ECONOMY-BRAZIL: Growing Trade Deficit Causes Concern

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Aug 26 1998 (IPS) - Brazil has been banking on privatisations to guarantee its financial solidity, but the sale of the state-owned telephone conglomerate, Telebras, stands to contribute heavily to the huge trade deficit it faces this year.

The deficit is projected to top 700 million dollars this month due to a wage strike by inspectors, whose main effect has been to delay the registration of exports, said Mauricio Cortes, secretary of foreign trade.

The 1998 deficit stood at 2.38 billion dollars up to July. The government had hoped to limit it to 5.0 billion dollars for the entire year, but that projection may have to be revised downwards.

Commodity prices have slumped due to the financial crises in Asia and in Russia, where the rouble lost more than 40 percent of its value against the German mark on Wednesday. In the first half of this year, earnings from commodities – which account for 30 percent of Brazil’s exports – were 10.9 percent less than in the corresponding period of 1997.

Financial crises, especially the ones that have hit Asia from late last year, tend to keep agricultural prices down. Brazil’s revenues from soya and coffee, its two biggest farm exports, plunged 20 percent in the first half of 1998, although the fall in coffee revenue was due mainly to a lower volume of exports.

Manufactured products provided the biggest boost to exports, with a 14.3 percent increase in earnings in the first half of 1998. However, says the National Confederation of Industry, this growth will not be sustained in the rest of the year. After mid- year, imports tend to rise due to higher consumption, and agriculture’s contribution to export earnings usually plummets.

But the biggest contributor to the trade deficit could be the privatisation of Telebras, Brazil’s state-owned telephone system, on Jul. 29.

The end of the state’s monopoly has ushered in a period of high investment in the sector, and the companies now controlling telecommunications in Brazil aim to install 16 million fixed telephone lines – double the current number – by the year 2003, and a similar number of cellular telephones.

According to Roberto Isnard, director of telecommunications of the Brazilian Electric and Electronic Industry Association, that will mean buying at least 58 billion dollars in equipment alone. Much of that equipment will be imported, starting next year, once the telephone companies have been reorganised and their expansion plans implemented.

Most of the economic groups now controlling telecoms in Brazil are overseas enterprises like Telefonica de Espana, Telecom Italia and MCI from the United States.

Up until now, equipment sales in Brazil depended on the state- owned Telebras and were done through tendering – part of a government procurements sector which, countries like the United States and Argentina that are keen on breaking into the Brazilian market complain, is still heavily protected.

Purchases will now be carried out by private transnational corporations, which could prefer to import what they need, due to their international strategies and technological needs.

All this has strengthened Brazil resolve not to adhere to an international agreement to eliminate duties on computer-related and telecoms equipment by the year 2000, which has been signed by 44 countries.

Without the protection of tariffs ranging from 10 to 32 percent, depending on the product, a flood of imports could be expected now that domestic production will no longer be favoured by government tendering.

“Signing the accord would mean exporting 100,000 jobs,” said Ivan de Moura Campos, a former secretary of Information Technology Policy in Brazil’s Ministry of Science and Technology.

The overseas companies that dominate the local market for information technology (IT) equipment would lose interest in keeping their plants in Brazil. Ericsson, for example, the biggest local producer, would import equipment from its Swedish headquarters, said de Moura Campos.

The government’s policy has consisted of attracting telecoms giants to Brazil. Lucent, Nortel and Alcatel have set up or expanded operations in the country in recent years so as to compete with Ericsson, NEC and Siemens.

Facing a fast-growing trade deficit, the Brazilian government has stepped up its efforts to meet its target of doubling annual exports to 100 billion dollars by the year 2002.

This drive has included an increase in soft loans, support for the fastest-growing sectors and incentives for small companies to enter the export market: from next month, exports of up to 10,000 dollars are to be exempted from all red tape.