I sometimes think I may be the only person in America who faced a situation similar to what Cyprus is going through now; so similar it gives me the creeps.
The morning I heard about the Cypriot tribulations, I told my husband it had the finger of the IMF – International Monetary Fund – in it. I still remember vividly how it felt to have our money seized by the government. It doesn’t really matter who the government is; we may call it the European Central Bank or the IMF or Cyprus Central Bank; the result to the common person, who does not have enough money to maintain an offshore account in the Caribbean or Switzerland, is the same.
Flashback and move south. The year is 1992. After twenty years of military government – which were not bad except the generals in charge did not know anything about Economics and immersed the country is a tsunami of hyperinflation (eight four percent per month and growing) – the country is electing its president. Multiply those eight four percent by twelve and you’ll have an astronomical yearly number. Divide those into thirty and you’ll have an idea of how much the money in your pocket devaluated every single day of the month.
Most Americans don’t have a clue of how life is with hyperinflation. I hope we’ll never find out. Maybe one day I’ll write a blog about the chaos of hyperinflation. But I need to prepare myself psychologically for that so for now this blog post will leave inflation out and deal with how Brazil went through and survived a strikingly similar financial chaos as to the one we see developing in Cyprus.
Back to Brazil’s three decades of military rule (much better than the option – a communist/socialist government), I felt very proud to vote for president for the first time. Fernando Collor de Mello was young and well-spoken, from a wealthy family in North Brazil with a long tradition in politics. In a much smaller scale, the Color de Mello family was to North Brazil what the Kennedys are to America. Fernando Collor de Mello himself had been the governor of the state of Alagoas. His wife was either adored or hated; some found her pretty, some found her weird. For a while Brazil had its first royal couple; Fernando talked about innovations and free trade, open markets, privatization of state-owned giant companies, industrial modernization and public debt reduction.
I was eager to trust Mr. Collor de Mello. Most of all, I voted for him to keep his opponent out and looking back now I believe a lot of people did the same. The opponent was a steel union worker and activist nick named Lula. Short for Luiz Inacio Lula da Silva. He sounded angry, furious; he hated capitalism and America. He was going to take land of productive farmers and distribute it to the destitute. He was going to force families living in big houses to share their homes with poor families from the favelas (Brazilian name for slums). I believed Mr. Lula too, with all my heart. His public speeches made me fear for the future of the country. Who in the international community, in their right mind, would invest one cent in Brazil if a maniac of such proportions was elected? And God knows how desperately Brazil needed foreign investments back then.
That was the beginning of a populist and useless movement called Sem-Terra – the Landless. Lula’s speeches attracted crowds of people as angry and violent-sounding as he himself. Wherever Lula went, a trail of disorderly conduct followed. In one extreme case, a police officer was murdered in plain day light, in my own southern city, Porto Alegre, by a group of Lula’s sem-terra, armed with knives and scythes, in one of their public protests. That was also the beginning of President Lula’s struggle to become Brazil’s president, which he achieved not once, but twice, reelected for a second term, in a total of eight years, from 2003 through 2011.
In contrast, Brazil’s royal couple, the Collor de Mellos, sounded nice and polite, refined, well-dressed, well travelled. But I know I would have voted for anyone just to keep Lula away from Brasilia, the Federal Capital. In my ardent wishes to see the country led by a trustworthy, capitalist, educated and experienced president, I voted for Mr. Collor de Mello with a gusto that can only come from needing to trust someone; from wanting to find a good and responsible president for our emerging democracy, so wounded by relentless inflation.
In 1989 Collor defeated Lula in a two-round presidential race and thirty five million votes. Even for us in the South, far away from Collor’s political activities in North Brazil, he looked, sounded and felt like God-sent. The first democratically elected Brazilian president in almost thirty years would make the battle against hyperinflation the heart and soul of its administration and find a solution to the next impending crisis: Brazil was very close to default in its international loans. As to who was Brazil’s biggest and most powerful creditor back then, here is where the disheartening similarities with Cyprus begin.
On the very day he took office, President Collor launched the Plano Collor (Collor Plan). The plan’s aim, according to a summary I found in Wikipedia, “was to reduce the money supply by forcibly converting large portions of consumer bank accounts into non-cashable government bonds, while at the same time increasing the printing of money bills, a contradictory measure to combat hyperinflation. (…) All accounts over 50,000 Cruzeiros (about US$1,300 at that time), were frozen for eighteen months. He also proposed freezes in wages and prices, as well as major cuts in government spending. The measures were received unenthusiastically by the people, though many felt that radical measures were necessary to kill the hyperinflation.”
The Collor Plan was released after a series of long and secretly held meetings in Brasilia, between IMF officials and Collor’s finance minister Ms. Zelia Cardoso de Mello (not related to the president by the way). Brazil did not default on its international loan payments. But the entire country woke up poorer one fine Monday morning, with banks closed for days in a row and anxiety levels the height of Rio’s famous Sugar Loaf mount.
In case Wikipedia’s text – to reduce the money supply by forcibly converting large portions of consumer bank accounts into non-cashable government bonds – confused you, what Color did was to confiscate all bank accounts over 50,000 Cruzeiros (Brazil’s old currency) from both individuals and businesses. It was chaos, as you can imagine. In acute cases that were becoming increasingly more numerous across the country, people committed suicide. It would take another couple of blogs to go over the parade of disasters that took Brazil by storm after Collor released his magic plan. As a result, in order to try to fix the errors, the president and his team of Economists came up with Plano Collor II, which proved ineffective. Collor’s administration was paralyzed due to the fast deterioration of his image through a succession of corruption accusations, as Wikipedia describes.
On October 2, 1992, President Collor received formal notice from the Brazilian Senate that the Chamber of Deputies had accepted the charges presented against him and that he was now a defendant in a trial of impeachment that the Senate would conduct. According to Brazil’s Constitution, upon receipt of that notification, Collor’s powers were suspended for 180 days and the vice president became acting president. On December 29, 1992, facing almost certain conviction and removal from office by the Senate, Collor resigned just as the trial was underway, in the last day of the proceedings. Collor’s resignation letter was read by his attorney in the floor of the Senate, and the impeachment trial was adjourned so that the Congress could meet in joint session, first to take formal notice of the resignation and proclaim the office of President vacant, and then to swear-in the Vice-President as President, as required by the Brazilian Constitution. (Source: Wikipedia)
I guess what most historical accounts fail to acknowledge is that Collor and his Finance Minister did not come up with that all by themselves. Removing money from Brazilians’ bank accounts was one of the strategies the IMF required in order to give Brazil the money the country needed. Brazil was not part of any international community as Cyprus is part of the European Market but just like Cyprus, the money that saved the financial viability of the nation was not coming in at a cheap cost.
In those pre-globalization days, before the Web, Brazil’s tribulations were not as publicized as Cyprus, but equally painful to its citizens. It would take the country years after Collor’s impeachment to get the hyperinflation under control. Cyprus situation has even more serious repercussions because it sends out waves of fear that other countries in the European Union may be forced to take the same shocking measures – the IMF’s registered mark.
Twenty years after Collor, I still can recognize the IMF’s fingerprints when I see it. Fortunately this time, from a distance. The IMF giveth and the IMF taketh away.