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javno100 BUSINESS FEATURE
JANUARY 26 2009 07:28h
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Plunging factory output and mounting job losses show that Latin America`s biggest economy is being hit hard.
Plunging factory output and mounting job losses show that Latin America's biggest economy is being hit hard, only four months after President Luiz Inacio Lula da Silva dismissed the market turmoil as a U.S. problem with the words "what crisis?"
In Volta Redonda, a center of Brazilian industry where few people's lives are untouched by dominant steel firm Companhia Siderurgica Nacional (CSN), the announcement last month of 300 job cuts has sent shivers through the community.
"This crisis isn't easy for anyone, but why are they firing fathers of families?" said Thiago Amorim da Cunha, a 22-year-old who is one of those laid off by CSN, among Latin America's biggest steelmakers.
Another 3,000 workers were put on temporary leave last month by CSN, which has about 8,000 workers at its main plant here about 90 miles (145 km) northeast of Rio de Janeiro, and the union fears 1,800 more jobs will go this month.
The popular Lula, who rose to national prominence as a feisty union leader, says proudly that Brazil created more than 1 million formal jobs last year while millions were lost in the United States and Europe.
But the job losses at CSN are part of a growing toll and the severity of the crisis has taken the government by surprise as industries all over Latin America reel from tumbling exports and scarce credit for businesses and consumers alike.
With Brazil now shedding jobs for the first time since Lula came to power in 2003, a sharp downturn could threaten his ability to get a hand-picked successor elected in 2010.
The economy lost 655,000 jobs in December, the biggest fall in a decade. A 6.2 percent yearly drop in industrial output in November was the worst since 2001, and double-digit plunges in Asian countries' factory output underscore how the crisis has spread from the United States and Europe to most of the world.
"DRAMATIC TURN"
"Latin America has taken a dramatic turn and what initially was expected to be a mild deceleration is becoming a much more severe one," said Mauricio Cardenas, director of the Latin American Initiative at Washington's Brookings Institute.
A study by O Globo newspaper found that Brazilian and foreign firms have so far scrapped or postponed 65 billion reais ($28 billion) in investments in several industries.
Last week, General Motors Corp cut 744 jobs at one of its plants in Brazil. Other automakers in Brazil, including Fiat, Ford Motor Co. and Volkswagen AG, have put thousands of workers on leave or cut jobs partly due to weak demand, directly hitting steelmakers like CSN.
And mining giant Vale scrapped a multi-billion dollar project to build a mill with Chinese steelmaker Baosteel Group because of slumping global demand.
The job losses are spreading to Brazil's huge agriculture sector and other industries, with paper, chemical, pharmaceuticals and plastics companies all announcing layoffs.
Exports are expected to fall 18 percent this year, according to the Brazilian Foreign Trade Association, removing one of the main drivers of Brazil's boom in recent years.
Danilo Marcon, a director of small ceramics firm Ceramica Vila Rica in the state of Minas Gerais, said its sales in Argentina, which accounts for 30 percent of the company's exports, had dropped by a third.
"We had big problems getting credit. Now we can get it but the rate is double what it was in August-September," he said.
Luiz Aubert Neto, head of the Brazilian Machinery Builders' Association, representing 4,500 companies, said orders plunged by 32 percent in November and 26 percent in December.
"These numbers are very worrying for us," he said. "The government can't wait for more data, it has to act now."
Lula, a once fiery leftist turned market-friendly president, has pledged a package of measures this month to prevent more job cuts and shore up the economy.
But economists say Brazil's big budget deficit limits the scope for a stimulus programs. The central bank cut its lending rate by a full percentage point on Jan. 21, but at 12.75 percent it remains among the highest in the world and further cuts could cause a surge in inflation.
UNION ANGER
The firings at CSN, founded in 1941 by President Getulio Vargas to jump-start Brazil's industrialization, are already reverberating through Volta Redonda's economy.
Before it was privatized in 1993, CSN used to provide everything from health care to electricity for the population. Those days are gone, but it is still the main driver of economic activity in this gritty city of about 250,000 people.
"Our sales are down a lot because of the economy and the firings at CSN," said Bruna Martins, an 18-year-old sales assistant at a small jewelry store. "They're down 80 percent."
Da Cunha, the fired worker whose father and uncle also worked at CSN, said most of those who lost jobs have few other options. "It's CSN that moves the money in this area, so if it gets rid of workers there'll be no one to buy anything."
At the metalworkers' union office, old photos of marching workers and stand-offs with soldiers are reminders of past conflicts with the city's main employer, whose privatization brought profitability but massive job cuts.
The union, three of whose members were killed by soldiers in the unrest of the late 1980s, wants CSN to look at alternatives before firing more workers.
Angry that the company is not using some of its record profits of recent years to delay layoffs, union officials say they are not ruling out a strike.
"We consider these firings before considering alternatives as retaliation," said 56-year-old union lawyer Joao Campanario, who showed photographs of him being arrested by soldiers during the 1980s strife leading up to the company's privatization.
"We will try to find some way to counter this wave of firings because this crisis affects all of us."
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