- The Washington Times - Thursday, August 28, 2003

SAO PAULO, Brazil (AP) — Brazil slipped into a recession during the second quarter, increasing pressure on President Luiz Inacio Lula da Silva to fulfill his campaign promise to create 10 million jobs in South America’s largest country.

Brazil’s gross domestic product fell 1.6 percent during the quarter ending in June, surpassing analysts’ estimates and a first-quarter contraction of 0.6 percent, the government said yesterday.

Second-quarter industrial output declined 3.7 percent from the previous quarter, while agricultural output fell 1.2 percent. Exports were the only category that improved, rising 2.9 percent in the same period.

Mr. Silva, a former union leader who took office Jan. 1, is under intense pressure to create jobs, control inflation and reduce interest rates.

During his first months on the job, the central bank imposed a series of interest-rate increases to control double-digit inflation. But business and labor groups blamed the moves for stifling growth and prompting job cuts.

The economic figures released yesterday “were quite a surprise, and show that the slowdown process we went through during the first half of the year was much stronger than we expected,” said Eduardo Berger, an economist with Lloyds TSB in Sao Paulo.

Word that Brazil is in a recession came as no surprise to the legions of unemployed in Sao Paulo, South America’s largest city and the epicenter of Brazilian industry and business. While unemployment is at 12.8 percent across Brazil, it stands at nearly 20 percent in Sao Paulo.

Outside an employment agency near the city center, 20 to 30 unemployed workers waited under a steady drizzle yesterday to go inside for interviews, only to be replaced within minutes by another group of candidates.

Luzineto Camach has been looking for work as a maid, nanny or cook for two months, and her husband has been unemployed since the aluminum factory he worked at closed last year.

She voted for Mr. Silva last year, but has since lost faith in his promise to raise living standards for the tens of millions of Brazilians stuck in poverty.

“I thought he was a good person and an honest worker like us,” said Mrs. Camach, 38. “But there just aren’t any openings or possibilities now.”

Marcos Tachibana, a 19-year-old college student, said he needs money to help pay his monthly tuition of $167 and was relatively confident he could find a job as a corporate administrative assistant. But he didn’t expect a salary of more than $133 per month.

“Brazil is a constant state of crisis, and it’s been that way for years,” he said.

Business groups last week welcomed a deep interest-rate cut by the central bank, saying it will give a break to businesses struggling to survive in the sluggish economy.

But the benchmark overnight interest rate is still at 22 percent, and labor unions say it is too high to stimulate the economy and create jobs.

Even if the rate cut does help, it will take months for the impact to ripple through Brazil’s economy, South America’s largest.

The series of interest-rate increases by the bank earlier this year helped reduce inflation from 12 percent annually to about 9.5 percent.

And the bank released a statement yesterday that economic expansion could happen in the fourth quarter because of declining inflation and interest rates.

Though overall growth this year will be disappointing, Mr. Berger said, “the economy might have reached rock bottom. The scenario for a recovery seems to be set.”

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