Brazil’s Bailout: The Real Story

Have you heard shrieks of outrage from Capitol Hill over the Treasury Department anteing up $5 billion from a secret fund to help bail out Brazil? What about the loud populist bluster about how Bob Rubin and Company didn’t even demand any collateral from the Brazilians? Chatterbox has noticed the sounds of silence–and he finds this quiet acceptance of Friday’s Brazil rescue package to be an amazing post-election turnabout.

Remember the furor back in 1995 when the Treasury lent Mexico $12 billion without congressional approval? Even though the emergency loan was fully backed by Mexican oil revenues, the anti-NAFTA chorus reacted to this bailout like it was the Rio Grande version of Yalta. Ever since the Mexican meltdown, the Treasury has been understandably skittish about dipping into its $20-billion Emergency Stabilization Fund, a special account that dates back to the 1930s.

Why then is the Treasury suddenly free to hand over $5 billion to Brazil as part of the IMF bailout? A large part of the answer is a dramatically altered political environment. Beginning this fall, White House polls discovered that the voters, suddenly fearful about the global economy, no longer shared Republican know-nothing opposition to funding the IMF. That’s almost certainly why the GOP congressional leadership caved on this issue, allowing the full IMF allocation to be folded into the October budget bill. And even though preparations for the Brazil rescue package began before the election, it certainly didn’t hurt that Al D’Amato, chairman of the Senate Banking Committee, and Lauch Faircloth, the ultimate flat- earth committee member, were the only Republican senators to be defeated for re-election. D’Amato and Faircloth had been the loudest and most unreasoning Senate critics of Rubin’s free hand with the Emergency Stabilization Fund.

The reason that Chatterbox is dutifully pointing all this out is because our leading newspapers haven’t. True, David Sanger did devote one sentence to D’Amato’s defeat in his Brazilian bailout story in Friday’s New York Times. But that was the conspicuous exception. It all goes to illustrate one of Chatterbox’s Iron Laws of Journalism: Financial reporters don’t care about politics, and political correspondents haven’t a clue about economics.

–Walter Shapiro