Wall Street Journal – What You Haven’t Read About Brazil / Mary Anastasia O’Grady
Brazil announced last week that it will privatize 17 more government enterprises, including federal electricity giant Eletrobras, the national mint and the postal service. Dozens of ports, airports, railroads and other companies already have been put in private hands since President Jair Bolsonaro took office on Jan. 1.
Economy Minister Paulo Guedes said last week that this year’s privatization proceeds will reach $20 billion. But if he keeps selling assets as he has said he would like to do, the total take for the government during Mr. Bolsonaro’s four-year term will be much larger.
Economist John Welch, who specializes in Latin America, estimates that Brazil could sell nearly $90 billion in assets over the next two years. Brazil’s plan includes selling parts of the oil company Petrobras —though it is far from certain that it will shed the company itself. All in all, according to the Bolsonaro administration, some $250 billion could be realized through privatization, concessions and the sale of federally owned real estate.
Yet the privatization purge is about much more than generating one-time revenue items on the balance sheet. State companies are inefficient and uncompetitive and many operate in the red. The state carries them at a great cost to taxpayers, draining scarce resources from federal coffers. Privatizing or closing these money losers will greatly reduce the misallocation of capital.
This is a major shake-up of the top-heavy Brazilian state. But it’s only one part of a comprehensive plan designed to unleash the animal spirits of a nation that has been weighed down by too much government. If successful it will dramatically change Brazil’s investment profile.
Conservative and nationalistic, Mr. Bolsonaro isn’t the most likely leader of a Brazilian big bang—or even a medium-size one. The retired army captain spent 28 years in the Brazilian Congress opposing free-market economics. Yet by hiring Mr. Guedes, he has signed on to reform.
Mr. Bolsonaro has become the bête noire of progressive punditry the world over for some of his statements on the environment. As fires rage in the Amazon jungle, largely because of drought, he is being blamed for lax enforcement of conservation laws. But opening and modernizing the economy will do far more to protect the forest than have socialist governments before Mr. Bolsonaro or any finger-wagging European elites.
Migration to the Amazon has been driven by government subsidies, but also by the needs of the downtrodden, looking for a way to scratch out a living. First World practices like responsibly disposing of waste, caring for soil, and reducing air and water pollution are products of cultural values that come with development.
Brazil needs fast growth if it is to create the wealth and opportunity necessary to care for the environment. Yet economic dynamism hasn’t been a priority for its political class. Brazilian politicians are known mostly for nationalism, protectionism and populism.
But something has changed. It may be because 13 years of Workers’ Party rule, which ended in 2016, left the country in terrible shape. Or maybe decades of work by Brazil’s small community of economic liberals to spread free-market ideas is finally bearing fruit. The fiery Mr. Guedes and his team haven’t been afraid to take the fight into the public square and make the case for less government.
The strategy has paid off. Take the insolvency of Brazil’s public pension system, which the previous four presidents all tried—and failed—to fix. Mr. Guedes is on track to get it done.
The pension reform sets a minimum retirement age (65 for men, 62 for women) for the first time and raises contributions for high-income earners. When Brazil’s lower house tried to dilute the bill, Mr. Guedes accused its leadership of betraying future generations. A chastened Congress subsequently approved something closer to the administration’s proposal. The Senate is expected to ratify it before year’s end. The new measure will save the government some $240 billion over the next 10 years.
Last week Congress passed a bill—written by the Guedes economic team—to enhance the economic rights of Brazilians. The new law makes it easier to open and close a business, restricts the use of price controls, reduces the need for permitting, and clears the way for digital filing of documents. Under the new legislation, if the government doesn’t reply to an application for a license, permit, registration or the like within a finite period, the request is automatically approved.
Mr. Guedes also plans a tax reform to lower rates and simplify filing, two long overdue steps to boost international competitiveness.
Success is not inevitable. Mr. Bolsonaro too often gets caught up in irrelevant spats with the press. He’d serve the nation better by championing his team of technocrats and their vision of a Brazil that lives up to its potential.
Write to O’Grady@wsj.com.
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