Coins Making a Comeback in Brazil

Thursday, December 28th 2000, 12:00 am

By: News On 6

SAO PAULO, Brazil (AP) â€” With the rest of world abuzz with wireless and the Web, it might seem strange that the talk of Sao Paulo is how work crews are installing not-so novel coin-operated phone booths.

A case of backward time travel or retro fashion? Not really.

Brazil's currency, the real, is showing a newfound resilience two years after a drastic devaluation that halved its value and shocked an economy once accustomed to inflation so high coins and even low-denomination bills quickly lost all worth.

So Telefonica and other companies have begun experimenting with phones, drink machines and other public appliances that operate on, of all things, coins.

``Coins are becoming an accepted means of payment for everyday things like buying a newspaper, a cup of coffee or making a phone call,'' explains Aniceto Vikanis, director of the carrier's public telephone department.

The activity is a clear vote of confidence in President Fernando Henrique Cardoso's inflation-busting policies, and a sign that Brazil may finally be on the verge of a long-sought period of expansion and global integration.

For decades, when Brazil's economy was plagued by inflation as high as 80 percent a month, public phones used tokens that could be bought for increasingly thick wads of paper money at bars and newspaper stands.

Then came chip technology and most booths now take plastic cards. Telefonica's new models, installed at 20 locations in Sao Paulo in a pilot program, take cards and coins.

``We don't really have a coin culture and people think the phones are strange,'' said Vikanis. ``But we believe this is one more stimulus for people to put coins to their proper use.''

Drinks vending machines and car park automats that used to take only notes are also converting to coins.

The drastic devaluation in January, 1999, spooked markets, halted growth and prompted a rescue package from the International Monetary Fund. But now Brazil's economy is back on track, with 4 percent growth this year and 4.5 percent predicted for 2001. Industrial growth hit a six-year high last October.

Inflation was down from nearly 9 percent in 1999 to 6 percent in 2000 and is expected to fall to 4 percent in 2001. In terms of its international worth, the real is proving more stable â€” around 1.9 per dollar â€” than even the yen or the euro.

Ratings agency Fitch has already upgraded long-term Brazilian risk this year and a similar upgrade is expected soon from Standard & Poor's.

``Brazil is in much better shape today than ever,'' said Marcelo Carvalho, chief economist at J.P. Morgan in Sao Paulo. ``The nasty consequences predicted by many â€” a return to hyperinflation, a spiraling currency â€” have turned out to be not so nasty at all.''

Much of the credit goes to Central Bank Governor Arminio Fraga and Finance Minister Pedro Malan who espouse fiscal prudence above all.

``Brazil's policy framework based on stability is a fundamental change, and marks a sea change in the way Brazil's economy operates, in the way Brazil does business,'' he said.

Stability means Brazilians use their banks for longer-term operations than overnight deposits, freeing up credit and encouraging investment, modernization and training.

Fabio Akira, a young economist at Tendencias, a leading Sao Paulo consultancy firm, belongs to the first generation to experience economic stability in Brazil. He can get a mortgage to buy an apartment, a loan to buy a car, things unimaginable just a few years back.

Reform of Brazil's complex tax system is being urged. Many economists and businesses also see a need to overhaul a social security system that allows some public sector workers to retire at 40 with a tax-free pension. A new law limits the yearly social security shortfall to 1 percent of Gross Domestic Product, but Carvalho calls that ``mere damage control.''

Still, there are complaints that fiscal discipline is being taken too far and Brazil needs to ease policy to promote growth rates of 7 or 8 percent, more in line with other developing nations.

``The speed limit on growth is currently about 4-5 percent,'' said J.P. Morgan's Carvalho. ``If you want to go faster, then you need structural reforms. Brazil should be taking advantage of the blue skies to fix the roof.''