Taking the Pledge

In 25 years of uninterrupted inflation, Brazil's businessmen have slipped into many bad habits. They raise next week's capital by increasing this week's prices. They buy at any cost and sell at any cost, trusting the ever-higher prices of inflation to see them through their carelessness and inefficiency. Last year prices skyrocketed so much (85%) that sales began to slacken and money grew scarce. Result: Brazil's businessmen have had to live with a severe shortage of capital. Taking advantage of this situation, Brazil's revolutionary government is trying to use one problem as the bait for solving another--hoping that way to solve them both. In an ingenious carrot-and-stick proposition, it is offering a better shot at government credit to companies that hold the price line until the end of the year, giving little chance of badly needed credit to those that keep raising prices.

Setting an Example. As businessmen watched their sales fall off, they got less and less sympathy from President Humberto Castello Branco. "Have you lowered prices?" he snapped at them. "Go lower prices, and then if your sales are still low, come see me again."

Then, over lunch at Sao Paulo's prestigious Automobile Club last fall, Economics Minister Roberto Campos and Texas Economist Benjamin Higgins, a special adviser to the Brazilian government, heard several businessmen say that they would agree to curb prices if, in return, they could get a promise of government "fiscal and credit incentives." Higgins went for the anti-inflation plan, persuaded Campos to accept it. More than 750 companies have already volunteered to abide by it, including nearly all the auto, cement, drug and steel manufacturers.

Known as Portaria 71 after the government decree that set it up, the plan not only provided credit incentives but established a new agency called the National Commission to Encourage the Stabilization of Prices (CONEP) to get the operation going, placed it under the direction of Guilherme Borghoff, one of Campos' chief aides. To set an example, the government barred price increases by such state-owned enterprises as the Volta Redonda steelworks, whose prices soared 148% last year. Though businessmen yelped when Campos raised taxes and suggested that they trim profit margins, they lined up to take the price pledge with a minimum of arm twisting. Says Max Pearce, the boss of Willys-Overland do Brasil: "Who can take the risk of not signing up?" New applications are pouring in so fast that CONEP has had to set up six branch offices around the country.

Daily Blacklists. If it has not halted inflation altogether, Portaria 71 has at least helped. Last month's cost of living rose 3.8%--compared with 7.9% in March, 5.7% in February, 4.5% in January. Housewives in major cities have joined in the price fight, now publish daily blacklists of merchants who keep marking up. As a result, Campos is even predicting that in 1965 Brazil may be able to hold down its cost-of-living increase to a mere 32%--which would be the closest the country has come to price stability in five years.

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