Brazil announces flood of privatizations

A wave of privatizations announced by Brazil's President Michel Temer has fired up the stock market with hopes of economic renewal, but critics fear an irresponsible fire sale.

It's an impressive list with 58 items ranging from the Congonhas aircraft terminal in Sao Paulo to big state-run energy utility Eletrobras and even the national mint, which produces banknotes and passports.

Throw in Temer's decree, also unveiled this week, to scrap a huge Amazon reserve and allow commercial mining and you have the makings of an investment bonanza.

The government hopes the windfall will finally put Brazil back on the financial map after two years of recession, investor flight and today's double digit unemployment.

Temer's first priority is to solve a ballooning budget deficit and analysts say the privatizations stand to bring in some 40 billion reais ($12.7 billion) by the end of 2018, when Temer's term also finishes.

With political resistance strong against new taxes and major pension reform facing dilution, the Temer government has been forced to get creative.

Temer's close ally in government, Wellington Moreira Franco, calls the plan a way of "confronting the problem of unemployment, revenues and a return of conditions" for growth.

Economy Minister Henrique Meirelles stated plainly on Thursday that the privatizations will bring reassurance that "the fiscal balance is being achieved."

- Euphoria -

Sao Paulo's stock market responded with euphoria. Eletrobras shares rocketed 50 percent on Tuesday when the announcement for the utility was made, helping to boost the Ibovespa index above 70,000 points for the first time since 2011.

But doubts immediately surfaced about whether the project will go as smoothly as hoped.

For Marcelo Caparoz, an analyst from RC Consultores, the government's principal goal is to show it means business.

"The most important factor in these announcements is the signal the government is sending to the markets, giving them the incentive to identify (state-run) businesses with potential to be put into private hands," he said.

But Caparoz believes the market's reaction showed that investors were taken by surprise, indicating the government acted speedily -- and maybe isn't fully prepared.

"Executing the plans could be problematic," he said.

- Resistance -

Resistance to the privatizations is already starting, much of it focused on the sale of Eletrobras, which has 233 power plants generating more than a third of the country's electricity.

Senator Edison Loboa, from Temer's own PMDB party, said he opposed the sale of a company with "a strategic function, which therefore should remain under state control."

The government has tried to reassure critics, saying that under the plan it would retain a so-called golden share giving veto power over certain areas of the company's activities.

But trade unions, already infuriated by Temer's austerity policies, are promising to oppose anything that leads to jobs cuts.

The privatization of Congonhas, among 14 airports on the list, is raising concerns that Infraero, the state company currently managing the facilities, will run into financial trouble.

Independent consultant Felipe Queiroz calls the plan a "political-ideological game" by Temer's center-right government that will lead to the "dismantling of the state."

Also hanging over Temer's hopes are the October 2018 elections to replace him and his own alleged corruption problems as the first sitting president to face a criminal charge.

"In the coming months attention will begin to focus on the candidates," Caparoz said.

Markets will hope for someone in Temer's mold, like Sao Paulo Governor Gerardo Alckmin. But leftist, former union leader Luiz Inacio Lula da Silva, who was president from 2003-2010, is looking for a comeback -- and he would be no friend of the privatizations.

source: AFP