,.
t:
:.
t·
t-•
I
-r-·
••
.-•
".
j-.1e
e
•
e
e
•
•
,e
e
•
•
e
e
•
e
e
•
e
e
•
•
'.
•
?
~~-le
Ie_
•
e
•
e
e
~
i~r~
MIJJtlii-ti" ~ ~ " Fur;IDAç/-lO GETULIO \/~[;.~::IS Ci"'XA POSTAL 9.052 - CFF 22253RIO Df JANE..IRO • tlJ .
ARASI'-C I R
C
U L A R
N
~5 3
Assunto: Senunário de Pesquisa
Económica 11 (1~ par~e)
Coordenadores: Fernando de Holanda
Barbo~aCOflvidZ:1mos V. $<.\. para participar do Seminário/EPGE a ser·
HOR
l"\AR'" ,- ... _.
IV: ..\,. ~l: ..:,1,_'[1DECADE
úF
EX?EPIENCE:"
pelo
IIU:SlUJ
r
d .. "fi.' ...
~UiU
! ~ i
~_...L-i:·
oe
I-
•
•
•
•
•
.'
•
.-•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
.,.
~--•
.-•
•
•
•
•
,
"-{6.,
L- ".-'CEBRAP / ECONO!1 I A
TEXTO DE
DISCUSS~OINTERNA
N:=: 7
"BRAZILIAN PRrVAT!Z~\TrON: A DECADE OF EXPER! ENCE" V
Armando Castelar Pinheiro
Luiz Chrysostomo do Oliveira Filho
S!O Paulo, Julho do 1991
•
•
•
•
•
•
•
•
.-•
.-•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
,•.
•
.-•
•
•
•
•
"
"
"
TEXTO DE
DISCUSS~OINTERNA
J(REA DE ECONOMIA
N2 1 - Baer,
MOnica - Mudanças e Tendências dos Mercados
Financeiros
ln~ernacionais
na Década de 80.
N~
2 - SchneIder,
Bo"
Prtvallzation
in
lhe
Collor
Covernmen~:Trlumph of Llberalism or ColJapse of
~he Developmen~al S~a~e?N2 3 - Oliveira, Gesner -
Resis~anceto Implementlng IMF Stabillzatlon
Plans: Evldence from a Cross-Country Study.
N2 4 - Schwartz,
Gilson - A Política EconÔmica Brasileira: Crítica
àRaz~o
Reformista.
N2 5 - Oliveira,
Gesner -
Drazil-IMF
Rela~ionsin
"is~oricalPerspec-tIve.
N2
& -
Mo~~a,Ronaldo SerÔa da - O Uso de Mecanismos de Mercado na Po··
l(~lca
Ambiental Brasileira.
~
N2 7 -
Pinheiro,
Armundo
Cas~elar&
Oliveira Filho, Luiz
Chrysostomo
de - Brazl11an
Prlvatlza~ion:A Decade of Experlence.
•
•
•
•
•
•
•
•
•
•
.-•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
...
•
.-•
•
•
•
•
"
~
"
BRAZILIAN PRIVATIZATION: A DECADE OF EXPERIENCE
Armando Castelar Pinheiro
IPEA/RIO - FEA/üF~J
Av. Preso Antonio Carlos 51/150 ~ndar 20020 Rio de Janeiro RJ BRAZIL Luiz Chrysostomo de Oliveira Filho
PUC/RJ
R. Marques de Sao Vicente, 225 22453 Rio de Janeiro RJ BRAZIL
June 1991
nlJstract
In this paper we review the ten-year-old Brazilian
experience with privatization. We start by describing the expansion in the last half century of the role played by state enterprises, and then the privatization effort in the Figueiredo and Sarney administrations. After that, we examine what haa changed with Collor and what the prospects for his privatization program are.
Paper prepared for the XVI International Congress/Latin American Studies Association, Washington, D.C., April 4-6, 1991. The authors would like to thank Ricardo Markwald, Carlos Von Doellinger and Newton de Castro for helpful comments to an earlier version of this paper. Of course, the authors assume full responsibility for any remaining mistakes.
•
•
•
•
•
•
•
•
•
•
.-•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
••
•
••
•
•
•
•
•
,
~6.
---.--_
... -._--2BRAZILIAN PRIVATIZATION: A DECADE OF EXPERIENCE
Armando Castelar Pinheiro and Luiz Chrysostomo de Oliveira Filho
I -
Introduction
State intervention played an important role in Brazilian
industrialization. since the late 1930's, in particular, the realization that the state had to substitute for market failures became prevalent. In the
forties and fifties, state intervention gained a new face with the
establishment of larga state enterprises (SEs) in mining, steel, oil and
electricity to exp10it natural monopolies or to enter sectors where the private sector was not willing to invest in the scale perceived as necessary. In the following decadee, SEs would become key instruments for fostering
growth, implementing induetrial policy and, occaeionally, to attend
stabilization purposes.
Since the late 1960's and during most of the seventies, the number and-activities of SEe multiplied and diversified into sectors that until then had beenoccupied only by private firms. Thie change in scope was also compounded, especially after the 11 National Development Plan (11 PND), by the transfer.to
public hands of a number of private firms that were in the process of
bankruptcy.
In the late 1970's, with the long period of expansion of the Brãzilian economy coming to an end, criticisms of an excessive presence of the state in the economy mounted. Sensitive to that, the administrationthat took office in March 1979 decided to curtail the growth of SEs and later to transfer part of their activities to the private eector. The Brazilian privatization program was not to start formally, however, until 1981, when the government created the Special Commission on Privatization. Nonethelese, few enterprises had
their ownership actually traneferred to the private eector during the
Figueiredo Adminietration.
In 1985, with the "Nova Republica",
pointed out ae part of the reforme
macroeconomic imbalances of the economy, crisis, in particular. Once more, however, of stated objectives.
privatization wae once again to be
neceseary to solve the serious
in general, and the public sector results fell significantly ehorter
Ae a whole, in ten years of privatization efforts, 38 companies, worth a total of US$ 723.4 millions, had their control transferred (in most cases
returned) to the private eector. 1 After 1989, the privatization procese
decelerated considerably, and'only two processee were concluded in the last two years; the moet notable case being VASP, an airline that until last year had belonged to the state of Sao Paulo •
As part of his project to change tha Brazilian economy in general, and the public sactor in particular, Collor began an ambitioue privatization program targeted to collect US$ 15 billion during tha naxt 2 years -- in the short run, 22 of tha largeet companies in Bra'''' 11 are lieted to have thair control aold to privata burere. In tha medium run, tha government plans to
,
In addition, 1 entarpriae was ranted,· 10 incorporate
1 by other
•
•
.'
•
•
•
•
•
•
•
••
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
e
•
•
•
•
•
•
•
e.
e
e_
•
•
•
•
•
,
"
6.,
3sell at least 30% of the 179 productive SEs. 2 Besides increasing the size of
the privatization program, significant changes were also promoted in its
objectives, procedures, openness to foreign buyers and financing conditions. Of importance, also, is the fact that public support for privatization seems to have increased in the recent pasto
Our objective in this paper is to analyze the privatization process in
Brazil since the early 1980's. We start by describing the historical
development of SEs and their role in Brazilian induatrialization (Section 2),
go on to examine privatization under Figueiredo (Section 3) and Sarney
(Section 4) and end with a more detailed analysis of Collor' s privatization programo The last section of the paper summarizes its main conclusions and tries to examine the prospects of privatization in Brazil.
11 - Background
Tables 1 to 3 give an idea of the characteristics of SEs and of their role in the Brazilian economy. SEs are among the largest f irms in Brazil, although their importance varies depending on the ranking criteria: SEs accounted in 1989 for 8 of the 50 largest industrial concerns (ranked by total sales), 17 of the 20 largest firms (ranked by net worth), and half of the 20 most profitable firms. 3 In 1989, of the 500 largest enterprises in Brazil,.126 were SEs, down from 158 in 1980. Furthermore, in 1989, while the 500 1argest private firms employed 1.986 million workers, the 50 largest SEs alone were responsible for 650 thousand jobs. Finally, SEs account for about 17% of total investment (1987).
Table 1
SEs and Number of Employees
---
---1---INumber of Employees SECTORS Number of 1---SEs 1 1980 1 1985---
---1---1---Productive SEs 179 1 608.551 1 629.124 --- ---1---1---Typical Government Enterprises 201
1
20.1251
1
20.411---
---1---1---FinanciaI SEs 25 1 136.113 1 217.528---
---1---1---Social Security 6 1 149.665 1 191.337 ---1---1---1---Federal SES 1 230 1 914.454 11058.400 ---I-~---I---I---State Power1
1
1
IGeneration & Distr. 1 28 1 91.646 1 139.489
1---1---1---1---1
I
TOTAL 1 258 11006.100 \1197.889 \
Source: SEST(1989).
2 _ Gazeta Mercantil, March 14, 1991. 3 _ Calculated from Exame, AUgUBt 1990.
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
e_
e
e_
•
•
•
•
e
c,
"-"
4 Table 2Ownership Structure of 500 Largest Companies Private
Year Foreign National SEs
1980 32.5 35.9 31. 6 1981 31.1 35.2 33.7 1982 30.9 36.1 33.0 1983 29.7 39.1 31.2 1984 27.2 39.9 32.9 1985 28.5 40.7 30.8 1986 28.7 42.4 28.9 1987 30.7 41.0 28.3 1988 31. 6 42.4 26.0 1989 30.8 44.0 25.2 Source: Exame. Table 3
Comparison of 50 Largest Federal SEs with the 500 Largest Private Enterprises (In US$ billions of 1989)
Revenues Profits Asaets
IYear
1
50 5001
50 5001
50 5001
1 1 SEs Pr.ivatel SEs Privatel SEs Privatel
1---1---1---1---1
11985I
56.2 151.01
1.6 7.7I
160.7 105.6I
11986 1 50.6 148.9 1 5.9 9.1I
183.7 116.0 1 11987 1 60.2 157.6 1 -3.2 4.1 1 164.2 107.9 1 11988I
56.6 163.7I
0.1 6.5I
140.2 104.6I
11989 1 51.0 163.9 I 2.1 8.2 I 133.6 101.3 1 Source: Exame.Three different processes led to the establishment of SEs in Brazil. In the pre-1967 period, SEs were established to overcome bottlenecks, real or potential, in infrastructure and basic goods, where large initial investmenta,
long maturity periods, sophisticated technology and low rates of return
inhibited private aector inveatment. 4 After the 1967 Administrative Reform, SEs diversified through the establishment of subsidiaries into more profitable sectore and began to compete with private firma, in sectors such as pulp,
paper, petrochemicals, transpo~tation, aluminum and so on. Finally, a number
of firms that formerly belonged to private capital were taken over by the publlc seetor to prevent bankruptey and labor diaplacement.
Slnce the late 1930's, the government realized that state intervention was necesaary to overcome market failures and toster lnduatrialization. The basle acenario was well Bummarized by Shaplro and Taylor (1990):
4 _ The moet remarkable example was the fallure tõ attract the private aeetor (national or forelgn) to the production of steel:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
e.
•
••
•
•
•
•
e
,
'"
"
"Required investments are lumpy and (in a poor country) large in comparison to savings or even the national capital stock.
Although it may provide adequate signals for marginal
changes, the price mechanism cannot guide "big" industrial
decisions, nor can it be relied upon to induce resource
transfer necessary for industrialization. Public
interventions are required both to support investors (via protection, subsidies, cheap credits, etc.) and to invest directly to break bottlenecks. A greater extent of market failure in lese developed ae oppoeed to richer economies
provides the baeic rationale for expanding ~he scope of state
intervention."
5
With this picture in mind, the
authority to guide the economy along two manipulation of taxes, exchange controls, Banco do Brasil (CREAI, established in investment in sectors such as railroads, industries, such as oil and steel. 5
government acted to increase its
lines of action: indirectly, through import quotas and credit through the 1937); and directly, through public navigation, public services and basic
As part of this broader industrialization strategy, the earlier SEs were placed in sectors characterized by large capital-output ratios such as mining, steel, oil and electric energy. These were created by law, with Congressional approval, and were planned not to compete with private firme either on product or factor markets; on the contrary, they were crucial to allow the expansion of the private sector (both national and multinational) in the production of consumer goods, especially in the metal-mechanic sector.
Thus, the conunission of the National Steel Making· PIan was formed in 1940, and in the following year conatruction of Companhia Siderurgica Nacional (CSN), a large steel mill in Rio de Janeiro, atarted. In 1942, Companhia Vale
do Rio Doce (CVRD), a mining company was established; in 1943, Fabrica
Nacional de Motores (FNM) was founded to produce engines for airplanes and
ahips, later becoming a producer of trucka;6 alao in 1943, Companhia
Brasileira de Alcalis, a producer of barilla waa eatablished; in 1944,
Acesita, a steel mill in the iron ore rich atate of Minas Gerais was founded; and in 1945 it was the turn of Companhia Hidroeletrica do Sao Francisco
(CHESF) .
Nonetheless, the number of SEa was still amall by 1949. According to Rezende (1980), in 1949 there were about 30 SEs controlled by the federal government, including 12 electricity companies, 5 financiaI inatitutiona and 6 transportation firms. Among the 5 industrial SEs one was a publishing company
(I~prensa Nacional). Finally, at state level, there were 34 SEs, including 12
financial institutions and 10~transportation firms.
With Vargas' return in 1950, the push for industrialization waa to rega in momentum and consequently public investment and the expansion in the number state enterprises. The moat relevant enterprisea created in this period
were BNDE (1952), the National Development Bank, now responsible for
privatization; PETROBRAS (1953), the largest company in Brazil, and with
monopoly rights for prospecting oil. Still in the 1950's, one saw the initial investmenta in COSl~A (1953), a large ateel mill in Sao Paulo. Already in the 5 _ Von Doellinger (1978).
6 _ Both CSN and FNM would become oper~tive only in 1946, already during
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
.
-•
.-•
•
•
•
•
&,
"
'-6Kubitschek administration, USIMINAS (1957), a stee1 mill in Minas Gerais, and
RFF (1957), to which the control of federal railways was assigned, were
established.
This period coincided with a big industrialization push in Brazil, and, as before, direct public investment would come to play a criticaI role. Aggregate investment increased from 16.8% in 1954 to 23.8\ in 1959, while the share of SEs in aggregate investment doubled, jumping from 4.2\ in 1954 to 8.9% in 1959 (Table 4).
Table 4
Investment Shares of the Public and private Sectors: 1950-86
Year Pub1ic Sector
SEs Direct Total
Admin. Private Sector Investment/ GDP
---1950/55
'"
2.7 21.6 24.3 75.7 14.6 1956/60'"
7.4 25.0 32.4 67.6 16.0 1961/65'"
12.4 24.7 37.1 62.9 15.1 1970 20.3 18.5 38.8 61. 2 18.9 1973 22.6 18.2 40.8 59.2 23.2 1974 22.3 17.7 40.0 60.0 24.1 1975 25.1 16.9 42.1 57.9 25.2 1976 24.1 18.0 42.1 57.9 24.5 1977 23.2 15.5 38.8 61.2 23.2 1978 23.0 14.1 37.1 62.9 23.2 1979 21.7 10.6 32.3 67.7 22.4 1980 20.2 10.3 30.6 69.4 22.5 1981 24.5 12.4 36.8 63.2 20.1 1982 27.8 11.9 39.7 60.3 18.8 1983 27.1 11.1 38.2 61.8 16.0 1984 21.9 12.2 34.0 66.0 15.7 1985 20.7 13.6 34.2 65.8 16.2 1986 17.3 15.9 33.2 66.8 18.1 1987 16.9 16.3 33.1 66.9 17.1Note: Shares are measured on current values until 1970 and in constant 1980 prices from 1973 onwards.
'" - period averages.
Source: Reischstul and Coutinho in Bovespa (1990), Bielschowsky (1988), and IBGE.
SEs estab1ished during the fiftiea were, aa in the previoua decade, an integral part of planned state intervention, well articulated with private sector inveatment, and functioned as key instrumente to allow investments with large economies of coordination and the significant import substitution push of the 1950's. As a whole, 15 new federal SE and 49 owned by state governments were established in the fifties (Rezende (1980» •
In the early 60' s, with growing macroeconomic instability and in the 1964-67 period, when stabilization was the main objective, one seea leBa emphasis on the expanaion of SEs. In part, this was a consequence of the reduction in the real prices of their gooda and services, which the government imposed as an instrument to control inflatión. In spite of this, SEs remained responsible for 11\ of total inveatment and acted to prevent a aharper drop in
,
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
.-•
.-•
•
•
•
•
,
'"
'"
7the rates of output growth -- by 1966, the number of SEs at federal and state leveI had increased to more than two hundred. 7
In 1967, the government promoted a broad Administrative Reform (Decreto-Lei 200) of the public sector, that would have a profound impact on the size and structure of SEs in Brazil. It had among its main objectivee the increase in the eff iciency of public eector activities through administrative and
decision making decentralization.8 In particular, the government tried to make
SEe face the same constraints and incentives as private firme, although
keeping their objectives in line with government pl~ns and economic policy:
"The execution of the Federal Administration activities ought
to be widely decentralized" (Article 10); and "operational
conditions identical to those for private firms will be
assured to state enterprises (empresas publicas e sociedades
de economia mista), being the responsibility of theses
enterprises, under ministerial supervision, to adjust to the
broader government strategy" (single paragraph of Article
27).9
In addition to giving SEs more autonomy, the reforme of enabled them to recover their inveatment capacity, with the
real prices of their services and products, in a process
"verdade tarifaria".
the mid sixties increase of the that was named
As investment decisions were decentralized, a more erratic - pattern
arose, as SEs established subsidiaries in several different sectors, seeking to increase their profitability and to occupy "empty spaces". This process wae made possible by the main company' s large surpluses, partly generated as a consequence of monopoly and natural resource rents, which also contributed to their relative independence from the central government.
It ia not aurprising, therefore, that CVRD and Petrobrae were the
leading examples of the eatabliahment of subsidiaries, with a diver9ificatio~
to activities with higher rates of returno Petrobras w~s to become a
conglomerate with 35 subsidiarias, ranging from oil prospecting, refining and distribution to fertilizers, petrochemicals, transportation and foreign trade.
CVRD, in its turn, was to enter into reforestation, fertilizers, pulp and
paper, and civil construction.
Contrary to the earlier SEs, these subsidiaries were located in some of the more profitable intermediate goods sectors occupied by the private sector, which, although not a motive of conflict while the country was growing faat, soon was to became a subject of tension. It ia ironic, nonetheless, that of
7 _ Those figures are reported by Rezende (1980), who, however, points to lhe fact these numbers reflect, at least in part, the change in claseification of firms and other public institutions that resulted from the 1967 reform, and were not necessarily new organizations.
8 _ See Rezende (1980) for an analysis of the motivation behind he 1967
Reform. The Reform defined two kinds of SEs: (i) public enterprises (empresas publicas), which are 100\ owned by the public sector and usually carry out administrative or typical public aector activities; and (ii) mixed capital enterprises (sociedades de economia mista), category that encompasses alI
enterprises that carry out commercial activities and that have a majority of
,
voting stock owned by the state. 9 _ Reproduced trom Rezende (1980).
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
e
e
e.
•
•
•
•
•
,
'"
6.,
8diversif ication of SEs and the rapid expansion in their number, that would
eventually lead to shocks with the private firms and to attempts at
privatization, resulted precisely from their attempt to become more profitable and imitate the behavior of private firms.
In the 1965-75 period aggregate investment increased very fast, going from 14.7% in 1965 to 24.4% in 1975 (current prices). Investment by ~Es would expand even more, raising its share in total investment from 13.3% to 25.1% in
ten years.10 However, in the post-1967 period, complementarities' with private
investment, economies of coordination, and other ke" targets of the immediate post-war period became less important, although still influencing investment allocation. Leadership in this period remained with the electric sector (with the beginning of the construction of Itaipu and other hydroelectr ic mills), but investments in the production of steel and petrochemicals were alGo very important. A total of 70 new federal SEs and more than 60 owned by state governments were established in the 1970-76 period, a sharp increase in the number of SEs, particularly at the federal level (Rezende (1980».
Final1y, there are SEs These are of two types: ( i) national concerns that carne to preserve employment or to
that were previously owned by the private Gecto~:
foreign enterprises in infrastructure, and (ii) into the hande of the etate in rescue operations
prevent demobi1ization of productive capacity~
In the first etagee of the import eubstitution -- and particularly in the 1956-64 period -- the Brazi1ian government nationa1ized a host of foreign
companies, established at the turn of the century and aétlve in
infrastructure, especial1y in power generation and distribution. As the prices of their services were raised at rates below inf1ation, to eubeidize emerging
sectore, these firme dece1erated inveetmente, jeopardizing the deve10pment
procees. The government reacted with nationalization, to continue
subsidization. A recent example of thie wae the nationa1ization of Light. A very different process wae to be the acquieition by BNDES of bankrupt private national concerns. These firme, 10cated in sectors with no connection the state, such as hote1s, sugar mi1ls and publishing companies, were supposed to remain in public hands while being reshaped and financially restructured, but ehowed a eurprieing resietance to return to the private sector. Marfersa, a producer of rai1way coachee and busee, for example, paseed to public control in 1964 and although included in liste of firms to be privatized aince the very first in 1981, ati1l remaina under BNDES' controlo
By the end of the 1970'e, the expaneion in the number and scope of SEs acemed to be in diearray: in the 1966-77 period alone 219 new SEs had been established in severa1 sectors, and crowding out of private investment was becoming a eerioue concern. In 1978, a group of leading entrepreneure ma de a public manifeetation againet the nationalization of the economy. The move was rich in political connotatione given the political regime of the time. This flret proteet againet the enlarging partlcipation of the atate in the economy wae expanded to an outcry as the second oi1 shock became a reality.
After 1978, deceleration of output growth and economic austerity
transformed eaeily ~nto a more fierce competition for scarce resources, in a
acenaria where private agente were at a disadvantage. To sustain growth in
Buch an adverse context, especially in the ~ptimistic vision proposed in the
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
••
•
••
•
•
•
•
•
,
'"
6.
9II PND, must have appeared to private firma as leading to a broader
participation of SEs in the economy.
3 - Privatization in the Figueiredo Administration: 1979-1984
The first attempt to control the expansion of the share of federal SEs in the economy came in 1979 with the creation of the Programa Nacional de Desburocratizacao (Decreto 83.740/79) and SEST, the State Enterprise Control
secretary. Earlier, in 1977, a preaidential decree (# 80827) had already
determined that Foun;ations and other organizations in the direct
administration had to have their investment programs cleared by the Ministry of Planning before they could be implemented.
In its first census, SEST identified 505 institutions under public
control, about half of them (268) atate enterprises. Aa an evidence of the chaotic process of the 1970's, it is interesting to point out that only 40 of the 268 enterprises had been created by law. Of the other 228, exactly one third had formerly been private companies that carne into public hands due to crisis or bankruptcy.
However, in the beginning of the Figueiredo administration the
complaints against SEs were not of the kind voiced nowadays the main
objective was not so much to reduce the size of the SE sector but to prevent or at least decelerate their expansion. 11 At leaat in part, this reflected the fact that SEs were out of the control of federal authorities, both bec,ause their management rivaled in political prestige with the minister to whõm they were subordinated (appointment was made directly by the president) and also because they were able to muster resources directly, without the previous approval of the governrnent.
Two factors led to this need to control the expansion of SEs. First, as
the supply of investment funda became less elastic, SEs were competing
fiercely -- and with unfair advantage -- for funds with the private sector. As discussed above, thia had become an important political issue. Second, as SEs
were responsible for a 1arge share of public sector aggregate demand,
macroeconomic stabilization required controlling their expenses. The issue at stake was not, at that point, one of state inefficiency.
Lamounier and Moura (1983) date the first sigo of this change in
perception of the development process in the election of Goudin as Man of the Year by Visao in 1974, that would gain momentum with the 1978 open protest by leading entrepreneurs of Sao paulo. 12 In line with Bresser Pereira, they conclude that "the collapse of the tripod formed by state owned, private national and multinational enterprises [started) when it became clear that a reduction in the rate of growth would be inevitable. ,,13 As put by Martone: 11 _ In a recent interview (programa Roda Viva, TV Cultura Sao Paulo, 4/2/91), Antonio Ermirio de Morais, a leading entrepreneur in Brazil has reinstated his opinion that privatization should be limited to controlling SE expansion, and declared he was not thinking in buying SE under the privatization programo 12 _ The timing of this protest can alao be explained by the freer presa after the political opening started with Geisel.
13 _ Solivar Lamounier (cited in Lamounier and Moura( 1983» interprets the
campaign against nationalization of the 197Ó's as "rather (a) the use of an opening process already under way to try ~o redress a prior 10ss of access to
decision-making centers, and (b) some sort
of
preventive, anticipatory•
•
.'
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
e_
•
e.
•
•
•
•
•
s
~..
10'This large scale anti-cyclic economic policy (in reaction to the first oil shock) developed capital intensive industries with long maturity periods and
with high import ratios, at least in their first stages, and competed
directly, or dramatized the competition for exactly the most ecarce resourcee
of the economy at that time -- foreign currency, phyeical capital, skilled
labor and so on." In this way, although the macroeconomy was rapidly
deteriorating, SEs kept a fast rate of growth, expanding 12% p.a. from 1976 to 1979 (BOVESPA).
Economic p01icy had aleo changed. Priority wae no 10nger on growth and structural reform, but rather on controlling inf1ation and dealing with the externaI shocks of the early 1980s. As SEs ~~re responsible for a significant share of domeetic output and investment, it would be hard to stabilize the economy if their expansion continued as in the seventiee. As a consequence, several ceilings were established for SEs expenditures:
"Within thie control, a major role was played by the
determination of ceilings for investments for the set of SEs
and for each of them, involving substantial reductions in
total investment in the state productive sector. Ceilings for
general expenditures, especially with personnel were
determined as in the case of investment. The government
developed policies assuring the creation of these global ceilinge to each SE, restraining the accese of internaI and externaI credi ts, Treasury reeources, pr imary stock market and retained profits themselves ( .•. ) The externaI commerce-policy made use of determining strict ceilings for imports to the state productive aector, involving substantial reductions in foreign exchange expenaes."(Werneck (1987), p 14)
It was not until 1981 that the term privatization would be enhanced to encompaas privatization and become part of the economic policy agenda in
Brazil. In July, a presidential decree (86.215/81) created the "Special
Commission on Privatization" and fixed "Norma for the transference,
transformation and divestiture of enterprises controlled by the federal government".14
Once established, the Special Commission on Privatization was able to identify 140 SEs ready to be privatized in the short run. Of these, 50 were initially listed for sale. However, the actual balance of this first attempt at privatization would not even reach this smaller number: a total of 20 SEs were sold to private agents, one was rented and 8 incorporated by other public iostitutions, against a total of six enterprises that carne under control of BNDES, absorbed in rescue programs.
To some, "Brazil' s first flirtation with privatization was a 'claesic example of failure,."15 The enterprises sold in this period were, in general,
process -- an outcome which could be a least as damaging to them as their limited challenge~ to the present order of things."
14 _ The Special Commission for Privatization had as its mains objectives: (i)
to strengthen the private sector; (ii) to ~estrain the establishment of new
SESi (iii) to close or transfer to the pr~vate sector SEs whose contraI by the public sector was no longer necessary or juatifiâble.
•
•
•
•
•
•
••
•
-.
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
.-•
••
•
•
•
•
•
,
,
'"
11being reprivatized, and did not include any of the large SEs: as a whole, the sale of those 20 firms meant a total revenue of only US$ 190 million. 16
Several factors contributed to these lackluster results of the
privatization program during the Figueiredo administration. First, and above all, there was a lack of political commitment to the processo The objective at the time was to control the expansion of SEs and not to reform either the
state or the development strategy. Second, during most of this period the
country was going through its worst recession since the 1930's, with inflation jumping to ever higher thresholds, and since 1982 investment rates had dropped significantly. It would have been impossible then to find buyers for large SEs. In fact, on at least two occasions firms went up for sale and were not privatized due to lack of interested buyers. 17 Third, because the universe of potential buyers was artificially restricted: only Brazilian citizens and companies owned by Brazilians and established in the country, that had passed
a system of pre-qualification tests, could enter the auction sale. In
addition, sales were done in single large blocks of stock. Finally, for the
privatization of large SEs to be attractive a set of market-oriented reforma
would have to be undertaken, including liberalization of prices, and the
government was not willing to do this. In particular, during this period SEs had the prices of their goods and services depressed to control inflation and stimulata exports, reducing thair attractiveness to private agents.
All in all, the main results of this first effort carne not ao much in the form of sales of enterprises but rather on the expertise gained in identifying firms to be privatized, learning how to do it, and understanding the barriers that had to be overcome.
4 - Privatization
in
the Sarney Administration: "1985-1989
The perception of the role the state could play in the development of the Brazilian aconomy changed in the Sarney government. This disenchantment with the efficacy of state intervention and with the efficiency of SEs was to a large extent a consequence of their deteriorating financial condition, in itself a result of the role they played in the government' s macroeconomic policy of the early 80s.
First, before the debt crisis in 1982, SEs were "stimulated" to contract foreign loans beyond their needs, mostly to f inance the country' s soar ing current account deficits, but also as a way to loosen domestic credit markets and to allow continuation of large investment projects began in the Geisel
administration. 18 With their enlarged foreign debt, the increase in
international interest rates in 1979 and the sharp real devaluations after 1981,19 their financial expensas rose significantly.
Second, since 1975, the real prices of goods and services supplied by SEs were raised at rates much be10w inflation, first to control inflation, and 16 _ See Table 6 for the list of SEs privatized in the 1981-85 period.
17 _ Thesa were tha cases of Forjas Acesita and eia Usinas Nacionais. It is revealing that in both cases, and contrary to the other sales, the purchase was not being financed with public money.
18 _ It is clear from Table 4 that despite the contraction in aggregate
demand, the acceleration of inflation and the reáuction of private investment, SEs would continue to invest heavily until 1983.
19 _ The real devaluation of the cruzeirà in the 1981-85 period reached almost 30\.
•
•
.'
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
.-•
8.
8
•
•
8
8
"
"
6.
12later, after 1982, to subsidize manufactured exports. As seen in Table 5, SEs suffered a dramatic squeeze on their receipts, with the real prices of their products dropping as much as 50\ in five years.
Table 5
Price Index of State Enterprise Products (Deflated by IGP-DI / January 1979
=
100) :tear 1979 1980 1981 1982 1983 1984 1985 Iron and Steel 94.5 80.3 75.2 72 .0 56.0 51.7 48.1 Electric Energy 82.7 79.7 83.0 78.3 69.2 63.3 Telephone 107.0 80.7 71.2 65.4 55.9 47.9Source: Werneck (1987) and Conjuntura Economica.
At the same time, it became clear that the 1967 Reform had ~ot
accomplished its main objectives: to make SEs behave like private firms. Several factors contributed to this. First, SEs operated on a soft budget, with the central government always coming to the rescue when losses became
large. Second, because the existence of monopoly rents helped' to hide
inefficiencies and to relax pressures to improve economic performance. Third, because top managers were politically appointed, were rarely under ministerial control, were seldom rewarded on the basis of profit maximization and Buffered
considerable turnover in the eighties. Rational behavior in these
circumstanceB could hardly be to run the enterpriBeB efficiently -- on the contrary, the incentive waB for managers to maximize their political prestige, measured on volume of expenses and favors to special groups.
The perception that SEs had turned into large whirlpools of public
reBources, the succeBS of privatization in Europe and exasperation with
continuing deterioration of macroeconomic conditions was to end up making privatization more appealing to Brazilian society, raising hopes that it would start on more meaningful terms.
However, Sarney was to falI prisoner of most of the same constrainta that prevented significant privatization in the FigueirE'do administration. public opinion was not yet convinced that selling SEs to private owners would stop public finance of their deficits, as friends of the king had never faced
this problem, even when the~ were in private firms. They were even less
prepared to accept enterprises such as CSN or USIMINAS being sold to
foreigners in exchange for the externaI debt. Similarly, macroeconomic
conditions deteriorated even more in the second hHlf of the eighties,
depressing the market value of SEs.
In this way, privatization carne up against the lack of political
willingness to ove.~ome the resistance of the five interest groups that could
be hurt by a change in SEs ownership: many of the employees, that receive wages above market leveIs; suppliárs, who sell with large profita; clients, that buy products and services at subsid-.ized pricesl managers, that do not have to give account of their mistakes to anyboay; and politicians, who use SEs for their own political objectives.
•
•
.'
•
•
•
•
•
.-•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
.-•
-.
•
•
•
•
•
"
"
'-'
13As a consequence, Sarney's administration went by with a series of
promising presidentia1 decrees and law projects restructuring and amplifying the scope of the privatization program, but without any significant results.
In November 1985, a presidential decree (I 91991) changed some of the
procedures of the privatization program of the previous administration, trying
to increase its transparency and political appeal. In November 1986, the
government tried a revival of the process
d
and issued a new decree with minor changes with respect to its predecessor.2 A third decree (I 95886) was issued in March 1988, with some change in the objectives of privatization, to include the reduction of the public deficit and the foreign debt (with debt for equity swaps). A final attempt to breath life into the program would come in January1989, with Medida provisoria 26, that would turn all SEs candidates for
privatization, excepting a few that could not be sold for strategic or
constitutional reasons. However, this Medida provisoria was not approved by
Congresso
Besides this lack of political commitment at the executive and
legislative levels, the most noteworthy characteristic of the privatization-process during the Sarney administration was the determinant role played by
BNDES (Brazilian National Development Bank), the way it conducted
privatization, and the consequences this would have for the future _ of
privatization in Brazil. In this way, of the 38 privatizations accomplished in he 1981-89 period, more than half were carried out by BNDES, in particular its
subsidiary BNDESPAR. In addition, the bank also advised two other
privatizationa: USIBA and COFAVI. BNDESPAR enthusiaatic support of
privatization was a matter of pragmatismo As more and larger firms carne under its control in the early 80s, they almost paralyzed its activities, absorbing most of its resources and the attention of much of its ataff.
The list of enterprises privatized in the 1985-89 period ia shown in Table 6. As a whole, 18 enterprises, worth US$ 533 million, were sold, with an equal number transferred to state governrnents, 2 incorporated by other federal institutions and 4 shut down. But the main benefit of this process was once
more the expertise galned on preparing for sale and prlvatizing SEs,
especlally by professionals in BNDES, and an increasing support from different groups in society.
20 _ While decree 91991 set the rules, only one
~rivatization
took place -- a hotel, worth US$ 420 thousand.•
•
•
•
•
•
•
•
.-•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
e_
e
e.
•
•
•
•
•
"
'"
~ Table 6PRIVATIZATIONS IN THE 1981-89 PERIOD (VALUES IN US$ 1000)
14
1--- ---1---1---1---_1 _____ 1
1 COMPANY CONTROLLED 1 TOTAL INUMBER OFI SALE SALE I
1 BY I ASSETSIEMPLOYEESI VALUE I
1--- --- ---1--- --- ---1
A-Venda: (Controle Acionario /Ativo)
1981 - 1984
1.Cia. Quim. do Reconcavo(CQR) 2.Cia. America Fabril
3.Riocell Administ. S/A - Rasa (holding)
4. Riocell Trade GMBH 5. Rio Grande Cia. de
Celulose do Sul 6. Florestal Riocell
7.Fabr. de Tecidos Dona Izabel 8.METODO-Org.Plan. e Adm. de
51st. Empresariais Ltda. 9.Ind. Brasileiras de
Papel-INBRAPEL
10.Cia. Pernambucana de
Borracha 5intetica - COPERBO 11.0leos de Palma S/A-Agro Ind.
OPALMA
12. Federal de seguros S.A. 13.Nitriflex 5/A - Industria e
Comercio
14.Cia. Bras. de Cimento Portland Perus Federal Government Central Bank BNDE5PAR Central Bank DATAMEC Federal Government PETROQUI5A C.S.N. lAPAS PETROQUISA Federal 15.Estr. Ferro Perus Pirapora Government
1
1
1
1
1
1
1
1
1
I
52,4011 238 5,061 11.8111
27,923 NA 28,756 11.81 47,044 NA 77,542 03.82 18,592 NA 16,880 06.82 220 361 12 06.82 1,275 401 3,245 08.82 62,876 1033 24,772 12.82 6,929 550 3,055 03.831 17,666 8:31 7,107 04.83 27,557 283 5,372 04.83 4,058 633 15,879 05.80 3,300 416.Forca e Luz Cricidona S.A. Icarb.Prosp. 2,535 89 2,076 05.82
1
17.Livr. Jose Olympio Editóra 1 BNDES 445 396 281 04.84
18.Encine Audiovisual S.A. 1
19.5idacta Sist. Educacionais I
1
20. Fiacao e Tecelagem LUTFALA I BNDES 736 45 2 84
---1--- --- ---
5UB TOTAL (1981/1984) 73,556 4864190,040
•
•
•
•
•
•
•
•
.-•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
.-•
e.
•
•
•
•
•
~"
6.
Table 6 (Cont.)PRIVATIZATIONS IN THE 1981-89 PERIOD (VALUES IN US$ 1000)
15
--_
....
"..
:...-
---1---1---1---1---COMPANY
1
CONTROLLED1
TOTAL INUMBER OFI SALE SALE1 BY 1 ASSETSIEMPLOYEESI VALUE
--- --- ---
---1---B-Venda: (Controle Acionario
I
/Ativo)
I
1985 - 1989
1.Cia. Melhoramentos Blumenau -Grande Hotel Blumenau
2.Cia. Nacional de Tecidos Nova America
Federal Government
BNDES
3.Maquinas Piratininga do BNDES
Nordeste
4.Maquinas Piratininga S.A. BNDES
5.Eng. Hidraulica e
Instrumentacao S.A. ENGEMATIC EMBRAER
6.Ferritas Magneticas S.A. CVDR
FERMAG
7.Eletrosiderurgica Bras. S.A. BNDES
- SIBRA
8.Aracruz Celulose BNDES
9.Cia. Guatapara de Celul/Papel BNDES
-CELPAG
10.CARAIBA Metais S.A. BNDES
11.Cia. Sider. de Mogi das SIDERBRAS
Cruzes-COSIM
12.ClMETAL - Siderurgica S.A. BNDES
13.Cia. Brasileira de Cobre BNDESPAR
14.Cia. Brasileira de Zinco 15.Mineracao CARMEC
16.Cia. de Celulose da Bahia BNDESPAR
CCB 286 49635 2361 24056 2275 1375 13254 101953 101398 1491659 43418 63725 32809 99655 53 420 08.86 3712 15,855 06.87 333 1,428 07.87 1085 107 09.87 126 3,827 01.87 40 853 12.87 1200 29,024 04.88 1273 133,799 05.88 21,000 06.88 1,400 03.89 296 72,736 05.88 3958 87,110 08.88 772 4,123 09.88 4682 59,000 09.88 964 7,217 04.89 190 14,409 07.89
17.Cia. Ferro e Aco Vitoria - SIDERBRAS 102176 2550 8,215 07.89
COFAVI '
18.Usina Siderurgica da Bahia - SIDERBRAS 131659 1473 54,240 10.89
USIBA
--- ---
---
---
---SUB TOTAL (85/89) 2261695 22707 533,363
---
---TOTAL GERAL (81-89) 2535250 27571 743,402---
---Sourcez Secretaria Executiva do Conselho Federal de Desestatizacao/M.F
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
.-•
e.
•
•
•
•
•
s
c.
6.,
. --'~~-165 - Privatization under Collor: 1990 -
1994
One of the main differences between the National Privatization Program
(Programa Nacional de Desesatizacao - PND) launched at the outset of the
Collor administration and previous attempts at privatization is that the PND was conceived as an additional element of a host of structural reforms.
The diagnostic behind these reforms has been that the previous decade of stagnation and high inflation rates was a result of an economic model with excessive emphasis on state intervention and impC'rt aubstitution. Among the reforms, mention should be made of the opening-up of the economy to foreign trade and investments, of the new industrial pOlicy, aimed at promoting technological progress and greater competition, and privatization itself.
Thus, privatization is now part of a broader process of reforming the role of the state in the Brazilian development strategy. So far, however, this reform has concentrated on the sale of state-owned houses, cara and land, to the diamiasal of public servants, and to shutting down a few SEs (mainly holding companies).
According to plans, the privatization program of the Collor
administration will encompass two different phaaes. In the first one, comes the sale of SEs in the industrial sector. In a second stage, privatization will advance into the area of public services, Le. in activitiee euch as telecommunications, electric power generation and distribution, transportation and port services.
Law 8031 of April 1990, which created and regulates the PND, set targets and procedures to be followed. The central objective is to remove the state from its entrepreneurial activities so that it can concentrate on more traditional activities such as health and education. In addition, the law enumerates six broad targets:
"I - to reorganize the strategic role of the State in the economy, transferring to private enterprises those activities unduly exploited by the pub1ic sector;
II - to contribute to the reduction of the public debt and to the
improvement of the situation of public sector finances;
III - to allow the resumption of investment in those companies and
activities that are tranaferred to private ownership;
IV - to contribute to the modernization of Brazil's industrial aector,
increasing its competitiv~nees and reinforcing business capacity in the
various sectors of the economy;
V - to allow the public administration to conc9ntrate its efforts on
those activities in which the presence of the state is fundamental;
VI - to strengthen the capital market through widespread stock sales and democratization of ownership of the enterprises in the program."
with regard to these objectives, it' is neceasary to draw attention to two peints. First, the law clearly states that resources collected through privatization cannot be used to cover current expenses, as happened in Chile. The objective is to prevent privatization trom being used to postpone the
•
•
•
•
•
•
•
•
•
.-•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
e_
•
-.
•
•
e
•
•
c;
"
6.
17necessary fiscal adjustment of the public sector. The contribution of
privatization to fiscal adjustment should come from buying back public debt and reducing interest payments. 21
The second and more controversial point is whether the sale of state monopolies (or firms with significant market power) to the private sector will not do more harm than good to the economy. As was mentioned in section I, SEs in Brazil occupy strategic sectors such as steel and petrochemicals: SEs are responsible for 100\ of flat steel output, while companies controlled by PETROQUISA answer for almost two-thirds of total sales of petrochemical products.
In this respect, it is important that the privatization process come together with reforms targeted at deregulating and liberalizing the economy.
Moreover, several other important sectors of the Brazilian economy are
characterized by concentrated market structures, and there are institutional mechanisma to deal with thia problem. Nonetheleas, even if the planned reforma are actually completed, and although the problem is less worrisome for SEs in sectors other than ateel and petrochemicals, caution has to be taken to
prevent the market structure arising from the PND from being even less
competitive than it is nowadays.
The regulationa of the PND also provides ample room with regard to the procedures to be adopted for selling the SEs. As set forth in Article 4 of Law 8031, privatization can be carried out in any of the following forms:
"(i) transfer of participation in association, including controlling blocks,
preferably through widespread sale of stock among employees, present
shareholders, suppliers, customers and the public at large;
(ii) opening up or increasing capital, with renunciation or transfer, in whole or in part, of subscription rights;
(iii) transformation, acquisition, merger or breaking up of the firmi
(iv) conveyance, leasing, renting, commodatum or transfer of property and installations; or
(v) winding-up of companies or partial termination of their business
activities, with consequent transfer of assets."
By regulating the PND through an ordinary law, rather than by
presidential decree, as in the past, the government tried to signa1 its c1ear commitment to the process, dealing first of all with the pressure from politicians or other interested groups, inaide and outside the government. By the sarne token, the government managed to define objectives and procedures in the law, with just enough flexibility to allow it room for maneuver, but not sufficient to allow ministerial disputes to make privatization very difficult,
as in previous administrations. Furthermore, by being submitted to
congressional scrutiny and leaving the final decisions to the president, the program gained in legitimacy.22
21 _ The argument depends on the hypothesis that interest rates on the public debt surpass the rate of return on' SEs' asset's.
22 _ The government showed political sense of opportunity by sending a law project (Medida Provisoria 155) establishlng th& PND right at the outset of the presidential mandate when the governrnent's .popularity was at a peak. The
