MercoPress. South Atlantic News Agency

Much frustration and nil satisfaction

The last Friday decision of the Brazilian Central Bank to cut the basic interest rate, Selic, from 26 to 24,5% seems to have frustrated businessmen and unions since it's not considered sufficient to revert growing unemployment and local demand contraction.

Although it's the lowest rate since president Luiz Inacio Lula da Silva took office last January, unemployment has not ceased to grow and now stands at a national urban average of 13%, (the highest since October 2001) and almost 20% in Sao Paulo the industrial heart of Brazil.

Similarly Brazilian industry in the second quarter has continued to de-accelerate according to a report from the National Confederation of Industry. This has been particularly strong in the automobile sector that has anticipated redundancies and "re-training" of workers given the huge inventories of unsold cars.

Even the Central Bank that only a week ago estimated the Brazilian economy would expand 1,7% in 2003 had to lower its forecast to 1,5%.

The powerful Sao Paulo Federation of Industries described the Selic cut as "surprising" and warned that the economy "will further slow down".

Orthodox Finance Minister Antonio Palocci argued that "whoever looks into the future can see a stable Brazil with inflation under control".

Mr. Palocci has made it an obsession to bring down inflation even if it means a slower economy and rocket high interest rates. Brazilian inflation for 2003 is targeted in just over 10%.

"From a macroeconomic point of view, inflation control and country-risk we are far better than when we began at the beginning of the year, and we're going to end 2003 with the economy growing", promised Mr. Palocci.

However following the latest data, Mr. Palocci possibly one of the most influential personalities in the Lula da Silva administration, had to admit that the "growth show" anticipated by the president when taking office, actually does not have "a fixed date".

This week the Lula da Silva administration is expected to release the latest data on the budget primary surplus and record foreign trade figures that have amply nurtured on a strong recession of the domestic market.