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Brazil, politics and coffee: the new deal.

Brazil, politics and coffee: The New Deal

While Brazil and the world expected President Collor to enact tough anti-inflation measures, the boldness and intensity of the plan announced minutes after his inauguration took everybody by surprise and drove Brazilians in a state of shock, from which they only start to emerge. The freezing of debts and markets, monetary restrictions, increase of taxes, closing of institutions (among which the IBC) and introduction of reforms were so drastic that they all but closed the country down. Economic life literally came to a halt, leaving thousands of companies to fend for themselves before they had a chance to understand, or even know, the new rules.

A major victory for Collor has been the unexpectedly strong support of Congress, which timely endorsed most of his plan without blinking an eye. While coffee, like most branches, is still in a state of semi-chaos, ground rules are becoming apparent and, unless they are repealed or contradicted (something possible under the circumstances), they permit to forecast a feasible future.

With the demise of the IBC, coffee trade will be considerably freer but minimum regulations will still be enforced by two agencies: DECEX, the Department of Foreign Trade will most likely handle registrations, which must still be made, to prevent "cold" (ficticious) sales and fraud on local currency. Registrations can be made for any period within the 12 months ahead and a contract must be produced within 30 days of registration. CACEX (Banco do Brasil's foreign trade section) will intervene to convert the foreign currency resulting from the sale. Quality matters will mostly be dealt with by private surveillance firms.

The question of who will make Brazil's coffee policy has not been addressed specifically, but it seems that FEBEC, the exporters' association, will have a strong voice. It also appears that coffee will not have specific rules, other than technical, that would make it different from any type of goods traded in Brazil; After all, it now represents less than seven percent of the country's income, down from over 50 percent in the 50's. As far as international coffee negotiations are concerned, Brazil's only word has been that they should best be left to technicians and embassy-level representatives. At any rate, reviving an economic ICO is against the new President's doctrine and no urgency is felt since an ICO Council meeting is not even scheduled.

On a more practical ground, Brazil finds itself with five to six million bags of stocks in private hands, up to 17 million bags of IBC stocks unsaleable which is locked in a judicial maze (and also reported to be mostly of terrible quality), and an upcoming mediocre crop of 22 to 25 million bags, of which four to five million bags are Conilons. This is hardly the horn of plenty, especially considering that the low prices of last year have caused major neglect in plant care and quality, and also that El Nino's apparent return increases the risks of frost and drought.

This seems to be well perceived in the interior, where prices remain very high and out of touch with the international market: As an example, when the Contribution Quota was reportedly abolished, on April 12, prices went up sharply, an indication of how confident growers are that their coffee is needed and that the price will be paid. For a country supposed to be in the middle of a cash crisis, the sign is ominous.

Pierre E. Leblache ConsultAbroad Inc. Trade Advisor at the ICO
COPYRIGHT 1990 Lockwood Trade Journal Co., Inc.
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Copyright 1990 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Fernando Collor de Mello's anti-inflation measures
Author:Leblache, Pierre E.
Publication:Tea & Coffee Trade Journal
Date:May 1, 1990
Words:585
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