ECONOMY-BRAZIL: State Maintains Firm Grip Despite Privatisations

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Dec 6 2000 (IPS) - While public opposition to privatisations in Brazil remains loud, government officials argue that the sales of public assets on the drawing board are essential, given that Latin America’s giant remains one of the countries in which the state has the greatest hold over the economy.

Nearly 30 percent of Gross Domestic Product (GDP) and 50 percent of the financial sector remain in the hands of the state, said Francisco Gros, president of the National Bank of Economic and Social Development (BNDES), the public institution coordinating the National Programme of De-nationalisation.

Gros, a former Central Bank president, pointed out Tuesday that some 30 companies and contracts were ready for privatisation in the immediate future.

The first is the CESP Paraná power utility, a complex of plants that generate 16 percent of the electricity consumed in Brazil. The auction of one of the generators, scheduled for Wednesday, was postponed at the last minute because none of the six pre-qualified foreign firms deposited financial guarantees by the Tuesday night deadline.

The auction of CESP Paraná, for which a minimum price of 900 million dollars was set, would have been Brazil’s biggest privatisation in the energy sector so far.

Other power utilities, six banks belonging to state governments, Brazil’s Insurance Institute and several toll highways are also on the list of public assets to be privatised.

The state will also begin to sell off 450,000 pieces of real estate, which the state has no justification for retaining, Gros told foreign reporters at a news briefing Tuesday.

In 10 years, Brazil’s privatisation programme has transferred 166 companies and highways to the private sector, bringing state coffers more than 100 billion dollars, Minister of Development, Industry and Trade Alcides Tapias said Monday at a seminar held in BNDES headquarters.

Thanks to the privatisations, the government will save more than 15 billion dollars it would have had to pay in debt servicing and interest. Tax collection also improved, and the new owners of the companies will invest another 80 billion dollars up to 2005.

The telecommunications sector, totally privatised since July 1998, generated 145,000 new jobs, while the toll highways granted in concession to private firms employed 13,000 workers.

However, 35,000 jobs were lost in the rest of the sectors that were privatised, according to a BNDES study.

But Gros noted that the indirect jobs generated by new investment and the restructuring of companies were not included in that analysis.

While the government touts the privatisation process as a big success, there has been loud criticism from the public. But according to Tapias and Gros, that was due to “a shortage of information” provided by the various government agencies.

The public and the opposition parties complain of unprecedented growth of the public debt in recent years despite the revenues taken in through privatisations, the de-nationalisation of the economy, the continuing poor quality of services, and the low level of social investment.

Privatisations have also led to massive dismissals in several sectors like steelworks, railways and banks, where payrolls have been cut in half in some cases.

The lack of information generated “false expectations” among society and gave rise to subsequent frustrations, said Gros. And the fact that the government refused to address the criticisms raised by the opposition only contributed to that situation, he added.

The public telephone company in the state of Sao Paulo, for example, doubled the number of fixed phone lines in the richest, most populous state in Brazil in the past two and a half years. Gros downplayed the spate of complaints of poor service registered in that time as “inevitable” with such rapid growth.

One of the criticisms directly targetting the BNDES is that it financed the privatisation of companies by offering credit to foreign groups for the purchase of public enterprises.

But the loans only amounted to 3.5 billion dollars, or just 3.5 percent of the total privatisations, replied Gros.

According to the president of the BNDES, the privatisation process has played an important role in bringing inflation under control, after 30 years of high inflation, which contributed to social inequality in Brazil, recognised as one of the countries with the must unequal distribution of wealth in the world.

Without the revenues from privatisations, the public debt would have amounted to nearly 75 percent of GDP, a level that would make economic instability absolutely impossible, he argued.

One success story was the Brazilian Aeronautics Company, which was privatised in 1994 on the brink of collapse. The firm not only recovered, but it took the global market of small and medium-sized passenger airplanes by storm, and became Brazil’s leading exporter.

But at the seminar, the president of the aeronautics company, Mauricio Botelho, rejected an analysis that only attributes benefits to privatisations and negative aspects to public enterprises, which he described as merely another oversimplification, no better than the opposition’s tendency to see the question in black and white.