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Something Rotten

Something
      Rotten

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By Brazzil Magazine

In the past month, Brazilian citizens became so excited about the possibility of having
an increase in their minimum wage that they all seemed to forget the economic and
"image" problems the government was facing with its own electors and, as usual,
the international investors. The country has summoned the Parliamentary Inquiry Commission
(PIC) in order to investigate supposed corruption between Banco Central do Brasil
(Central Bank of Brazil) and two other minor banks, which could have earned millions of
dollars atypically via a strange secret transaction.

The Real (Brazilian currency) was devaluated in the beginning of 1999 because
Central Bank wasn’t able to hold the currency value against ferocious investors anymore.
This left those people whose contracts were based on the American dollar in trouble, not
to mention taxes, including importing and exporting actions. Up until this point, one
dollar (US$1.00) had a value of almost one Real (R$1.00)—about $1.20 Reals for each
dollar. In only a few days, the currency was devaluated more than 70%; one dollar reached
as high as $2.15 Reals. After the period of fluctuation stabilized, the currency fixed
between R$1.60 and R$1.70 to the dollar, at which it has remained.

If you don’t know anything about the Brazilian economy, try to imagine this situation:
Brazil was known as the king of inflation for decades. Five years ago, the government
controlled the inflation and gave citizens a very welcome pricing establishment. Citizens
at the end of the month could purchase a product for the same price as the previous month.
This was a dream come true, since inflation usually reached about 70% per month, and the
money one gained would only have 30% of its value the following month. Quite difficult to
shop, don’t you think?

Then, in a matter of hours, everyone saw the dream vanishing with the loss in currency
value. It was impossible not to fear the return of the inflation nightmare once again. One
would see people talking about the minimum wage being tied to the inflation rate index on
every corner (index in this context meaning that the minimum wage grows relatively to
inflation). If this had happened, it would have signaled the coming of the nightmare.

Brazilian Central Bank prohibited the mass sending of dollars to other countries, since
the country needed a backup currency as strong as the dollar in its safes. Everyone seemed
to be all right as the economy was starting to steady again, and international investors
were retreating from their usual compulsive running away when something unusual happens in
an economy like the Brazilian one. After the chaos, the Brazilian press reported a
supposedly irregular transaction between Central Bank, and two privately owned banks in
the country, Marka and FonteCindam Banks.

The situation as described by the press, is that the Central Bank would have sold
millions of dollars to Marka and FonteCindam during the devaluation for a mere R$1.22.
After the period of stability the dollar was valued at R$1.65. Have you got it yet? Try
buying millions of dollars with the Real valuing 1.22 each and sell them for 1.65 each and
you’ll realize how happy you would be…

At present, the government is faced with PIC because of that curious "help"
the Central Bank gave those two minor banks. Brazil knows this really happened. According
to Armínio Fraga’s briefing, current president of the Central Bank (not the one in charge
during the transaction epoch; Mr. Francisco Lopes was the C.E.O. at the time), the
"help" given to Marka and FonteCindam Bank was necessary in order to avoid an
economic break down. Those banks were supposedly facing many debts caused by the
devaluation and could have shut down all together. According to the government report,
that could have lead to an economic collapse in the Brazilian monetary system.

Focusing on that explanation, should the Central Bank help private banks in debt using
money earned by taxes? The same taxes paid by the loyal citizens of Brazil? If so, why
help only two insignificant (not anymore) banks when there are many, many others in debt
thanks to the devaluation, including federal banks? And, finally, what economic break down
are we dealing with? If in debt, shouldn’t any private company quit its counts and close?
Isn’t the globalized world of investments and investors just like gambling? At least that
is what the Central Bank and the International Monetary Fund (IMF) claimed to be
the explanation for the devaluation.

What happens is that the case is far more complicated than it seems to be. First of
all, Mr. Francisco Lopes refused to answer any questions raised by the PIC, causing
suspicious behavior on the part of him and his commissioners. He is accused of forwarding
and selling confidential information to investors and private banks during his
period in Central Bank’s Presidency. He’s also accused of sharing confidential information
anonymously with his own private economic adviser company, Macrometrica. This is extremely
illegal, since, as president of the main government bank, he had access to secret internal
information.

The press went further and discovered that Marka and FonteCindam were not individual
cases. Strangely enough, a day before the devaluation began, other banks changed their
investments in the market and bought as many dollars as they could, making an unimaginable
amount of money. The PIC keeps on going and no one has been formerly indicted yet. As far
as its known, Central Bank’s "playing" burned two billion Reals (about US$ 1.2
billion in today’s currency) from public safes. The banks that benefited from the
devaluation are laughing aloud as the PIC is about to end. If nothing is done to the
directors in charge at the time, the Marka investigation will be treated as something of
the past.

Meanwhile, Mr. Alberto Cacciola, former owner of Marka Bank, keeps saying the press is
unfairly haunting him. He asserts he’s only a small fish in a big ocean. Unfortunately, he
may be completely right. Anyway, Brazil not only has plenty of reasons to cry for what
happened, but must also now live with the dollar valued at R$1.65. The IMF is rigorously
applying their rules (destroying the less fortunate people, indeed). No one expects
another devaluation or any problems with increasing prices.

The only option for the Brazilian community in Marka’s case is to wait, watch and hope.
Hope it doesn’t end on nothing and hope the perpetrators are jailed immediately.

Paulo Rebêlo is a freelance writer residing in Recife, Brazil. He can
be reached at rebelo@azul.com over the Internet or by
mail:
Rua Luís Barbalho, 120 / 701
Boa Vista
50070-120 Recife-PE
Brazil

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