Mark Milner in Sao Paulo
PEDRO MALAN does not look like a gambler. Pipe-smoking and bespectacled, he projects the image of the career civil servant he has been for much of his working life.
Malan, however, is now Brazil’s minister of finance; a key player in President Fernando Henrique Cardoso’s attempt to wean the country off its decades-long addiction to inflation and on to the path of sustainable economic growth.
And it is a gambling metaphor on which Malan – he has a PhD in economics from Berkeley, California – draws when he talks of the government’s progress in tackling the economic challenges it faces.
Two-and-a-half years ago when the Cardoso administration launched its Real plan – so called after the new currency that forms a central plank of the programme – inflation was running at 30% a month.
Wage indexation, linked to historic levels of inflation, ensured a continuation of the savage price spiral.
Today wholesale price inflation is running at just under 10% a year and is forecast to fall to 8% in 1997.
But if Malan believes the government has won its first bet by bringing down inflation to single figures for the first time in four decades, he is more cautious about the second part of the strategy.
“We are still playing the cards, we are still at the table. It will be some years before we will be able to express, with a high degree of confidence, that we have been able to create the conditions for sustainable growth, higher employment, a manageable balance of payments situation and brought the public sector debt down to a manageable level.”
All this without going soft on inflation.
Progress is being made. Growth this year is expected to be 3% – down on 1995 – but is forecast to climb to 4,5% next year.
That might not look too spectacular for a developing economy, but Malan points out that it will mean the Brazilian economy will have grown by 30% in real terms in five years.
As to the public finances, deals have been struck with a number of Brazil’s power states to help them trim their spending.
A wage freeze has been imposed on civil servants. Privatisation is helping, though critics suggest the administration could move faster.
Malan is adamant there is no lack of political will. Public money, he says, should be spent on health care and education “not on running steel and petrochemical plants”.
Certainly cuts in the debt burden are needed. Brazil’s public sector debt may not look high at 35% of gross domestic product – many European countries are struggling to meet the Maastricht criterion of 60% – but interest rates are high and the maturities are short.
“We are not underestimating the magnitude of the challenge. But we are changing the agenda and it will be very hard to depart from the broad outlines of that agenda – not because it is ours, but because it is what the majority of Brazilians want.”