Brazil, Strapped for Cash, Expands Privatization Plans

Desperate for cash to balance its budget and defend its beleaguered currency, Brazil dramatically expanded its privatization program Wednesday, tacking “for sale” signs on tens of billions of dollars worth of government buildings and highways not previously earmarked for sale.

The expansion came on the same day that the government’s sale of a controlling interest in a fast-growing southwestern Brazil electric utility raised $566 million, nearly twice the s bidding minimum.

The rich price is a sign that foreign investors have long-term confidence in the government’s ability to work through its economic and currency problems, Finance Minister Pedro Malan told Brazil’s congress on Wednesday.

The successful auction, combined with a small reduction in interest rates and progress for a proposed administrative reform package working its way through Brazil’s congress, helped bump up the Bovespa stock index by 3.4%. The market has now recouped all the loss suffered Nov. 12, when it fell by 10%.

Still, the decision to expand the massive privatization program, put in place some time ago to raise at least $80 billion and bring free-market discipline to Brazil’s long-protected markets, is a clear signal that the government wants to amass as much cash as possible to deal with an economic crisis that has put the country’s currency under siege by speculators.

“The government is putting as many ‘for sale’ signs out on as many pieces of property as it can,” said Charles Barnett, Latin American utilities analyst with ING Barings in Sao Paulo. “They’re pulling out all the weapons in their arsenal to defend the economic plan.”

Some observers said it might be a response to the suddenly weaker global market for Third World assets. Currency devaluations in Thailand and South Korea, for example, have suddenly made those countries’ assets cheaper and more attractive to foreigners, said Gary Hufbauer, director of studies at the Council on Foreign Relations in New York.

Brazil’s expanded privatization program adds an unspecified number of government buildings and land to an already lengthy list of properties and state-owned businesses being peddled to the highest bidder. The newly available real estate alone could fetch $23 billion, Planning and Budget Minister Antonio Kandir said Wednesday.

Also, the state and federal governments will over time put up 9,000 miles of roadway for toll road concessions, government insurance companies, sewage and water utilities, and additional railroad properties. Apart from the real estate, no estimate of what the assets might fetch was given.

The government has already designated for sale various government telephone and power utilities, ports, financial institutions, mines, chemical plants, steel companies and other properties. The sales started in 1990 but have accelerated in the last couple of years. Power and telephone utilities, the properties expected to bring the most money for Brazil, have been saved for last.

Kandir said that money raised by government asset sales, including the proceeds from Wednesday’s auction, have reached $23.7 billion so far this year--more than the total for the previous six years combined.

How much more money could be generated with the remaining sales is difficult to estimate, although some analysts think the figure could top $100 billion.

Last week, the Brazilian government said it would accelerate its privatization program as part of a broad scheme of austerity and reforms in an effort to bolster the real, the Brazilian currency, after the speculation that had been plaguing the Asian markets spread here.

The 51-point austerity plan, which came after Oct. 31’s doubling of short-term interest rates to 43%, clipped 10% off the Brazilian stock market on Nov. 12, although the country’s markets have since recouped much of those losses. Economists expect the austerity moves to usher in a recession that could last most of next year.

U.S. power companies have shown keen interest in Brazilian utility privatization. The acquirers of the Rio de Janiero utility called Light, sold at an auction, included AES Corp. of Arlington, Va., and Houston Industries of Texas.

Enersul, which was sold Wednesday, is the utility that serves the state of Mato Grosso do Sul, which borders Paraguay. With about 480,000 customers, Enersul was seen as an attractive entity because its load is growing at 7% to 8% per year, up to four times the rate of a typical U.S. utility.

The winning bidder group, which included an Argentine power company, Perez Companc, beat out competitors that included CMS Energy of Dearborn, Mich., and Enron of Houston.