For 17 years, executives of computer companies trying to sell in Brazil have been thwarted by blatant protectionism. Suddenly, they are seeing things change fast. Spearheaded by President Fernando Collor de Mello, moves are under way to open up the long-restricted computer market. Just last week, a government-industry committee agreed to new cuts in import tariffs for computer gear. And in late October, personal computer makers will see an end to the long ban on imports and local production by foreigners.
For Collor, who has been struggling for two years to reform Brazil's volatile economy, this kind of trade liberalization is urgent. At 42, Collor is Brazil's first democratically elected president in three decades. In his 1990 campaign, the karate black belt vowed to wipe out widespread corruption and modernize the economy.
Collor fears that without quick action, Brazil may be left behind its Latin American neighbors. They are pushing ahead with free-market reforms and cashing in on growing foreign investments.
UNION BACKING. "I keep saying we have to hurry, hurry, hurry," Collor said in an interview with BUSINESS WEEK in Brasilia's futuristic Planalto Palace. "Two-and-a-half years ago, if you talked about ending market protection for the computer industry, or opening our border, or privatization, you would have been accused of working against the national interest."
Already, foreign companies seem to be getting the message. Last year saw a massive inflow of funds, totaling $11.6 billion. Another $4.4 billion poured in from January to March of this year. Among Brazilian business executives, there is even optimism over Collor's chances to beat a nagging recession. He has already won some battles against Brazil's chronic inflation. It slowed to a 21% monthly rate in March, down from 27% in January. Says Enrico Misasi, president of Olivetti do Brasil: "Our product line has expanded incredibly, and we're projecting 15% to 20% growth in local sales and exports."
Also gathering momentum is Collor's drive to privatize much of Brazil's vast array of state-run companies. Foreigners are expected to bid in the next major auction on May 15, when a petrochemical plant goes on the block for a minimum of $784 million. Key labor unions are now supporting the sell-offs, realizing that it's the only way to save their jobs. Otherwise, "the companies will lose market share, they will lay people off, and they will go bankrupt," Collor says.
Collor is even prepared to tackle Brazil's politically sensitive state-owned oil and telephone companies, Petrobras and Telebras. "The issue is monopolies, not privatization," says Collor. That means that, for the first time, private companies will be allowed to compete against them. To do so, Collor is asking the Brazilian Congress to end a constitutional ban keeping private companies out of these sectors, considered to be key to national security.
PINK-SLIP POWER. To spur Brazil's economy and permanently curb inflation, Collor is preparing an assault on the bloated government. He'll soon ask for authority to revamp the tax system and slash the deficit. He also wants power to lay off thousands of bureaucrats who enjoy lifetime job security. He faces heavy going in Congress but expects at least the tax reform to be approved by yearend.
Collor's plans are getting a boost from the regional move toward free trade in Mercosur, the economic bloc that Brazil has formed with Argentina, Uruguay, and Paraguay. An even broader impetus could come from President Bush's Enterprise Initiative for the Americas. It aims to link the rest of the hemisphere to the proposed North American Free Trade Agreement and eventually create a hemispheric trade bloc.
Collor endorses that goal: "What we would like to see after Brazil becomes stable and forms a partnership with its neighbors is further integration through Bush's initiative." Already, Collor's reforms may make Brazil the engine of recovery for a large chunk of Latin America.