When is privatization not privatization?
That's the question Brazilians were discussing after the left-wing government of President Dilma Rousseff announced it was turning to the private sector to rebuild the country’s crumbling and antiquated infrastructure.
When it was in the opposition, Rousseff's Workers' Party decried privatization under President Fernando Henrique Cardoso. Thus, Rousseff was careful to say that the government's new plan did not amount to the p-word. "We are not selling off state assets to raise cash,” she said, describing just one form of privatization.
Rousseff's program is the other kind: the outsourcing of government functions to private firms. The government will sell licenses to build 7,500 kilometers (4,660 miles) of roads and 10,000 kilometers of railways. It expects investments to total 133 billion reais ($66 billion) over the next 30 years. A government company will buy the railway capacity back from contractors. Highway builders will operate the roads, charging tolls. Similar plans for airports and seaports are expected soon.
That Rousseff was so sly about the policy outraged some commentators. In an article in the O Globo newspaper, journalist Carlos Sardenberg used a Brazilian slang word for a party girl to describe her government.
You know the periguete without conviction? She wears a little tube dress but spends the whole time pulling it up and down to try to hide what the clothing wants to show.
It’s how the administration deals with the privatization of the highways and railways. They wear the idea, will implement it, but won’t even allow the name to be used.
On his blog, Eyes on the Capital, journalist Cesar Valente mocked a Workers' Party minister for insisting there was good privatization and bad privatization, just like there was good cholesterol and bad cholesterol. “Isn’t that cute?” he said.
The fact is that the government desperately needs the private sector to assume some of the infrastructure expenses. And all the hate that the militants have for such situations now needs to be transformed into support and love.
Whatever its label, the government's plan alienated many on the left. Lawyer and blogger Tarso Violin said he opposed the program because private companies would end up with the profits from public works. He asked why the state's BNDES bank, which will finance much of the investment at low interest rates, didn't simply take over the projects. “Businessmen are happy,” Violin said. “There's a lot of private profit in view. And the people? And the public interest?”
Sardenberg disagreed that investors would necessarily benefit. The program, he said, didn't build in sufficient opportunities for profit. “It seems that it does what it can to limit and restrict the return of the concessionaires,” he argued.
The risk is clear: the citizen is left without a good road, the entrepreneur does not make money, and the government loses for not being able to recover subsidies and loans.
As for whether the plan would benefit the people, Miguel Torres, the president of Forca Sindical, an umbrella of trade unions, complained to Agencia Brasil that the government had not consulted unionists before presenting its plan, making it a fait accompli. Still, Torres wasn't exactly steamed about Rousseff's decision. “She is watching the world change,” he said. “She is realizing the growing need to involve private capital in the economy.”
There’s no doubt the policy is overdue. A high volume of Brazil’s commodity exports, such as soy and corn, relies on truck transport, and many of the country's roads have just one lane.
Brazil’s richest man, Eike Batista, whose EBX group of companies has oil and mineral interests, called the program a “happiness kit,” according to the Folha de Sao Paulo newspaper. “In the last 20 years, we have invested very little in relation to GDP in infrastructure. I would dare to say there is a shortage of $300 billion" in investment.
The respected economics journalist and commentator Miram Leitao agreed on the need, writing in a piece in O Globo, “The Brazilian GDP grew 54 percent from 1997 to 2011, but the transportation of cargo grew 117 percent.” She continued:
What was announced yesterday was the first of several plans aimed at improving the competitiveness of the Brazilian economy as a whole. These could have more permanent effects. They need to go from plans on paper to reality.
Journalist and international relations specialist Sergio Leo took a wider view. In the business daily Valor, he drew a comparison between the infrastructure plan and the Brazilian Central Bank's interference in exchange markets in recent months to protect the real. Leo argued that not only was the left having to accept private involvement in what was previously state controlled, the right too was having to accept state intervention where the market once ruled.
“The new direction of the economy, international relations and politics have challenged certainties and imploded borders,” Leo said. “The ends, as old Aristotle taught, do not justify the means, and the path to happiness is reason."
Now, if only President Rousseff could say the word.
(Dom Phillips is the Rio de Janeiro correspondent for World View. The opinions expressed are his own.)
To read more from World View, Bloomberg View's emerging markets blog, click here.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
To contact the author of this story:
Dominic Phillips at DOMINIC.PHILLIPS@BNPPARIBAS.COM
To contact the editor responsible for this story:
Timothy Lavin at firstname.lastname@example.org