Privatization Movement Finds Poster Child in Brazil

The small, sparse workplace, perched high over Sao Paulo’s business district, shows few signs that this is the office of the man who sold Brazil.

There are, however, auctioneer gavels kept as souvenirs, a display of pens that have signed billion-dollar contracts, and Venilton Tadini’s sales patter.

“Whoever can evaluate and sell 20 billion reals’ worth of state assets in five years is a good salesman,” he said.

That’s $10 billion, and no idle boast.

As director of Fator Projetos, Tadini, 44, has put a price tag on everything from banks to electricity utilities as part of a decade-old privatization program that has ended up taking in about $100 billion for the government.

The anti-globalization lobby tends to see privatization as code for selling the people’s property to corporate fat cats. But over the last two decades it has become a worldwide economic reality in democracies, dictatorships and struggling former communist-bloc countries.

Tadini has few doubts that by doing it, Brazil has cured its serious economic ills.

“Brazilians used to confuse a strong state with a big state,” he said.

Decades of military dictatorship concentrated some 30% to 40% of the economy in state hands in what Tadini calls “the proliferation of the Bras”--Telebras running telecommunications, Eletrobras providing electricity, Petrobras pumping oil.

State control produced heady economic growth rates, but they hid a lack of competition that meant complacency and bad service for customers.

Just three years ago, installing a home phone line in Sao Paulo could cost $2,000 and take forever. Only once did Telebras ever manage to connect a million lines in a year.

Today, with Telebras sold off to private regional companies, the price is $40, and some 1.4 million phones are installed every month.

“It is mind-boggling how much more efficient Brazilian companies have become,” said John Welch, chief Latin American economist at Barclays Capital in New York. “And the state was able to realize capital gains that no way could they have realized by holding those assets.”

“I think Brazil can be held up as a good example for other similarly situated countries,” said Ron Utt, senior research fellow at the conservative Heritage Foundation in Washington, D.C. “Like all privatization programs, it has turned tax users into taxpayers.”

But it does not work for all developing nations.

Ferdinand Gaite, spokesman for Stop Privatization, a grass-roots organization in the Philippines, said state monopolies have been replaced by a few dominant private companies, and prices have not fallen as promised.

“It is not benefiting the public, especially the poor,” Gaite said. “For them, basic public services such as health, water, transport and electricity have been put even further out of reach by privatization.”

In Brazil, privatization started in the early 1990s under President Fernando Collor de Mello. The income was put to work immediately to shore up Brazil’s precarious national accounts.

First to go were steel, petrochemicals and other heavy industries. At the time, Tadini worked in government and was one of the plan’s architects.

Collor was impeached for corruption in 1992, but the program picked up speed under President Fernando Henrique Cardoso, whose Real Plan has brought economic stability. Tadini moved to private investment bank Fator, which has coordinated the last 14 big state sales.

But the going was not always easy.

“The whole program was set up in a very difficult environment,” Welch said.

Privatization programs in most countries were started in the wake of trade liberalization, which automatically killed off the most uncompetitive companies.

But Brazil started its state sell-off before freeing up trade, meaning privatization picked up most of the blame for about 500,000 layoffs. Only later did it create 158,000 new jobs in telecommunications and road management.

The result: Over the last decade, unions and the leftist Workers’ Party have regularly tried to sabotage sales, at first with protests and later through legal action.

“As the process went on, the opposition to privatization got more sophisticated, moving from the street to the courtroom,” said Tadini. “But the government’s determination to sell remained firm.”

In October, the sale of Parana state bank Banestado was halted in the auction room when leftist deputies showed up with a court order. The government appealed, the order was overruled and the sale went ahead hours later.

Selling Banespa, the ailing state bank of Sao Paulo, was even more complicated.

With its highly paid and highly unionized staff, Banespa became an anti-privatization cause, and the path to its sale was littered with as many as 60 court injunctions. Finally it was snapped up last November by Spain’s Banco Santander Central Hispano for nearly four times the $900-million asking price.

“It’s amazing they got it done,” said Barclays’ Welch. “These guys were very courageous.”

According to Tadini, Banespa was perhaps “the last jewel in a big crown” and Fator is now eyeing other deals in the private sector, including this month’s auction of the first three of nine new mobile phone bands worth a minimum $3.4 billion.

But Welch estimates about $25 billion worth of state-owned assets are left to sell.

Next on the block are smaller state banks and energy companies. The two remaining state giants--Petrobras and Banco do Brasil--are unlikely to be sold yet.

The economy is doing well, and the national accounts are under control.

“The pace has slowed. The urgency has gone,” Tadini said. “Privatizations used to be the remedy for a sick country. Today they are more like a top-up vaccine to keep the place healthy.”