privatization, regulation and income distribution in brazil

Privatization, regulation and income distributionin Brazil1

Werner Baera,b,*, Donald V. Coesa,b

aUniversity of Illinois, Urbana, IL 61801, USAbUniversity of New Mexico, USA

1. Introduction

Deep inequality in the distribution of income and wealth has been surprisingly persistentthroughout Brazil’s five centuries of history. Whether the state’s presence in the economywas pronounced or minimal, its rulers, military or civilian, its economy relatively open orclosed to foreign trade and investment, the degree of inequality has hardly changed. Manyarguments have been made for this persistence, among them the political power of elites, thelow levels of investment in education, and economic dependency.2

The economic turmoil of the 1980s included the debt crisis early in the decade, price increasesverging on hyperinflation, a series of failed stabilization plans, and the fiscal exhaustion of thestate. The stage was thus set in the 1990s for a profound rethinking about the way in which Brazilshould run its economic affairs. This was reinforced by events outside Brazil, among them themuch publicized privatization programs of the U.K and Chile and the disintegration of thesocialist economic systems of the U.S.S.R. and Eastern Europe. One of the consequences of thissea change in thinking was much more support for market-oriented policies. Prominent amongthese policies was the privatization of state-owned enterprises.

Our purpose in this paper is to examine the potential impacts of this policy change oneconomic equity. Concern with equity was rarely the focus of the reforms of the past decade,which were largely driven by fiscal exhaustion and were justified as a way of improvingeconomic efficiency. As important as efficiency and fiscal balance may be, however, we mustalso ask how privatization might affect the depth and persistence of economic inequality inBrazil. The potential links between privatization and equity are complex and ambiguous, but

* Corresponding author. Tel.:�1-217-333-8388; fax:�1-217-244-6678.E-mail address: [email protected] (W. Baer).

The Quarterly Review of Economics and Finance 41 (2001) 609–620

1062-9769/01/$ – see front matter © 2001 Board of Trustees of the University of Illinois. All rights reserved.PII: S1062-9769(01)00094-1

there is already enough information to venture some preliminary hypotheses about Brazil’swinners and losers in the privatization process.

2. Brazil’s heritage of inequality: a brief overview

The Portuguese settlement of Brazil was based on the concession of immense tracts ofland, or donatarios, to a small group of favorites of the crown. This set a tone that has lasteduntil modern times, in which the state was regarded as the ultimate source of wealth.Although most evident in the sugar producing regions of Brazil’s Northeast in the sixteenthand seventeenth centuries, concentrations of wealth continued during subsequent economiccycles. These cycles, although more open to entry than was the case with sugar, alsoproduced marked concentrations of wealth. The eighteenth century mining boom that wascentered in the modern state of Minas Gerais, and the nineteenth and early twentieth centurycoffee cycles, first in Rio de Janeiro, and later in the state of Sao Paulo, both reinforcedinequality in the distribution of property.3 Over most of its history, Brazil’s economic cycleswere essentially export oriented, and in contrast to the northern U.S., did much less todevelop domestic markets supplied by small independent farmers.

Coffee production, although open to small holders, was more profitable for those planterswith access to adequate transportation and an organized labor supply. It was the government,especially in the state of Sao Paulo, that provided for these needs by arranging for low costimmigrant labor and by granting concessions and subsidies for the building of railroads andother infrastructure that served the coffee sector. The influence of the planters in the first halfof the twentieth century was such that economic policy gave priority to sustaining the marketfor coffee exports.4

With the collapse of this external market in the Great Depression, state policy maintainedthe wealth of these groups through price supports5 and opened the way to new concentrationsof wealth and income in the post-World War II period through deliberate import substitutionindustrialization (ISI). These policies, which relied heavily on trade protection, subsidizedcredit, and other forms of government intervention in markets produced whole new sectorswhich were characterized by marked concentrations of ownership. Among other exampleswere cement, paper, chemicals, and other industrial products.

Not only did the state favor the growth of new concentrations of wealth in the emergingprotected private industrial sectors, but it too became a large direct player in the economy.This trend, which began with state development of a modern steel industry during World WarII, accelerated when most public utilities were taken over by the state in the first two decadesafter the war. These public utilities included railroads, power generation and distribution, andtelecommunications. In addition, for strategic and nationalistic reasons, Brazil restricted theexploitation of natural resources such as petroleum and other minerals through the estab-lishment of state monopolies, such as PETROBRAS in the oil sector, or the Companhia doVale do Rio Doce in iron ore. State involvement in the financial sector was also pervasive.The federally owned Banco do Brasil, the Banco Nacional de Desenvolvimento Economico,the Caixa Economica Federal, as well as many state and regional banks resulted in a financial

610 W. Baer, D.V. Coes / The Quarterly Review of Economics and Finance 41 (2001) 609–620

system that often favored those with influence and political connections, rather than solideconomic prospects.6

This pattern of economic development raises several interesting questions, little discussedat the time. First, few asked whom the state represented as a large direct player in theeconomy. Although formally owned in the name of all Brazilians, in reality many of the stateenterprises operated as providers of subsidized inputs for large domestic and multinationalenterprises. The employees of many state firms, moreover, became a privileged caste withinthe Brazilian labor force. A good example is provided by PETROBRAS, which was bornduring the second Vargas government on a populist wave characterized by the slogan “opetroleo e nosso. ” Over the succeeding decades it became increasingly obvious that the mainbeneficiaries of this state company were its managers and employees, most of them remu-nerated at levels substantially higher than Brazilians of similar skills.7

Second, few asked what these enterprises were worth and to whom they belonged. Thislarge concentration of wealth, in principle the property of all, might have been viewed by someBrazilians as a counterweight to the concentration of private wealth. Indeed, much populistsupport for state ownership may have rested on this view. In retrospect, however, this view mayhave been naıve, since most of the state enterprises were controlled by a small group of politiciansand state managers, with little accountability to the population as a whole.

Finally, a question that only becomes clear in the context of contemporary privatization,is whether the sale of enterprises organized and operated in this way would change Brazil’straditional concentration of wealth and income. It is to this issue to which we turn in thesucceeding sections.

3. Brazilian privatizations in the 1990s: trends and an interpretation

In contrast to the privatization experience of a number of countries, especially in Europe andthe former communist bloc, Brazilian privatization was less the result of a change in ideology orpolitical fashion than it was of fiscal necessity. Privatization began timidly in the 1980s, when theSpecial Secretariat for the Control of State Enterprises (SEST) conducted a census of federalpublic institutions, identifying 268 of them as “federal state enterprises.” The secretariat classified140 of them as enterprises that could be privatized in the short run, and listed 50 of them for sale.8

The primary motivation for these projected sales was to limit the expansion of state-ownedenterprises, and the accompanying fiscal pressures which they generated. This policy wasreinforced by multilateral organizations such as the IMF and World Bank, with whom Brazil wasin continuing negotiations following the external debt crisis of the early 1980s.

Privatization was increasingly seen as contributing to fiscal adjustment in two ways. First,the proceeds of the sale of state enterprises could in principle make an immediate contri-bution to the reduction Brazil’s large public debt, whose servicing costs had skyrocketed inthe 1980s. Second, by removing deficit-ridden enterprises from the public sector, theprospects for attaining future fiscal balance were enhanced.

Although some privatization continued during the second half of the 1980s, during theSarney administration (1985–90), its pace was slow and only 18 companies were sold. Totalrevenues from these sales were only US$ 533 million, a tiny fraction of the state’s total

611W. Baer, D.V. Coes / The Quarterly Review of Economics and Finance 41 (2001) 609–620

patrimony.9 Macroeconomic deterioration during the Sarney government, however, set thestage for subsequent privatizations, as the fiscal situation continued to worsen and inflationreached four-digit levels by the end of the 1980s.

The new Collor administration (1990–92) stepped up the pace of privatization, sending abill to Congress which established the National Privatization Program (PND) in 1990.Despite ambitious plans, however, no firms were actually privatized in 1990, due in part tojudicial delays and the parlous financial conditions of many of the enterprises slated for sale.The first significant privatization occurred in late 1991, with the sale of USIMINAS, a largefederally owned steel enterprise, for US$ 1.9 billion, a price 14.4% above the government’sasking price. During the rest of the Collor administration, and that of the succeeding Francogovernment (1992–94), the major privatization efforts were concentrated in the steel andpetrochemical sectors. Between the USIMINAS sale and the end of the Franco government,twenty federally owned firms were sold, netting a total of 7.8 billion dollars. Buyers of thesefirms were overwhelmingly domestic private groups, with foreign participation only about6% of the receipts.

Under the government of Fernando Henrique Cardoso (1995 to date), a number ofinstitutional changes were made which permitted a widening and deepening of the privat-ization process by inclusion of public utilities.10 In 1995 constitutional amendments endedpublic monopolies in telecommunications, gas distribution and the oil sector. At the sametime, other amendments ended the distinction between Brazilian companies owned bydomestic residents and those controlled by foreign capital, paving the way for privatizationin the mining and electricity generation sectors. In addition, privatization was extended underthe Cardoso government to state and municipal governments. This extension was significantfrom a fiscal point of view, since nonfederal public enterprises were significant contributorsto the public sector deficit.

The macroeconomic success of the Cardoso administration’s stabilization program, thePlano Real, contributed to the privatization program by increasing foreign interest. Althoughforeign participation in Brazil’s privatization program was limited before 1995, it grewsubstantially in the second half of the decade. This was in part the result of legislation thatpermitted foreign groups to participate in the operation of public utilities and in naturalresource exploitation. Thus, for example, one finds that privatization through concessions inthe telecommunications sector were won by foreign groups in the firms of Telesp (70.6%Spain, 23% Portugal); Embratel (100% United States), Tele Norte Leste (50.6% U.S., 34.4%Canada, 12.5% Argentina) and many others, while in the electricity distribution sector theconcession consortium that won the Light company bid in Rio de Janeiro consisted of 40.6%of a U.S. firm, 20.3% a French firm and the rest was in the hands of Brazilian groups.11 Ithas been estimated that of the US$ 96.6 billion privatizations which occurred between 1991and October 2000, the share of foreign firms amounted to 45%.12

Some of the success of the privatization program was explained by the increased facilityin establishing the value of public enterprises as the rate of inflation declined sharply.Privatization, in turn, contributed to the success of the Plano Real, both by reducing thecurrent fiscal deficit through the proceeds of sales of state firms, and by eliminating a numberof loss-making firms from the public sector’s accounts.13

By the end of the 1990s privatization had extended to all of the sectors of the economy


in which the state had previously been active. The largest sector for privatization was thetelecommunications industry, most of which was auctioned in July 1998. Table 1 shows thebreakdown of Brazilian privatizations in the 1990s by sector. It may be noted that thetelecommunication proceeds accounted for more than half the federal revenues or over athird of all privatization revenues. State government privatizations, which became significantduring the Cardoso government, were dominated by sales of state-owned electric powercompanies, which accounted for over two thirds of the value of state level privatizations.

The relatively small amount of revenues received from privatization of the railroads andother transportation infrastructure (included in “Other” in Table 1) reflects the fact that in thiscase, the government’s priority was not to maximize revenues from sales but rather toincrease capacity in this sector. The decline in public spending in this sector in the precedingdecade, and the continuing inability of the government to finance the necessary investmentmade privatization the only alternative.

4. The wealth distribution effect of privatization

In the analysis of economic distribution issues, it is useful to distinguish between policyeffects on wealth (stocks) and on income (flows). Although often closely related, theseeffects may sometimes diverge significantly.14 In the context of privatization, wealth effectsare alterations in the ownership of the country’s economic assets. This is a once-and-for-allchange, occurring at the time of privatization. Income distribution effects, on the other hand,are the continuing consequences of privatization on the real earnings and income of variousgroups in the society, among them the new owners, workers, and consumers of the productof the privatized firms. In this section, we consider the wealth distribution effects ofprivatization. We address income distribution effects in the following section.

The distribution of corporate wealth in Brazil has been divided traditionally into the tripe

Table 1Total privatizations by sector, 1990–2000

Sector Number ofCompanies

Revenue Received(millions of dollars)

Revenue(percent of total)

Steel 8 5,562 8.0Petrochemicals 27 2,698 3.9Railroads 7 1,698 2.5Mining 2 3,305 4.8Telecommunications 24 26,644 38.6Electric Power 3 3,907 5.7Others 18 1,471 2.1Sales of minority positions — 1,040 1.5TOTAL Federal 89 46,325 67.1State government

Privatizations28 22,736 32.9

GRAND TOTAL 117 69,061 100.0

Data through January 2000. Source: BNDES: www.bndes.gov.br/pndnew


(tripod) of state-owned, private domestic, and foreign enterprises.15 Well before the majorprivatizations of the 1990s, many sectors of Brazilian industry were dominated by a smallnumber of either private domestic firms or foreign firms. This was the case, for example, inthe automobile industry, where the top four firms accounted for 94% of net receipts of thatsector in 1998. In the same year the top seven firms in the cement industry accounted for 60%of net receipts. In heavy construction, motors and components, electric appliances, and steelthe top eight, four, four, and seven firms accounted for 67%, 64%, 75%, and 82% of netreceipts in their respective industries.16

Since the privatization program of the 1990s was largely driven by the government’s needto maximize its revenues from the sale of state-owned enterprises to the highest bidders, itis not surprising that most of these bidders were either foreign enterprises or the largestdomestic private firms. This suggests that the Brazilian privatization approach of selling tothe highest bidder to relieve the fiscal stress on the public sector may have had either anegligible or even negative impact upon the distribution of wealth in Brazil. Had theprivatization policy attempted to divide the value of the formerly state-owned firms amongBrazilian citizens or taxpayers, it is possible that the effects of privatization on the distri-bution of wealth might have had more positive effects. Even though some provision wasmade for workers and their pensions to share in the privatization process, this share wasrelatively modest. Through December 1997, only 7.5% of the shares of the privatized firmswere held by employees and their pension funds.17

This trend may have been reinforced, moreover, by the parallel trend in major mergers andacquisitions throughout the 1990s, which rose from 58 in 1992 to 212 in 1995 and 351 in1998.18 Some of these mergers were motivated in part by the need for private domestic firmsto form strategic alliances large enough to make successful bids for enterprises that werebeing privatized. An example was the association among the Grupo Votorantim, Brazil’smajor cement producer, the large construction firm Camargo Correia, and Brazil’s largestprivate domestic bank, Bradesco, to participate in the privatizations in the energy sector.19

Some insight into the possible effects of privatization on the distribution of corporate holdingsand organization during the 1990s is provided by Table 2, which shows changes in the ownership

Table 2Distribution of 100 largest firms and their revenues by property characteristics

1990 1998

Number ofFirms

Share of TotalRevenues(percent)

Number ofFirms

Share of TotalRevenues(percent)

Private—Lower concentration 1 1 4 3Private—Medium concentration 5 4 23 19Private—High concentration 27 23 26 17Public 38 44 12 21Foreign 27 26 34 40Cooperatives 2 2 1 0TOTAL 100 100 100 100

Source: Siffert Filho and Souza e Silva, 1999, p. 402.


of Brazil’s one hundred largest nonfinancial firms between 1990 and 1998. It classifies privatedomestic Brazilian firms into three subcategories, corresponding to the degree of concentration ofownership. It should be noted that even the “ lower concentration” fi rms shown in Table 2included many which would not be considered “widely held” in the North American sense. Eventhough no one individual or family had more than 20% of the voting shares of the firms in thissubcategory, a small number of owners could easily dominate the firm.

Several trends are evident in the data of Table 2. Privatization had little or no impact oneither cooperatives or on the least concentrated of Brazil’s top hundred private firms, whosecombined share of revenues (3% of the total) remained unchanged. The major beneficiariesof the decline in the relative importance of the public enterprises over the 1990–98 periodwere either foreign owners or those domestic private Brazilian firms in which one individualor family owned at least 20% of the voting shares.20

Some specific cases illustrate well the dominance of large domestic firms and foreignbuyers in the privatization process. In the case of the steel firms COSINOR and Piratini, 99.8and 89.8% of the shares respectively were acquired by the private Gerdau steel group.21 Inthe sale of the larger Companhia Siderurgica de Tubarao steel company, 45.4% of the shareswere acquired by the private financial groups of Bozano Simonsen and Unibanco. In othersectors, such as telecommunications, alliances between private Brazilian groups (ConstruturaAndrade Gutierrez, Bradesco, Globopar, Banco Opportunity) and foreign purchasers (Tele-com de Portugal, Banco Bilbao Vizcaya, Stet International, Iberdrola) were important22. Inthe electric power sector, Brazilian firms allied themselves with foreign enterprises from theU.S., Chile, France, Spain, and Portugal.23

5. The income distribution effect of privatization

Whatever the initial motivations for the establishment of Brazil’s network of state enterprises,by the 1960s they had become a significant source of employment, both in terms of numbers andsalaries. The social and political pressures generated by rapid labor force growth and a high levelof rural migration to Brazil’s cities contributed to the willingness of successive governments toabsorb labor in the public sector in excess of real needs. The gradual recognition of significantoverstaffing in many of the state enterprises was in fact one of the motivations for the establish-ment of the Special Secretariat for the Control of State Enterprises (SEST) in 1979.

Privatization reversed this trend in public sector employment. In a number of cases, evenbefore firms selected for privatization were put on the auction block, they were “ fattened up”to make them more attractive to potential buyers by eliminating excess employment. In theFederal Railroad System (RFFSA), about half the 40,000 person labor force was let go evenbefore actual privatization. And once in charge, private operators of the railroads furtherreduced the labor force to about 11,500 employees, while actually increasing the level ofservices. In the major public ports, the number of workers employed was reduced from26,400 in 1995 to about 5,000 in 1997, with further reductions projected to bring labor forcedown to 2,500 workers.24 Substantial reduction in the work force also took place in the steelsector after privatization. The number of employees in the Companhia Siderurgica Nacionalfell from 24,463 in 1989 to 9,829 in 1998; in Cosipa from 14,445 to 6,983; and in Usiminasfrom 14,600 to 8,338.25


Foguel, Gill, Mendonca, and Paes de Barros (2000) show, based on data from the 1995 PNAD,that even when age, education, years on the job, and other factors are taken into consideration,public sector wages in Brazil exceed those for similar employees in the private sector. The wagegap is particularly high for federal employees. Their findings suggest that the privatizationprograms of the 1990s, especially those involving former federal public enterprises, may haveproduced declines in the incomes of former federal employees in the privatized firms.

Analysis of the income distribution effects of the reduction in employment that resultedfrom privatization is complex, even when the economic efficiency arguments for eliminatingoverstaffing are straightforward. Had the income gains resulting from greater economicefficiency been distributed to Brazil’s poorest, then privatization would have made anunambiguously positive contribution to equity as well as to efficiency. There is little or nocredible evidence, however, that the efficiency gains were in fact distributed in this manner.What scanty evidence that does exist, notably the substantial increase in the profits of therecently privatized firms, suggests that much of the income gain from increased efficiencywas captured by the new owners. Thus in both 1997 and 1998 the magazine Exame listedfour privatized firms among the 20 top profit making firms of the country (Vale do Rio Doce,Usiminas, CSN and Light). A decade earlier some of these firms, especially CSN and Valedo Rio Doce had been on the list of the biggest loss making firms. A significant share of theseprofits, moreover, accrued to foreign purchasers of the privatized firms. Some of the sharpincrease in remittances of profits and dividends in Brazil’s balance of payments, which rosefrom US$1.6 billion in 1990 to $2.5 billion in 1994 and $7.2 billion in 1998, may reflect inpart the profits realized by foreign firms that participated in the privatization process.

The other major link between privatization and income distribution runs through theregulatory system and its resulting impact on prices. As noted in Section III, a large part ofthe privatization process centered on public utilities, notably telecommunications, electricpower generation, highways and railroads, and ports. An essential element in the privatiza-tion process was the restructuring of the regulatory system so as to attract private operatorswho would adequately maintain and expand the services of public utilities.

This raises the classic question in public utility regulation as to what tariff rates cangenerate adequate funds for maintenance and expansion and an attractive enough return forprivate investors, while not burdening excessively the consumers. The government had usedmany state-owned public utilities in Brazil at least since the 1960s as weapons in the fightagainst inflation. This was done through the regulation of their prices, which were forced tolag substantially behind the increase in the general price level, with consequent reductions inmaintenance and new investment. By the mid-1980s, the fall in public investment hadresulted in serious deficiencies in the capital stock of a number of public utilities, includingrailroads, ports, and electric power generation.26

Privatization forced a drastic revision of public utility rates. In telecommunications, forexample, tariffs were raised dramatically in 1995, well before the actual auctioning of theTelebras system. Residential subscriptions were raised by a factor of five, with the cost oflocal calls rising by 80%. The maintenance of these rates facilitated the privatization of thesystem in July 1998.27

A similar catch-up pattern may be observed in the electric power sector, in which rates hadlagged behind overall inflation through 1993. In the following years, with successive privatiza-


tions of the power companies, electricity tariffs moved up considerably faster than most otherprices. The Estado de Sao Paulo reported, for example, that the price index used to adjustelectricity prices increased twice as fast in 1999 as did the index used for wage adjustment.28

The evidence available to date suggests that the regulatory climate in Brazil movedsubstantially in favor of the new private owners of public utilities. From an incomedistribution point of view, one must conclude that these regulatory changes shifted incometo the new private concession holders from a much larger group of consumers. In the city ofRio de Janeiro, for example, while the Consumer Price Index rose by 189.7% betweenAugust 1994 and February 2000, the price index for public services rose by 264.7%.29

One of the most frequently mentioned arguments for privatization is that private firms arebetter positioned to make gains in efficiency than is the public sector. In principle, in acompetitive market system such efficiency gains should result in a fall in the relative priceof the outputs of those sectors in which these gains are greatest. It appears indisputable thatthe hoped-for gains in some of Brazil’s public service sectors were in fact well above averageproductivity gains for the economy as a whole. Labor productivity for Brazil as a wholeincreased at annual rate of 3.9% between 1994 and 1997, while labor productivity in publicutilities increased at annual rate of 16.3% in the same period.30

When we compare this evident fall in costs implied by the increase in labor productivityin many of the newly privatized public utilities with their success in raising relative outputprices, it is apparent that the Brazilian regulatory process heavily favored producers and notconsumers. The case of electricity is illustrative in this respect. The first concession contract,that of ESCELSA (the power generation and distribution company in the state of EspıritoSanto), did not make clear the parameters to be used in readjusting tariffs and made nomention of the distribution of the gains from productivity improvements. These uncertaintieswere reduced in subsequent concessions, but almost entirely in favor of the concessionaires.In the case of Rio’s Light and later electricity privatizations, the gains from productivity wereexplicitly allowed to be retained by the concessionaire for a period of eight years before anyrenegotiation. Tariff adjustments, on the other hand, were allowed annually and were to belinked to the increase in the general price level.31

One cannot ignore the potential political and social consequences of this recent pattern ofdevelopment. A good example is provided by the 1999 confrontation between the operators of thehighway concession and Brazil’s truckers. The concession contracts had allowed operators tocharge high tolls to finance maintenance and expansion. The truckers claimed that these tolls wereexcessive, and that they threatened their livelihood. After a brief strike, in which the federalgovernment even threatened possible military intervention, tolls were lowered substantially. Thisin turn led to court actions by the concession holders, who claimed contract violation. Thisexample clearly shows the potentially divisive effects of a policy focus on efficiency, whichimplicitly assumes that distribution effects can be ignored.

6. Conclusion

We began our examination of privatization and economic equity with the observation thatinequality in the distribution of income and wealth in Brazil has been discouragingly tenaciousfrom colonial times to the present. The existing evidence suggests that the privatization program


of the 1990s, whose merits in terms of economic efficiency were undeniable, contributed little tochange this distributional pattern, and may even have worsened it.

As many economists have noted, the missing link between a more efficient economy anda more equitable distribution of income and wealth in Brazil during the 21st century may befound in human capital. As Brazil’s economy follows the pattern of more advanced industrialeconomies, the employment needs of its agricultural and industrial sectors will continuallydecline, while demand for skilled service jobs will rise. More equity will thus be attained bysubstantially increasing resources going to education and dramatically broadening the edu-cational opportunities of the lower income groups. In other words, the future distribution ofincome will be based increasingly on the distribution of human capital.

Notes

1. This paper represents part of the work which Werner Baer undertook while spendinga month in Brazil under the Hewlett/Illinois Program. Both Baer and Coes wouldlike to thank IBMEC/Rio de Janeiro for providing a research home.

2. Baer and Maloney (1997) examine the persistence of inequality for a number ofLatin American countries. Quantitative information about Brazil’s income distribu-tion before the 1960s is sketchy, due in part to the neglect of this issue by successivegenerations of policymakers and economists. Since the 1970s, however, annual dataobtained from the PNAD (Annual Household Sample Survey) permit us to accom-pany trends in inequality as measured by the Gini coefficient. Despite profoundchanges in the structure of the Brazilian economy and sharp swings in economicpolicies over the past three decades, the Gini coefficient remained remarkably stable.A series of Gini coefficient obtained from IBGE’s PNAD surveys showed thefollowing:

3. Furtado (1959).4. Furtado (1959) and Holloway (1975).5. Furtado (1959), chs. 30 and 31; Baer (1995), ch. 3.6. Baer (1995), ch. 11.

1976 1985 1990 1993 1997

EconomicallyActivePopulation: 0.603 0.595 0.605 0.801 0.583All sources of incomeActive AgeGroup: AllSources of 0.609 0.604 0.618 0.600 0.587IncomePer Capita: 0.616 0.590 0.607 0.599 0.595all sources of income

Source: Neri and Camargo (2000), p. 298.


7. A study by an IPEA group shows that wages in Brazil’s public sector, including stateenterprises, were substantially higher than in the private sector. See: Foguel (2000).

8. Castelar Pinheiro and Giambiagi (1999), pp. 10–11.9. ibid, p 11.

10. The February 1995 Concessions Law altered the rules governing public services,among them rate setting, bidding rules, penalties, and other regulatory features ofconcessions.

11. BNDES/Finame-BNDESPAR (2000).12. Information obtained directly from the BNDES.13. Castelar Pinheiro and Giambiagi (1999) estimate that the proceeds of privatization

sales in 1997 reduced the public sector deficit as a percentage of GDP by more than2%. (ibid, pp. 19–20)

14. In theory, a complete set of perfectly functioning capital markets would permit allincome flows to be translated into equivalent stocks of wealth. For all its theoreticalappeal, such an assumption is totally at odds with the realities of an actual economylike Brazil.

15. Baer (1995), ch. 11; Evans (1979).16. Calculated from data in Gazeta Mercantil, Balanco Annual 1999.17. de Mello Jr. (2000), p. 85.18. Siffert Filho and Souza e Silva (1999), p. 383.19. Ibid, p. 385.20. One interesting example is provided by the privatization of the Companhia Siderur-

gica Nacional (CSN) in 1993, in which the successful bid was put together by themedium-sized Grupo Vicunha, which had previously been active primarily in thetextile sector. It forged an alliance with a number of domestic banks, pension funds,and several foreign investors.

21. Biondi (1999), pp. 42–47, provides an extensive list the ownership structure of firmsbefore and after privatization, based on BNDES data.

22. Siffert Filho and Souza e Silva, op. cit., p. 392.23. Leal Ferreira (1999), p. 154.24. See de Castro (1999), pp. 176–77.25. These number come from the magazine Exame, which has a yearly edition dedicated

to “Melhores e Maiores.”26. See Coes (1995), Werneck (1987) or Baer and McDonald (1998) for a discussion of

the fall in public enterprise investment.27. Novaes (1999), p. 111.28. Estado de Sao Paulo, 3 January 2000 (www.estado.com) This was due to the fact that

the index used to adjust rates was the General Price Index–Internal Supply (IGP-DI),which increased by 20% in 1999. Wage adjustments, however, were based on theConsumer Price Index (IPC), which increased by only 7% in 1999.

29. Conjuntura Economica, January 2000, p. xxxiv.30. IBGE, Anuario Estatıstico do Brasil 1998, Tabela 7.61.31. Leal Ferreira (2000), p. 205–06.


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privatization, regulation and income distribution in brazil

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