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Brazil Privatization
Privatization
The rise in interest in the privatization of state-owned enterprises
in Brazil that began in the 1980s reflects similar trends worldwide.
Although much of the rhetoric used by the advocates of privatization
emphasized economic efficiency and competitiveness, much of Brazil's
privatization experience since 1990 is better understood as a response
to the fiscal pressures on the public sector, which worsened significantly
in the 1980s.
The sale of state enterprises to private buyers, both domestic
and foreign, offered an attractive means to reduce the fiscal pressures.
First, the sale of an enterprise provided an immediate revenue gain
for the government. Second, to the extent that the enterprise sold
was operating at a loss, the future fiscal burden on the public
sector was reduced. Finally, the conversion of a state enterprise
into a profitable private one increased the future tax revenues
of the government.
Implicit in these motives for privatization is a difficult choice
for the government. The first reason suggests that the greatest
immediate revenue effect would be obtained from the sale of the
most profitable firms, such as the CVRD (Rio Dôce Valley Company),
Brazil's iron mining and exploring complex. The second consideration,
however, suggests that long-term revenue benefits would be more
likely from the sale of enterprises that have had a long history
of low or negative returns, such as the RFFSA (Federal Railroad
System, Inc.). Brazilian privatization experience and policies since
the 1980s reflects the difficulty of deciding which firms to privatize
first.
Although some privatization occurred between 1980 and 1990, it
was confined to cases in which the federal government had taken
over firms in financial difficulties, and did not touch any of the
major state-owned enterprises that had been established purposely
by the federal government and by some state governments in the preceding
three decades. In all, only thirty-eight enterprises were privatized
by the federal government before 1990, and the total receipts of
the government were only US$723 million.
Policy changed significantly with the entrance of the Collor
government in 1990, which made privatization one of the major
planks of its economic platform. The National Privatization Program
(Programa Nacional de Desestatização--PND), which
was created by the National Economic Development Bank (Banco Nacional
de Desenvolvimento Econômico--BNDE), expanded the scope of
privatization to include a number of the enterprises formerly considered
as "strategic" by earlier governments. During the Collor
government between 1990 and 1992, fifteen state-owned enterprises
were privatized, yielding about US$3.5 billion in total proceeds.
The most important sale was that of the Minas Gerais Iron and Steel
Mills, Inc. (Usinas Siderúrgicas de Minas Gerais S.A.--Usiminas)
steel company in October 1991, which alone accounted for nearly
twice the revenue of all previous privatizations and sold for US$2.3
billion. The Japanese holding company Nippon Usiminas acquired about
18 percent of the shares. During this period, most sales were exchanges
of equity in state-owned enterprises for different types of public
debt or "soft money," rather than for cash.
Under the Franco
government (1992-94), privatization continued but with a greater
emphasis on sales for cash. Eighteen state-owned enterprises were
sold, yielding over US$5 billion. Among the most important enterprises
sold in this period was the Brazilian Aeronautics Company (Empresa
Brasileira Aeronáutica--Embraer), an aircraft manufacturer,
which had been established in 1969 and controlled by the Ministry
of Aeronautics. By 1994 only twenty-five state-owned enterprises
had been sold, mostly in exchange for debt certificates and little
hard cash. Other enterprises included several chemical, fertilizer,
and mining companies, with the steel sector wholly privatized by
the end of 1994.
Privatization policy under the Cardoso
administration, beginning in 1995, shifted focus to state-owned
enterprises responsible for the major part of Brazil's economic
infrastructure, among them enterprises in the energy, transportation,
and communications sectors. The first major privatization was the
sale of the Espírito Santo Power Plants, Inc. (Espírito
Santo Centrais Elétricas S.A.--Escelsa), the federally owned
power company serving the state of Espírito Santo, in July
1995. In a departure from earlier policy, the CVRD, one of Brazil's
largest state enterprises, was included in the program by the new
government. Although Brazil's largest state-owned enterprises, Petrobrás,
remained outside the program because of constitutional restrictions,
appraisals were begun of the RFFSA and of the remaining federally
owned power companies.
Data as of April 1997
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