Businessweek Archives

This Could Be Just The Strike Cardoso Needed (Int'l Edition)


International -- Intl' Business: BRAZIL

THIS COULD BE JUST THE STRIKE CARDOSO NEEDED (int'l edition)

A strike by workers at Petrobrs, Brazil's state-run oil monopoly, has been wrenching the country since it started on May 3. Motorists race to service stations before they open. Thousands of consumers dependent on cooking gas stand in kilometer-long lines all night to fill their empty bottles. And heavy industry is nearly paralyzed by the lack of fuel.

But the strike might be just what President Fernando Henrique Cardoso needs to push through his free-market reforms. Brazilians rich and poor, frustrated over a labor action that affects their everyday lives, are beginning to back Cardoso's proposals to break state monopolies in industries including oil and telecommunications. And Cardoso is winning a measure of respect from Brazilians for refusing to back down. "This is working in his favor," says Norton Ribeiro de Freitas Jr., an economist for the Italian-Brazilian Chamber of Commerce. "The people and Congress are steamed at the strikers."

Cardoso is now turning up the pressure. Alarmed by the minuscule output of oil and gas, his government called in army troops on May 24 to take control at four of Petrobrs' 11 refineries. Brazilians, just a decade removed from a military dictatorship, are generally wary of the army, but the President's use of troops to keep the country moving spurred little protest. By May 30, the government said petroleum production had risen to 50% of normal capacity, from a low of 10% in early May.

Shortages are still widespread, however. Containers of cooking gas, which most Brazilians depend on, now go for $25 a bottle in Braslia, five times the normal rate. Natural gas utilities have just half of what they need for public consumption, and 70% of service stations lack gasoline. The National Federation of Gasoline Vendors, saying its members have lost $45 million because of the strike, on May 29 filed a lawsuit against the oilworkers union for compensation. Shell Brasil has asked airlines at So Paulo's international and domestic airports to reduce their fuel consumption by at least 50%.

The strikers vow not to back down. "We could go on for a long time," says Antonio Carlos Spis, president of the Federation of Petroleum Workers. The 48,000 Petrobrs workers want 25% wage increases. That has alienated some Brazilians, since the oilworkers make an average of $2,300 a month, more than six times the national average.

The strike could hardly have come at a better time for Cardoso. Before May, he was floundering in his bid to persuade Congress to pass constitutional amendments that would overhaul the nearly broke social security system and allow private investment in industries including oil and telecommunications. Protesting teachers and students, and members of Congress with a lot to lose if the state's grip on the economy is loosened, pounced on the government's disorganized strategy of ramming through reform. Cardoso was forced to retreat.

COOL DOWN. But since the strike started, Cardoso has been on a legislative roll. The Chamber of Deputies has voted for amendments that would end monopolies in telecommunications, gas, and coastal shipping. The amendment to end the Petrobrs monopoly was approved in committee and will likely be considered by the full chamber in early June. All the amendments must be approved by the Senate, but legislators believe that Cardoso's chances of winning are on the rise.

The strike is also turning out to be Cardoso's best hope to cool down the economy. A consumption boom pushed first-quarter growth 9% over a year ago, prompting fears that inflation would creep up and doom Cardoso's stability plan. The Real Plan, instituted when Cardoso was Finance Minister last July, has cut monthly inflation from 45% to 2.5%. Cardoso tried a series of credit-tightening anticonsumption measures and imposed tariff hikes on imported cars and electronics earlier this year. But where they failed to dampen consumption, the Petrobrs strike is succeeding.

That's not to say the strike doesn't put Cardoso in a corner. If he holds firm and the strike isn't resolved, the shortages could spin Brazil into chaos. If Cardoso gives in, it could set off a series of wage increases for other workers and fuel inflation, still the economy's main worry. The potential for more labor strife is clear: In May, more than 200,000 teachers, railway workers, bus drivers, and other public employees staged sporadic stoppages.

Some kind of gesture, perhaps a Cardoso promise of future raises, could persuade the strikers to return to work. That might help Cardoso, too. The President may have benefited by the strike so far, but if he wants his gains to last, he'll need to find a way to end it soon. By Ian Katz in So Paulo


Video Game Avenger
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus