By Gregory Palast for The Observer/Guardian UK
When US Treasury Secretary Robert Rubin was a little boy, he dreamed of becoming President – of Brazil. And now his dream has come true. Of course, in light of his Washington address and US nationality, Rubin won control of Brazil the only way he could – through a brilliant swindle.
Last October 9, the nominal President of Brazil, Fernando Henrique Cardoso, was voted back into office for one thing and one thing only: he had stabilized the value of Brazil’s currency and thereby stopped inflation. In truth, he hadn’t. Brazil’s REAL was ludicrously overvalued. Yet, as the election approached, its rate of exchange against the dollar simply defied gravity. This miracle carried Cardoso over the finish line with 54% of the vote.
But there are no miracles.
Fifteen days after Cardoso’s inauguration, the REAL folded over and died. Today, it trades at roughly half its election day value. Inflation is zooming and the economy imploding. Support for Cardoso, now reviled as an incompetent and a cheat, has dropped to 23% of the electorate. Too late. He’s still President.
Well, more or less. There is nothing much left to Cardoso’s presidency but the title. All meaningful policies, from spending to employment, are dictated by the International Monetary Fund and its brethren agencies. And behind them, calling the shots, is Treasury Secretary Rubin who rules as de facto President of Brazil without having to miss a single Manhattan cocktail party. But this is the price Cardoso pays for Rubin’s election campaign services. For it was the US Treasury which, with the IMF, kept Brazil’s currency aloft. Rubin had good reason to maintain Brazil’s dubious coinage besides helping Cardoso. Knowing full well the currency would go to pieces right after the elections, the US Treasury made sure American banks could get their money out of the country on favorable terms. Between last July and the inauguration this January, Brazil’s dollar reserves dropped from $70 billion to $26 billion, a sign the bankers had grabbed their money and run. Yet the currency stayed afloat before the election because the US made clear its intention to replace lost reserves with an IMF loan package.
And it was made equally clear to voters that the funds would be handed over only to Cardoso, never to the opposition Workers’ Party. The international elite’s sponsorship of Cardoso was sealed by the July appearance in Rio of Peter Mandelson, whose weird and unprecedented endorsement of Cardoso marked the Brazilian’s official enrollment in the Clinton-Blair Third Way Project. A month after Cardoso’s re-election, the IMF duly offered credits totaling $41 billion. Brazil will net none of it, of course. Any portion actually dripped to the nation takes the next plane out with the investors and speculators abandoning the country.
Brazilians are left to pay off this debt. But that’s the least of their worries. As part of the black magic of maintaining the pre-election exchange rate, Washington pushed the Bank of Brazil to raise benchmark rates to 39% today. The IMF pushed for 70%. On the streets of Sao Paulo, this translates into interest rates of up to 200% on private loans and business credit. Confirmation of Rubin’s scheme to bail out both Cardoso and the US banks comes from a most interesting source, Harvard’s Jeffrey Sachs. Sachs is best remembered as the Typhoid Mary of neoliberalism who spread free market theorems and economic depression across the former Soviet Union. Sachs, who is still in the chattering loop of players in the international
finance game, told me, “You could watch [Brazil’s] economy going over a cliff. It happened in slow motion. But rather than prevent collapse through controlled devaluation, Washington and the IMF vigorously encouraged 50%-plus interest rates. Washington wanted Cardoso re-elected,” he said, while allowing six months for American financiers to unload Brazilian bonds and currency on favorable terms.
If Rubin’s financial coup d’etat seems well practiced, this is because he used the same method in 1994 to become de facto President of Mexico. Once again, a mistrusted ruling party returned to power on the strength of its currency and US promises of support. Four weeks after President Ernesto Zedillo’s inauguration, the peso collapsed while American lenders to Mexico were bailed out by a special US loan fund.
Cardoso knows better than to blame Rubin’s manipulations for Brazil’s troubles. Rather, with help from a right-wing press, he and the IMF blame economic collapse on villains familiar to British readers: government employees, pensioners and trade unions. They are accused of busting thegovernment’s budget.
That’s nuts. Interest payments, notes Sachs, equal a monstrous 10% of the nation’s spending and entirely account for the doubling of the federal deficit. Compared to this, government worker pensions, chief target of the budget cutters, are a piss in the ocean.
But Sachs’ analysis falls short. He says, “the IMF failed,” because the high-interest lead to crisis and depression. He’s wrong. Crisis is PART of the plan.
Crisis has its uses. Only in an economic panic can Rubin and the IMF unleash the Four Horseman of Reform: kill social spending, cut government payrolls, break the unions and, the real prize, privatize lucrative public assets. Yet Cardoso is not Rubin’s happy hand puppet. Formerly a sociologist and expert on Dependency Theory, he must privately grieve for the loss of his nation’s financial sovereignty.
Cardoso survived the elections, but the opposition swept his party from the biggest states. The new governors aren’t grieving. They are baring their teeth. In January, Brazil’s former President, Itamar Franco, just elected Governor of Minas Gerais state, refused payment on debts to the federal treasury. Six other governors then told Cardoso what any sensible person would tell a loan shark who raises interest rates from 10% to 60%: go to hell. The press dismisses Franco as a buffoon, jealous of Cardoso. Their purpose is to take the attention away from the true threat to Cardoso and the IMF, Olivio Dutra, popular Governor of Southern Rio Grande state, rising star of the Worker’s Party. The son of landless peasants, a youthful, suave militant for the TV age, Dutra turned the state’s capital into a national showcase of development.
It is Franco they attack, but Dutra they fear. Cardoso is doing his best to punish citizens of Rio Grande state for electing him. Dutra did not withhold payments to the federal government, but paid the funds, about £27 million, into the courts. Cardoso responded viciously, holding back £37 million in taxes collected for Dutra’s state. The IMF blocked loans to Rio Grande. Reached by phone at his office in Porto Alegre, Dutra says he accepts that crisis requires sacrifice. He has laid off state workers. But he has the audacity to suggest General Motors and Ford join the sacrifice and give up tax breaks now bleeding the state treasury.
Brazil is a rich nation, with a GDP, even in depression, of one-third of a trillion pounds. But like a frantic hamster on a toy wheel, it is in a losing race to capture its own fleeing capital which it must buy back at usurious interest rates. This is why Dutra is especially exercised over the seizure for privatization of his state’s development bank, an engine of Rio Grande’s self-financed expansion.
The Governor, no fool, does not waste bullets on the humiliated Cardoso. By organizing the resistance to Rubin’s demands and the IMF’s loan terms, Dutra shrewdly aims not at the puppet but the puppeteers.
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Gregory Palast writes the award-winning column, “Inside Corporate America” fortnightly in Britain’s Sunday newspaper, The Observer, part of the Guardian Media Group where this first appeared. For comments or request for reprint, contact us.