ECONOMY-BRAZIL: Growing Concern over Denationalisation

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Feb 2 2000 (IPS) - The denationalisation of the Brazilian economy, a phenomenon previously opposed solely by leftist opposition parties, is now causing concern among the ruling coalition, and the business and banking sectors as well.

The alarm was sounded after the January purchase of the powerful Meridional Bank in southern Brazil by Spain’s Santander Bank, and by the possibility that the Bank of the State of Sao Paulo (Banespa), whose privatisation is slated for May 16, may be acquired by foreign interests.

Foreign capital already controls 40 percent of the assets of Brazil’s private banks, according to specialised sources. And if Banespa – strategic due to its size and its concentration in Sao Paulo, the heart of the national economy – is transferred to foreign hands, that proportion could climb to 50 percent.

Moreover, the privatisation of Banespa may put a foreign bank among the three largest private banks operating in the country, with Banespa disputing the top places with Bradesco and Itaú.

With the banking system denationalised, the country will run into greater difficulties dealing with international financial crises like those which broke out in Asia and Russia in 1997 and 1998, warned Fernao Bracher, a former Central Bank president and today a banker associated with the Austrian Creditanstalt.

With respect to the January 1999 devaluation, for example, the government would not have been able to refinance its internal debt with banks governed from decision-making centres abroad, and the consequences would have been serious, said Bracher.

In the privatisation of Banespa, the Central Bank position to open up the bidding to foreign interests, which are to be allowed to acquire 100 percent of the capital, won out. The objective is simply to obtain the best possible sales price.

But that decision has triggered growing divisions within the government, the daily Folha de Sao Paulo reported Sunday. The influential newspaper also revealed the existence of pressure for government financial support to favour national banks in the tender.

The president of the National Bank of Economic and Social Development, Andrea Calabi, has already dubbed the new orientation, consisting of preferential financing for national companies, “neo-nationalism.”

The powerful development bank, which shells out 20 billion dollars a year in long-term credit, is attempting to ward off the harsh criticism it has drawn from representatives of the local business community for financing foreign groups in the privatisation of Brazilian enterprises.

The last straw was the development bank’s decision to extend credit to foreign investors during the privatisation of hydroelectric plants in the state of Sao Paulo, in November, for fear that the tender would be a flop. The US company AES was favoured at the expense of a national consortium.

The nationalist trend from within the government was illustrated by an article by former minister of administration, science and technology Luiz Carlos Bresser Pereira, who termed the turning over of Banespa to foreign hands “madness.”

Bresser is an influential leader of the co-governing Social Democratic Party, to which his friend President Fernando Henrique Cardoso belongs.

The penetration of foreign capital is growing, warn social democrats. Foreign investors already dominate the telecommunications sector in Brazil, and have acquired nearly all of the power companies that have been privatised.

Since that foreign investment goes mainly into the services sector, rather than the production of goods, it contributes little to boosting exports, and basically swells remittances of profits, which already amount to around seven billion dollars a year, critics argue.

The foreign accounts deficit is the big factor threatening Brazil’s economic stability and limiting its chances for growth, according to opposition parties and the “neo-nationalists” within the government.

But even representatives of the most conservative sector of the governing coalition, the Brazilian Progressive Party, have expressed concern over a denationalisation process that is hurting Brazil’s balance of payments and provides it with neither jobs nor technology.

Among those voices figure Labour Minister Francisco Dornelles and parliamentary Deputy Delfim Netto, who served as minister of planning and finance during the 1964-85 period of military government.

Roberto Setúbal, president of the Brazilian Federation of Banks and of Itaú, Brazil’s second largest private bank, has also raised his voice against an “excessive” opening of the financial sector to foreign capital.

The competition is unfair, Dornelles, Netto and Setúbal argue, because the cost of capital is high in Brazil and foreign interests can obtain abundant, cheaper financing abroad.