Brazil's President Moves Ahead With Privatization Push

By Paulo Trevisani Features Dow Jones Newswires

BRASÍLIA -- Brazilian President Michel Temer, who has avoided a trial over corruption charges, is using the reprieve to push ambitious privatization plans to rekindle economic growth and lower government spending.

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In a three-day span this week, Mr. Temer has opened an area larger than the state of Maryland in the Amazon rain forest to mining and launched discussions to privatize the country's largest power company and an additional 56 assets held by the state.

The government is struggling to narrow a budget gap that equals close to 10% of the country's output, hampering Brasilia's ability to jump-start an economy that contracted for the past two years and is forecast to grow just 0.3% in 2017. The unemployment rate, meanwhile, has risen to 13%.

The recent privatization push is raising hopes that Mr. Temer's market-oriented economic agenda will plow forward.

"Previous administrations wanted to privatize but faced resistance from lawmakers in their own parties," said Jason Vieira, an economist from Infinity Asset, an investment firm in São Paulo. "This administration is different."

After taking office last year following the impeachment of leftist President Dilma Rousseff, Mr. Temer pledged to overhaul the country's economy, cut red tape and balance public finances. But a graft scandal that erupted in May, when a leading businessman accused Mr. Temer of taking bribes, forced the president to focus on keeping his base in Congress together to ensure political survival. He denied wrongdoing.

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Early this month, Mr. Temer fended off corruption charges against him in a landmark congressional vote. His administration is now moving forward again with plans to overhaul the economy.

Local markets rallied on the privatization news. The Brazilian real appreciated against the dollar, and the benchmark Ibovespa stock market is approaching an all-time high.

On Monday, the government said it plans to substantially reduce its stake in Centrais Elétricas do Brasil SA, one of Latin America's largest power utilities. Details of the privatization are to be released next week, according to senior government officials.

"Any signs of privatization ends up bringing euphory to the markets," said Pedro Coelho Afonso, head of trading at brokerage Gradual Investimentos. "The state-controlled firms are used by politicians to employ their protégés."

On Wednesday, the administration announced plans to grant licenses for the development of oil and gas fields, and sell airports in Brazil's agricultural hinterlands, the busy and outdated Congonhas airport in São Paulo, the National Lottery, seaports, highways, power plants and the national mint.

Although the time frame for most of these sales isn't set, the government said it is hoping to raise some $14 billion as the global economy picks up steam.

"The world has liquidity, that's why we are privatizing," said an official close to Mr. Temer.

But perhaps the most controversial move is the administration's plan to open the National Copper Reserve, a 47,000-square kilometers chunk of the Amazon believed to hold large deposits of copper and other minerals. It is also home to vast environmental reserves and indigenous land.

The administration says mining will only be allowed outside protected areas and will be bound to environmental regulations.

"The goal is to attract new investment and generate wealth, jobs and income," the Mines and Energy Ministry said.

But environmental groups and opposition parties are voicing concerns. Sen. Randolfe Rodrigues from the Sustainability Network opposition party said that mining in the region will threaten the environment and indigenous tribes.

"Never before has an administration staged so big an attack against the Amazon forest," Mr. Rodrigues said. He filed a bill to revert Mr. Temer's decree and said that he will fight the initiative in Brazil's Supreme Court.

Write to Paulo Trevisani at paulo.trevisani@wsj.com

(END) Dow Jones Newswires

August 25, 2017 05:44 ET (09:44 GMT)