1999, when Brazil went bankrupt. In that year, reserves reached less than 20 billion dollars and only recovered thanks to contributions from the IMF, the World Bank, the US government, and the Paris Club.

Despite the Folha article about the reserves (above), however, most Brazilians were unaware that the country was going bankrupt. That article was published in a section of Folha called "Folha Invest," in the economics section, and without prominence on the front page. In other words, even in Folha, the only major newspaper that touched, albeit lightly, on the chaotic situation in the country, the news remained "hidden."

The Workers' Party opposition, at the time, was already warning that devaluation was only a matter of time. In the article "Lula says FHC is to blame for capital flight," from June 2, 1998, the then-presidential candidate for the Workers' Party warned that the real would be devalued, but almost all of the mainstream press denied this and attributed the blame for the country's situation to the opposition (?!)

See excerpts from the report below.

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FOLHA DE SÃO PAULO

June 2th, 1998

Lula says FHC is to blame for capital flight.

PATRICIA ANDRADE

From Local Reporting

Luiz Inácio Lula da Silva, a member of the Workers' Party and pre-candidate for the Presidency of the Republic, said yesterday that speculation surrounding a possible capital flight, should he win the elections, is part of the PSDB's (Brazilian Social Democracy Party) war to win the race.

"This type of speculation is part of the adversary's war. I cannot be held responsible for what the FHC government did. Until January 1, 1999, FHC is responsible for the capital flight," said Lula, commenting on the fluctuations in the Stock Exchanges after his rise in voting intentions, detected by the latest Datafolha poll.

"They're going to try to create fear: if Lula wins, there will be capital flight. And I say: that will happen with anyone, because we are dependent on foreign capital."

(...)

—–

In fact, FHC won in the first round and a few days after taking office for his second term, more precisely on January 13, the real, which until then was quoted at R$ 1,21 per dollar, suffered a massive devaluation that, in the following month, would bring the national currency to a rate of R$ 1,97 per dollar, with a 62% appreciation of the American currency against the real.

On June 26, 1998, a few months before the election, however, FHC continued to assert that he would not devalue the real and that doing so "was not necessary." This assertion is corroborated by an article in the same Folha newspaper by Fernando Rodrigues, "FHC admits to devaluing the real less," published on June 26 of that year, in which the then-President of the Republic stated what anyone with a moderate level of economic knowledge knew to be false.

Read excerpts from the report below.

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FOLHA DE SÃO PAULO

June 26th, 1998

FHC admits to devaluing the real less.

VALDO CRUZ

Executive Director of the Brasília Branch

VIVALDO DE SOUSA

CARI RODRIGUES

from the Brasília Branch

(...)

FHC reiterated that he disagrees with the PT's proposal to accelerate currency devaluation to increase exports. "It's not necessary. It's so unnecessary that exports are growing," he said.

He pointed out that exports of manufactured goods are growing at 11% per year. According to FHC, accelerating currency devaluation is punishing the worker.
May
The month of May registered the lowest rate of devaluation of the real against the dollar this year: 0,54%. It was, in 98, the first monthly devaluation below 0,6% - an index that, in 12 months, would accumulate to 7,4%, a rate registered in 97.
The dollar exchange rate went from R$ 1,1443 on April 30th to R$ 1,1505 on the last business day of May.
Last month, the government allowed for more free fluctuation in the dollar exchange rate.
The Central Bank is pursuing a policy of gradually widening the so-called exchange rate mini-bands—the ranges within which exchange rates can fluctuate freely.
The system of bands and minibands began in March 95, shortly after the Mexican crisis.

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As can be seen, in addition to continuing to assert that there would be no major devaluation, FHC advocated for a reduction in the micro-devaluations that, since 1995, had taken the real from R$1 per dollar to R$1,15 at that time, with an appreciation of the American currency, in 4 years, of only 15%, when, as it later became known, the market required at least 60%.

Despite FHC's denials, the market already knew he was lying. In fact, an American economist predicted, shortly before the election that the PSDB candidate would win, that the real would be devalued. He even gave a timeframe for this – and he was right about the timeframe.

The article “Dornbusch predicts devaluation in 3 months”, from October 2, 1998, explains not only why Fernando Rodrigues' column, cited in this post, is absurd in comparing the country's situation today with that of 1998, but also why FHC needed to win the election in the first round at any cost.

See the full article below.

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FOLHA DE SÃO PAULO

October 2th, 1998

MERCAD TENSO

Economist predicts the real will depreciate within three months and says Brazil is a "poorly governed" country.

Dornbusch predicts devaluation in 3 months.

 

MARCELO DIEGO

from New York

 

A devaluation of the real within three months and a deep recession in Brazil in 1999 was the scenario described yesterday in New York by MIT (Massachusetts Institute of Technology) economics professor Rudiger Dornbusch. He spoke to the same audience that will hear Finance Minister Pedro Malan speak today.

Dornbusch participated in the first day of the Conference of the Americas, organized by the "Wall Street Journal".

The economist called Brazil a poorly governed country. "President Fernando Henrique Cardoso could have made all the necessary adjustments to prevent Brazil from being in its current situation. Now, he will pay dearly for his inaction. The economic policy was a fraud," he said.

Businesspeople, bankers, financial columnists, and investment agents were present.

Today, speeches are scheduled from Pedro Malan and the president of the Central Bank, Gustavo Franco.

They will face an audience warned not only by Dornbusch, but also by the Brazilian economist Affonso Celso Pastore.

Dornbusch said that Brazil's problems began with the overvaluation of the exchange rate during the implementation of the Real Plan in 1994.

He is a staunch critic of overvaluation. Last year, he even compared Brazil to Mexico, which went through a crisis in 1995 precisely because of this problem.

Now, he predicts there will be a sharp rush to exchange the real for the dollar. He believes the government will be unable to replenish foreign exchange reserves and will lack mechanisms to control the devaluation of the Brazilian currency, which is expected to intensify within three months.

"The exodus from the real will continue," he stated. He described the outflow of an average of US$500 million per day from Brazil in the last month as alarming.

According to Dornbusch, the way to avoid a catastrophic scenario would be to follow the Argentinian model. Fixed convertibility and profound fiscal reforms would be part of the formula.

"What Brazil needs is competitiveness, but that won't come from a government that changes the rules all the time."

"Reelection will allow the president to pass a barrage of measures in Congress. Basically, it will raise taxes, cut public spending, and trigger an even deeper recession," he added.

Former chief economist of the International Monetary Fund, Dornbusch said that IMF aid to Brazil would be of little help. "Whoever receives US$30 billion will then want US$40 billion. It's not the solution."

—–

Due to the difference in foreign exchange reserves (today about 10 times greater than in 1998) and full employment (which, under FHC, reached double digits) and controlled inflation – albeit with peaks – and much lower than during the second term of the PSDB party, the country is not about to collapse. Quite the contrary, which is why Dilma does not "need" to win in the first round at all, contrary to what the forgotten columnist from Folha de S.Paulo says.