WHEN MARKETS TURN SOUR, FINANCIAL investors can take their losses and run away. Not so business people. Nowhere will this difference become more apparent this year than in Brazil.
During the years of a strong currency since July 1994, stable prices and somewhat steady growth under President Fernando Henrique Cardoso's famed Real Plan, corporate executives at local and foreign companies invested billions and forged strategies for the future. But when the Brazilian real crashed last January, market conditions shifted radically, suddenly putting such investors' plans on the anvil of results. The question now is whether they will shatter or remain sound.
Perhaps it's too early to tell, but reality's hammer promises to pound long and hard this year. Despite domestic and international efforts, Brazil's economy will shrink at least 4%, according to the government's own projections. Unemployment is soaring. Domestic spending is spiraling downward. And inflation is raising its ugly head once again.
Of course, the biggest fear among Brazilians is a return to the days of hyperinflation, when the price of seemingly everything zoomed up every hour. Keeping inflation under control remains the government's greatest challenge.
The new president of the Central bank and former Soros aide Arminio Fraga has engineered a delicate balance in monetary policy. As long as inflationary pressures threaten to push Brazil back toward its chaotic past, interest rates will remain high. Official projections put the end-of-year inflation rate at 17%, and interest rates at 29%.