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Bolsonaro’s privatizations plan all but buried

. Jan 27, 2021
Bolsonaro's privatizations plan all but buried President Jair Bolsonaro and Economy Minister Paulo Guedes during the Latin America Investment Conference. Photo: Marcos Corrêa/PR

On July 6, 2020, Brazil’s Economy Minister Paulo Guedes promised to announce “four major privatization projects” within the next “30, 60, or 90 days.” This zeal for privatizations was no surprise coming from Mr. Guedes, who pledged to sell off “every single state-owned company” when he was appointed as Jair Bolsonaro’s economic tsar in 2018. But a full 205 days since the Economy Minister’s bold promise, nothing substantial has been announced — and the recent resignation of Wilson Ferreira Junior as CEO of state-owned energy company Eletrobras sinks a knife into the back of Mr. Guedes’ hopes to shrink the Brazilian state.

Mr. Ferreira Junior justified his departure from Eletrobras by saying that the firm’s privatization process “[hadn’t] gained any traction.” The news led to the company’s shares in New York crashing 11 percent on Monday and then 8 percent in São Paulo on Tuesday (the Brazilian stock market remained closed on January 25 due to a local holiday).

</p> <p>The outgoing CEO led Eletrobras for nearly five years and consistently supported privatization as the only solution for the company to recover from the financial mess left by the Dilma Rousseff administration (2011-2016). The initial plan was to <a href="https://valor.globo.com/brasil/noticia/2019/11/05/capitalizacao-da-eletrobras-deve-movimentar-ao-menos-r-24-bilhoes.ghtml">issue new shares</a> that would dilute the government&#8217;s stake, waiving its role as controller and thus balancing the books. The Mines and Energy Ministry estimated the potential gains from the move as around BRL 24 billion (USD 4.51 billion).</p> <p>Even if Mr. Ferreira Junior was unable to steer Eletrobras toward privatization, he leaves behind a positive legacy, having sold off loss-making assets and <a href="https://www2.camara.leg.br/atividade-legislativa/comissoes/comissoes-temporarias/especiais/55a-legislatura/pl-9463-18-privatizacao-da-eletrobras/documentos/audiencias-e-eventos/WilsonFerreiraJr.170418.pdf">slashing debts</a> from 6.7 to 1.9 times its EBITDA (earnings before interest, tax, depreciation, and amortization). There remains, of course, room for improving the company&#8217;s efficiency. Profits slumped during the pandemic and the current Eletrobras payroll includes over 12,000 employees. But no goal is as urgent as privatization.</p> <p>In a note to clients, investment bank BTG Pactual warned that Eletrobras could become a “dead weight&#8221; stock if it remains in the government&#8217;s hands.</p> <h2>What does the future hold for Eletrobras?</h2> <p>Henrique Esteter, an analyst for investment firm Guide, says all eyes will be on the new management team brought in by the government. &#8220;We need to understand who the new CEO will be, and if they will be a sector expert as [Wilson] Ferreira Junior is,&#8221; he tells<strong> The Brazilian Report</strong>. “As the board of directors is responsible for electing the CEO, I believe they may prefer someone with a technocratic background.”</p> <p>Meanwhile, there is also the fear that President Jair Bolsonaro could use the vacancy as a bargaining chip to tilt the upcoming <a href="https://brazilian.report/opinion/2021/01/26/the-crucial-importance-brazil-congress-leadership-election/">House Speaker election</a> in favor of his preferred candidate, Arthur Lira. Rent-seeking political parties are always on the lookout for executive positions that oversee big budgets and stay away from the public eye — and Eletrobras checks every box.</p> <p>No matter who the chosen CEO is, they will face challenges from the get-go. On January 24, Rio de Janeiro&#8217;s top state court ruled that <a href="https://blogs.oglobo.globo.com/lauro-jardim/post/eletrobras-tera-que-pagar-divida-bilionaria-gerdau.html">Eletrobras must pay BRL 1.3 billion</a> in reparations to steelmaker Gerdau as part of a 31-year-long legal quarrel over disputed loans.</p> <p>According to brokerage firm Levante, only a U-turn on privatizations would help stock prices in the short term, but this is unlikely during Jair Bolsonaro&#8217;s government.</p> <h2>No privatizations: Would the last one out please turn off the lights?</h2> <p>In the 2018 election, business elites quickly <a href="https://brazilian.report/power/2018/08/10/big-business-jair-bolsonaro/">jumped on the Bolsonaro bandwagon</a> as he promised to spearhead an ultra-libertarian economic policy in Brazil, despite his track record as a congressman contradicting that notion. However, being flanked by the <a href="https://brazilian.report/business/2018/11/29/chicago-boys-chile-brazil-paulo-guedes/">Chicago School-educated Paulo Guedes</a> gave Mr. Bolsonaro street cred among the business community, and many privatization hawks flocked to join his cabinet.</p> <p>One by one, however, they have jumped ship, crediting their departures to the government&#8217;s lack of commitment to privatizations. Wilson Ferreira Junior is just the latest example.</p> <p>Salim Mattar, who previously served as Privatizations Secretary under Mr. Guedes, even <a href="https://braziljournal.com/por-que-sai-do-governo">published an op-ed</a> calling out the government for its lack of experience, political knowledge, and willingness to negotiate with different political groups.</p> <p>In two years, Mr. Bolsonaro has not privatized a single state-owned company — nor has his administration gotten close to doing so. Even former President Luiz Inácio Lula da Silva — who Mr. Bolsonaro calls a &#8220;communist&#8221; — oversaw two major privatizations, coupled with multiple concessions of infrastructure programs. 

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Natália Scalzaretto

Natália Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Before joining The Brazilian Report, she worked as an editor for Trading News, the information division from the TradersClub investor community.

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