Temer turns to privatisation drive to move past scandal
Brazil’s government is embarking on a sweeping privatisation drive, with plans to sell off everything from the mint to the state lottery, to raise revenue and boost infrastructure investment.
The R$44bn plan comes as President Michel Temer tries to haul Latin America’s largest economy out of deep recession, while continuing to battle a corruption scandal that has put crucial parts of his pro-market reform agenda on the line.
Once an emerging markets darling, Brazil’s economy has shrunk by 7.4 per cent in the past two years and the government is wrestling with ballooned budget deficits. The government had already responsed by opening up sectors to more foreign investment, and it is now auctioning off highway, ports, and airport concessions.
On Wednesday, it announced a list of 57 assets up for grabs, including oilfields, energy transmission lines, highways and São Paulo’s city airport, Congonhas. Officials also intend to sell minority stakes that government-owned airport operator, Infraero, holds in Brasília, São Paulo’s Guarulhos, and Rio de Janeiro’s Galeão.
“This is a combination of genuine inclination to reduce the weight of the public sector and reducing the footprint of inefficient public enterprises and also fiscal considerations.
The extra revenue from these privatisations will come handy in times of intense fiscal pressures,” said Goldman Sachs economist Alberto Ramos. The government also announced the launch of a market for debentures to finance infrastructure. It is also backing changes that require state-run development bank, BNDES, to base its standard lending rate on the five-year treasury rate from January 2018 onwards, effectively marking it to market, to bolster private investment.
“In order to subsidise, BNDES takes up a chunk of the treasury. When that ends, the government accounts will be more relieved and, consequently, there will be room to do other things,” says Bruno Serapião of Hidrovias do Brasil, a private river port operator.
The privatisation push may also include Brazil’s mint, the Casa da Moeda do Brasil, and the lottery unit of state-run bank Caixa Econômica Federal. Wednesday’s announcement came only a day after officials signalled they would sell a controlling stake in Eletrobras, Latin America’s biggest electricity generator, which pleased markets.
Since taking over last August, Mr Temer’s economic team has been battling to shift economic policy away from the dirigiste policies of his leftist predecessors who, critics say, used state-owned companies to achieve macroeconomic goals, including controlling inflation by artificially curbing energy prices.
The surprise Eletrobras announcement fuelled hopes of a reorganisation of the company, which has been hobbled by government meddling, inefficiencies, and corruption scandals. Officials believe that selling some of the state’s 41 per cent stake, which gives the government majority voting rights, will raise about R$20bn.
“The sale of Eletrobras goes in line within the liberal agenda the government is trying to push through. This will allow the government to have a ‘golden share’ of Eletrobras, allowing it to make some of the company’s important decisions,” explained Ricardo Sennes, director of consultancy Prospectiva in São Paulo.
Mr Sennes compared the case of Eletrobras with that of Embraer, which was privatised in 1994 and became the world’s third-largest commercial jet maker. Despite investors' praise for his reform agenda Mr Temer is highly unpopular at home, wrestling with a corruption scandal that has drained support for his reform drive.
This includes a controversial overhaul of Brazil’s generous pension system to help rein in runaway budget deficits, which stand at over 9 per cent of gross domestic product. The government was already forced to loosen its budget targets, although finance minister Henrique Meirelles has expressed confidence that the reforms will pass through Congress this year.
Credit rating agency Standard and Poor's is not so sure. Last week it reiterated Brazil’s “BB” rating but maintained its negative outlook, citing “ongoing political challenges and the risk of a downgrade”, if the country’s Congress fails “to advance legislation that begins to reduce Brazil's fiscal rigidities, which hinder deficit reduction”.
Mr Temer came to power last year after the impeachment of former president Dilma Rousseff for manipulating the budget. He was poised to pass the key pension reform, but his plans were upended after the revelation in May that he was taped allegedly discussing bribes with the former chairman of giant meatpacker, JBS.
Luis Inácio Lula da Silva, the popular former president who is touring Brazil’s north-east as he eyes a comeback in next year’s elections, has been slamming Mr Temer’s cutbacks and privatisation plans. “If this government does not know how to recover the economy, they can ask for help from us who know how to fix this country,” he said.
Andres Schipani & Joe Leahy