How to Do Business Amid Chaos

Like the Amazonian rain forest or the skyline of Sao Paulo, inflation in Brazil never seems to stop growing. The cost of living last year rose 80.7% : auto prices increased 100% , drugs 78% and food 77% . Last week Brazil's prices began a new spiral that threatens to make last year's inflation appear mild.

President Joao Goulart has just signed a decree doubling the monthly minimum wage for urban Brazilian workers to 42,000 cruzeiros, which is $68 on the official exchange rate and about $30 in actual buying power. The workers are glad to get the cash they need to chase rising prices, but the new move adds just another episode to the nightmare that businessmen must endure to survive in Brazil. Says William Jones, general manager of Remington Rand in Brazil: "Every executive here should read Through the Looking Glass at least once each week--especially that part where Alice is told that she has to run fast just to keep in the same place."

Adjusting Prices. Business in Brazil has been turned into a dangerous and complicated gamble by runaway inflation, which has been accelerated by reckless government spending, constant labor demands for more money, and restrictive laws that force foreign companies to plow back their profits into the Brazilian economy. Between the time a businessman bids for an order and delivers the goods, he does not know how much the cost of the materials will rise, how high the workers' wages will climb, how much his financing charges will increase, or even if his customer will be able to pay for the order.

"When I came here four years ago," says William O. Kelleher, president of Sears, Roebuck in Brazil, "we were selling a 7-cu.-ft. refrigerator for 49,000 cruzeiros. Today that same refrigerator sells for 227,000." Coca-Cola raised its prices three times in 1963. General Electric writes a clause into its sales contracts that allows for adjustments in the delivery price to compensate for inflation, and IBM does the same in its computer-rental contracts.

Companies must grant credit to attract the free-wheeling Brazilian shopper, but extending credit has become costly for business. Customers understandably prefer to put off paying, because their wages are rising faster than prices; thus, as each inflationary month passes, the bills in effect become smaller. Among the slowest payers: the Brazilian government, which seldom honors its bills promptly; last week the U.S. and five other nations agreed to ease the burden of Brazil's $3 billion debt by stretching out payment schedules. Businessmen are finding it difficult even to keep on hand enough cash to carry on. Willys of Brazil complains that many of its auto dealers are losing more money through inflation than they are able to make on their auto sales.

Staying Put. Because of the law blocking foreign firms from sending home profits, U.S. companies have almost completely stopped investing in their Brazilian offspring. American businessmen in Brazil must thus finance their operations with loans from local banks at interest rates that run as high as 40% per year. Despite these difficulties, however, both Brazilian-owned and U.S. companies often manage to make a profit, largely by overanticipating inflationary rises, raising prices and exploiting legitimate tax loopholes. Even the managers of companies that are suffering losses feel that it would be a mistake to quit now and lose their foothold in Brazil, whose growing population and rich natural resources make it a potentially sound market. After all, businessmen are only coping on a larger scale with a situation to which the Brazilian housewife has already adapted herself. Because of inflation's swift pace, Friday's prices are often higher than Monday's--and on many items, the price on any day is actually higher by noon than it was in the morning.

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