RIO DE JANEIRO — With the way Brazil’s economic crisis is going for many Brazilians, lining up to play the scratch-off lottery seems like a good bet — at least until even the lottery itself gets touched by fiscal woes. The Brazilian government recently announced that the state lottery may soon be sold.
It’s not just the lottery that is going the way of deregulation. In August, Brazilian President Michel Temer announced reforms that will privatize a vast number of sectors in the country, from the lottery to the electric company. His privatization package is the biggest the country has seen in two decades. But will that be enough to turn around Brazil’s economic stagnation?
The administration certainly hopes so. The government’s approval ratings are at rock bottom. A recent poll found that zero — zero — percent of Brazilian millennials approve of Temer’s leadership. At the same time, a steady stream of corruption scandals reveal that the richest, most powerful Brazilians seem to be doing just fine, as investigations turn up suitcases full of cash and beachside condos.
But the next presidential election is not until late 2018, and in the meantime the economic crisis continues to burden the most vulnerable Brazilians. Although some point to Brazil’s low inflation rate as a sunny sign, conditions on the ground continue to stoke pessimism. Unemployment in Brazil reached a record high of 13.7 percent in the first quarter of 2017; around 14 million Brazilians are currently unemployed. In Rio de Janeiro alone, the number of people living without homes is up 150 percent over the past three years.
The system needs a fix, and the Temer government says privatization is the answer.
But some scholars question the scale and pace of the move, and believe the economic crisis is being used as a justification to steer the country in a markedly different economic direction.
“The crisis is being seen as an opportunity for a new economic agenda,” says Laura Carvalho, a professor at the University of São Paulo and one of the top economists in Brazil.
If all of the proposed privatizations are brought to fruition, the size of the state in the Brazilian economy would shrink substantially. Not only is the lottery being privatized, so are some of the highways and airports and ports, and even the passport-issuing agency and the national mint. In total, at least 57 state assets are included in the sweeping privatization drive.
But most startling to Brazilian economists is the push to privatize Eletrobras, the largest power utility company in Latin America. Currently, Eletrobras is a majority Brazilian state-owned business, accounting for 30 percent of the energy generated in Brazil and 50 percent of the power lines crisscrossing the country. If privatized according to the current plan, the government hopes that Eletrobras’ assets would be sold off for 20 billion reais, or $6.3 billion dollars. Economists are concerned, though, that that price is way too low.
“They are selling national patrimony for the price of a banana,” says Esther Dweck, a professor of economics at the Federal University of Rio de Janeiro, using a common Brazilian saying.
Why? The government argues that the privatizations are needed to turn the economy around, increase efficiency, and attract international investment. As part of the plan’s announcement, the government pointed to a need to increase employment and also to improve the quality of the services offered by these sectors.
It’s not the first time that Brazil has experienced such a major privatization wave. In the 1990s, like other countries in Latin America such as Argentina, Chile, Mexico and Jamaica, Brazil witnessed a push toward liberalization.
Monica de Bolle, a senior fellow at the Peterson Institute for International Economics, believes that Brazil’s privatization trend in the ’90s actually helped improve burgeoning sectors and Brazil’s economy as a whole in the long run.
“Brazil was behind a lot of emerging markets at the time as far as telecommunications infrastructure and service,” she says, using the consumer telephone market as an example. “Once the sector was opened up and privatized, it only took a few years for modernization to come through.”
Observers have showered similar praise on the country’s 1994 privatization of its aerospace conglomerate, Embraer, which is now the world’s third-largest commercial aircraft maker.
But this time, de Bolle argues, things are different: “The privatization effort now is mostly about trying to close fiscal holes, and much less about bringing efficiency or transforming the economy or anything like that.”
The current privatizations angle to attract much-needed international investment to Brazil. As if to underline that point, shortly after the announcement of the reforms in August, Temer took off for a trip to meet with businesses executives in China.
Many economists worry the economic changes proposed by Temer are too fast and too furious, especially for an economy the size of Brazil’s — the ninth-largest in the world.
“There is no evaluation going on about whether the sectors being privatized are the best candidates for that reform,” Dweck says.
Other economists share her concerns about the method by which such massive changes are being administered. “It’s more about headlines than actual transformation,” says de Bolle.
But economists’ concerns may be alleviated by the same challenges they point out. Many of them say it is unrealistic to believe that such major reforms, particularly the privatization of the colossal Eletrobras, can take effect before the clock runs out — that is, before the 2018 presidential election.
“What will be most interesting to watch is how this economic plan plays a role in the elections,” says Carvalho. In 2018 Brazilians will vote for their next leader in an election that is already awash in uncertainty.
What is more certain, Carvalho points out, is that most Brazilians are not entirely in favor of the reforms embodied in the privatization push. Last year a poll found that a majority of Brazilians rejected privatization in general, and Carvalho believes that if a candidate runs with this type of reform agenda in 2018, “it would be impossible to be elected.”
Brazilians are in large part justified to be skeptical of their government’s plans. As the extent of the corruption within the political system is slowly revealed, more and more Brazilians are having a hard time believing that reforms which would put state assets back in the hands of the private enterprises accused of making corrupt deals with the government would be a good thing.
Just a few weeks before the government announced the privatization plan for Eletrobras, the federal police targeted one of the company’s subsidiaries as part of the Lava Jato corruption probe after finding irregularities in the construction contracts for a nuclear power plant.
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Brazil’s Push Toward Privatization Worries Economists originally appeared on usnews.com
