Fund threatens Brazilian democracy

26 November 2002 | Guest comment

By Aurélio Vianna Jr, Political advisor to the coordinating unit of Rede Brasil – Brazilian Network on Multilateral Financial Institutions

In early September the IMF approved a $3 billion loan for Brazil, to be followed by an additional $3 billion in December, and roughly $24 billion in 2003. The main objectives of the agreement are (a) to reduce the country’s vulnerability in the face of market uncertainties; (b) to facilitate the transition for the new Administration; and (c) to create the conditions to reverse the deterioration in debt levels. These objectives, which highlight the country’s vulnerability vis-à-vis capital flows and escalating government debt, do not address the structural problems that have led to the current state of affairs; problems that incriminate both the Brazilian Government and the IMF. Brazil is more vulnerable for having followed the set of policies prescribed by the IMF, not less. Moreover, under the friendly assertion of “facilitating the administrative transition”, the Fund avoids charges that it performs an influential role in the Brazilian election process, whilst in practice hampering the consolidation of stronger democratic institutions and a free discussion of key national issues.

Over the years the IMF has made progress as regards the degree of transparency of its operations. In addition, though rather modestly, it has engaged in a public relations policy of establishing a dialogue with civil society organizations all over the globe. Finally, at least in theory, it has shown increasing concern for its relations with governments by ensuring their ‘ownership’ of the policies agreed upon.

Paradoxically, as these changes unfold, the Fund remains uncompromising with respect to its set of prescribed policies. ‘Help’ to Brazil came in the run-up to the election. Counter to the Fund’s principle of not becoming involved in domestic policy, the Fund representative came to Brazil, spoke to the Government and the opposition alike and, together with President Cardoso, managed to secure support from the main presidential candidates for the underlying foundations of an agreement. What the President of the Republic and the Fund failed to remember was that there is a democratic constitution in Brazil, one which has created a process to foster consensus among different political forces around foreign loans; the Federal Senate has the prerogative of authorizing the contracting of foreign loans. The IMF, by trying to intervene in the Brazilian domestic political process, has failed to understand that there can be no democracy in the absence of respect for national democratic institutions.

The content of the agreement with Brazil adds further to this tension. The Budget Guidelines Act drafted by the Executive and passed by Congress is an annual law which addresses federal government fiscal targets – one of the key foundations of the IMF agreement. Because the law takes effect on a yearly basis, the surplus target agreed upon with the IMF is incorporated into the Budget Guidelines Act after the relevant discussions have taken place. Under the new agreement, budget targets are to be revised by finance ministry officials on a quarterly basis. While these targets will be agreed upon in an “elastic” manner (the target surplus being set at no less than 3.75 per cent of the GDP, as opposed to a target fixed percentage of the GDP), the annual budget law may be overridden. In effect, the democratic budget allocation process and the budget cycle have become nothing but ink on paper.

Once again in line with the IMF, the World Bank and the Inter-American Development Bank have promised more funds for adjustment loans. However, these amount to purely defensive loans, i.e., funds for the Brazilian Government to honour payment of its existing debt. The recent agreement makes clear the need for a comprehensive and critical review not only of the content of the agreements entered into with the IMF but also of its private-sector-oriented and regressive policy prescriptions. The experience in Argentina, Uruguay, Paraguay and Brazil – all countries that have followed the policies recommended by the IMF – serves as a dreadful example of the effect of the Washington Consensus on development and poverty. These are countries that have plunged into crises for having followed the IMF in search of ‘help’. As a self-fulfilling prophecy, the IMF policies create the demands ultimately taken to the IMF itself, both executioner and saviour.

Both the new Brazilian government and Brazilian civil society must seize the opportunity of the new Brazilian administration to push for changes in the agreement with the Fund. Crucial will be the creation of a process to change the relationships between a sovereign and democratic Government, supported by civil society, and the financial institutions, pushing the latter to be truly multilateral.

Rede Brasil, Brazilian network on the multilateral financial institutions

The IMF in Latin America