International Business : Brazil's Amendment Opens Oil to Private, Foreign Investment : Latin America: Sweeping reforms could be benchmark for country's modernization.


The House of Deputies on Wednesday approved a constitutional amendment to open Brazil's oil industry to private and foreign investment, a step that economists and political leaders said foreshadows a dramatic leap forward for a bundle of economic and social reforms that could transform South America's largest economy.

The sweeping reforms, analysts said, could fast-forward the country toward economic modernization by allowing the government to sell all or parts of its huge but poorly managed monopolies in oil, telecommunications, electricity, mining and other areas to private companies and investors in and outside of Brazil.

Private companies can do what the Brazilian government cannot, the analysts said--provide the capital for upgrading those industries to make them more efficient, profitable and accessible to Brazilians.

"It represents a major structural change for the Brazilian economy and society," said Carlos Langoni, a leading economist and former president of the nation's central bank.

Economist Paulo Rabello de Castro called the vote "sociologically as important as the abolition of slavery" in Brazil more than 100 years ago. Market analysts said the world's ninth-largest economy and America's third-largest hemispheric trading partner could be a dramatically different country in the near future.

"You might not even recognize Brazil five years from now," said Paulo Vasconcellos, director of market research for Merrill Lynch in Sao Paulo. "This could be a benchmark in the development of the country."

Final approval of the reforms is not a fait accompli . Some parts of the package have yet to be introduced in Congress, and all have to be approved twice by more than two-thirds of the Senate. And selling off the companies could take as long as two years.

But observers say that Wednesday's vote, on the heels of Tuesday's approval by the House of measures to privatize the nation's antiquated telephone system, are strong signals that what five years ago would have been impossible--and just three months ago was thought unlikely--is now nearly assured by the end of the year.

"Congress is ready to turn a page in the history of Brazil," said President Fernando Henrique Cardoso, who is expanding a modest privatization process that began in 1992. Though much of Latin America has opened itself to privatization in recent years, Brazil's program has been open to Brazilian buyers only.

Economists and political analysts say that the early votes on the reforms reflect a sea change in Brazilians' attitudes toward economic development. Since shortly after World War II, Brazilians have viewed the federal government as the engine for development, largely because it was the only entity able to muster enough capital for large-scale projects in oil, mining and telecommunications.

And Brazilians, traditionally strong nationalists, have long been suspicious of foreign investment and ownership. No Brazilian firm has symbolized that attitude more than Petrobras, the state-owned oil company founded in 1953 and today the world's 15th-largest oil concern.

The nation's largest company, Petrobras produces 750,000 barrels of crude oil a day--third in Latin America behind Venezuela and Mexico--and refines another 1.5 million barrels daily. Net profits for 1994 were $1.7 billion on $13.7 billion in earnings, up 159% over 1993, according to Petrobras officials.

When it was formed, Petrobras was to make the country self-sufficient in oil production by tapping a sea of oil believed to exist beneath the Amazon rain forest. But after more than $80 billion in investment, Brazil still meets half of its oil needs with imports. About 65% of its petroleum output comes from costly offshore wells, and only a fraction from the Amazon.

After years of watching public services decline and their industries fall behind those of the rest of the world, Brazilians have now shifted their attitude about the role of government in economic development.

"Five years ago, nobody could have gotten the people to go for privatization," economist Langoni said. "Now, they are extremely receptive to the idea, and that is what is pushing the process forward."

Cardoso, who came to office six months ago on a reform platform, recently won a major test by staring down petroleum workers who called a strike in an effort to kill the administration's privatization drive.

The 30-day strike, which ended last week, strengthened Cardoso's hand; the strikers, among Brazil's highest-paid workers, lost sympathy from citizens lacking cooking oil for their stoves and gasoline for their cars.

Once all the legislation is passed, foreign investment in Brazil is expected to increase at least fivefold as companies and investors either bid for government-owned companies or establish new ventures.

The federal government hopes to use the resulting billions in revenue to retire a large chunk of the country's $70-billion national debt and pump money that once went into running those companies into badly needed health and education services.

Then weary Brazilians, who in the past 15 years have weathered the world's longest stretch of runaway inflation, may begin to see an end to $3,000 start-up charges for telephone service, five-hour electrical outages and a plethora of other expensive public services that don't work.

"That's what we're all hoping for," said Elena Landau, the economist in charge of selling billions of dollars' worth of government companies that have already been approved for sale."I want a telephone where I don't have a third person on the line unless it's on purpose. I want touch-tone."

Copyright © 2019, Los Angeles Times
EDITION: California | U.S. & World