Brazilian voters braced for disaster as market crash threatens jobs

JOHNNY THEOPHILO'S grandfather, Giuseppe, the son of Italian immigrants, opened the first newspaper stand on Sao Paulo's tree-lined Paulista Avenue in 1917. It was a rickety wooden booth where he sold the Estado de Sao Paulo, with its daily reports of the action in the First World War, to the local gentry and factory workers.

On the eve of tomorrow's presidential election, Johnny is still selling the same paper, and hundreds of other journals and glossy magazines his grandfather might not have dreamt of or approved of, from the same spot on the corner of Paulista and Brigadeiro, now the smog-coated heart of Brazil's biggest city.

The Banca Theophilo (Theophilo News-stand) is no longer rickety: it is a solid structure of stainless steel, a bit like a modern railway carriage, on the Paulista pavement, and estate agents say its location makes it worth about $500,000 (pounds 312,000) were Johnny to sell.

In the wake of Brazil's latest financial crisis it is a tempting thought but $500,000 would not go that far in one of the world's most expensive cities and Johnny's extended family of children, sisters, cousins and in-laws relies on the news-stand's moderate profits. Also, the banca has become something of a social mecca, a kind of corner shop or Rover's Return where locals stop to discuss, most recently, the financial crisis and the general election tomorrow.

Most Brazilians scoff at foreign reports suggesting Brazil could be "the next Russia", that it could go bankrupt or that there is an immediate threat of social upheaval. Brazil still had $46bn of foreign exchange reserves at the weekend and officials noted that direct US investment here is four times what it was in Russia. But the crisis has brought home that everything is not as hunky-dory as the government of Fernando Henrique Cardoso has had them believe.

"I don't have shares. Most people don't have shares. The only profit I make is 20 cents on a pack of Marlboro," said Johnny (his real name is Joao but most of his friends use the English version) in between interruptions from a motor- cycle policeman, a Texas-based American Airlines pilot, a leading heart surgeon and a Playboy model who all popped in to say hello or use his mobile phone.

"But the crisis looks like plunging us into recession and that means more and more people will lose their jobs. It may have been the rich that lost out on the stock market last week but it's the poor folks who will suffer in the end," he said.

"We expect the worst. A big recession. A devaluation of the real (the Brazilian currency) after the election. I'm selling less magazines but more people are buying cigarettes because they're jittery."

Mr Cardoso, nevertheless, commands 47 per cent of voter support compared with 24 per cent for his main rival, the left-wing leader Luiz Inacio Lula da Silva, according to the latest poll. And there has been little or no sign of panic in Brazilian streets over the past few days, despite apocalyptic warnings from economists abroad that a financial collapse would spread like wildfire around Latin America.

Citicorp's vice-president, William Rhodes, described Brazil as now representing "the Rubicon" of the current world financial upheaval. A columnist here said Brazil was "the domino that mustn't fall". Rolf Kuntz, a columnist on the Estado de Sao Paulo, said: "This is a very tense, a very stressful time. The government's problem is to keep the country afloat until the elections, then we might expect some tough measures. For most people in the street, the Bolsa (Stock Exchange) is something very distant. Most people hold their money in bank savings accounts. But everyone has a sense that something dangerous is happening. They fear further unemployment."

What is crippling Mr Cardoso's government at the moment, and which is a big factor in Brazil's budget deficit, is the social security system that allows hundreds of thousands of government employees at all levels to retire after 25 years' service, usually in their early forties, on 100 per cent pensions: that is, they continue to get their last salary for the rest of their lives. This is not good for the nation's coffers, nor its productivity.

The most obvious effect of the latest crisis is in the car industry, which had been booming over the past two years, with the big American and European companies building and investing an estimated $20bn between 1996 and 2001.

Higher interest rates announced by the government this month to try to stop people moving their money abroad have made credit prohibitive for most Brazilians and led to a collapse in car sales.

As a result of the slump, Volkswagen decided to cut production by telling almost 30,000 of its workers to take an extra paid holiday from next weekend for 10 days. Ford and General Motors had already announced production cuts and Fiat had given 2,500 workers a free break to bring production down by 300 vehicles a day.

Some dealers predict the slowdown could bring back car models with engines that run on sugar cane alcohol. The previous government of Itamar Franco (perhaps best known globally for the photograph in which he was accompanied by a brunette wearing a T-shirt, no skirt, no shorts and no underwear) had pushed the cheap-to-run alcohol models.

But pressure, and no doubt incentives, from the big oil companies undercut the sale of such cars and turned most Brazilians back to petrol or diesel- run vehicles. Whether on alcohol, petrol or diesel, Brazilian drivers are showing signs of strain. Along Paulista Avenue, past Johnny Theophilo's news-stand, there were an inordinate number of traffic accidents and scrapes over the past few days as the crisis apparently induced a kind of road rage unfamiliar among the usually laid-back residents.

"Everyone's more tense. You can feel it in the air. We like our football, we like our carnival. We're not built for worrying," Johnny said.