September 18, 2019


How Selling Assets Could Help Revive Brazil's Economy (JOHN H. WELCH,  SEPTEMBER 18, 2019, America's Quarterly)

Since Brazil's new government took office, policymakers and investors have rightly focused on social security reform as a crucial ingredient for the country's long-term solvency. Now that an ambitious reform package has passed the lower house, the government and Congress are looking to other areas, such as tax reform and reducing the oversized wage bill, to help boost growth.

But almost under the radar, the government has also continued a large divestiture program that started under the previous administration. President Jair Bolsonaro's government has promised to deepen that effort by selling or shuttering as many state-owned enterprises (SOEs) as possible.

This program could help Brazil with some large fiscal challenges. Social security was the most important structural reform, and others remain that are crucial for sustained economic growth. But privatization can offer improvements in efficiency and reduce or eliminate the drain from loss-making SOEs. Moreover, privatization revenue would help finance a transition to fiscal sustainability by reducing government debt issuance to cover deficits.

Brazil's federal assets set for immediate sale fall into four main categories:

1. Companies with a direct government stake, such as Eletrobras (where only IPO rights worth around $15 billion would be included) and some smaller companies.

2. Listed equity shares in private companies held by development bank BNDES and the treasury (totaling $28 billion as of February 2019; BNDES has already sold $8.5 billion this year), not counting BNDES investments in closely held companies, debentures, or funds.

3. Contingent stakes in presalt excess oil transfer rights ($21.7 billion, discounted for indemnification of Petrobras and 30% transfer to regional governments).

4. Concessions such as airports, ports, railroads, and toll roads, with an estimated value $8.4 billion (with $1.5 billion sold in 2019 so far).

Posted by at September 18, 2019 5:10 PM