BRAZIL-ECONOMY: Privatisation Process to Pay the State's Bills

• by IPS Correspondents (london)
• Tuesday, November 22, 1994
• Inter Press Service

LONDON, Nov 22 (IPS) - A stepped up programme of privatisation is anticipated when Brazillian President-elect Fernando Cardoso takes office on Jan. 1 next year.

In practice, however, fiscal need rather than ideological preference is likely to remain the motivating force.

"Brazilians hated the neo-liberalism of former President, Fernando Collor," says Elena Landau, Director of Privatisation at Brazil's Banco Nacional de Desenvolvimento Economico e Social (BNDES) which is overseeing the privatisation process.

"We are now smoothly moving towards a social democracy -- we want to create a small but strong state.

"A variety of reasons lie behind Brazil's privatisation programme," said Landau, in an interview with IPS. "The most important reason is to make money for the Treasury to help pay off the domestic public debt and fund expenses that cannot be cut."

Although the domestic public debt currently stands at less than 10 percent of total Gross Domestic Product (GDP), the cost of servicing it is high, absorbing nearly nine percent of the central government's revenues.

Moreover, as a recent report by J. P. Morgan intimated, an improved fiscal performance -- through privatisation -- is essential for the success of the anti-inflation plan.

"It is widely accepted that the reduction of inflation can only be sustained by a greatly improved fiscal performance. Privatisations are an attractive option to bridge short-term fiscal gaps until more permanent fiscal solutions can be designed and implemented."

The need to generate revenue for the Brazillian Treasury effectively rules out any possibility that President-elect Cardoso, who has emphasised the social element of any recovery plan, might opt for a Bolivian-style privatisation programme.

Under this programme, private sector investors will be able to purchase a 50 percent equity shareholding -- with legally guaranteed management control -- in the six largest state companies. The amount paid, equivalent to the total book value of the company, will be re-invested in the same company.

No payment, therefore, is made to the state for the company's assets -- hence the term capitalisation rather than privatisation.

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