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Brazil:

New Reform Agenda


Mauricio Font
Director, Bildner Center for Western Hemisphere Studies
The Graduate Center, City University of New York
www.bildner.org

Context: Reform Process since 1990s

Macroeconomic stability, structural reform


Liberalized economy and competitive market
Relative opening of the economy
Privatization Concessions PPPs (special
concessions)
Political and institutional stability
Growth, lower country risk

2014 Debate on Reforms

Political reform (David)


Corruption
Economic growth
Infrastructure
Private sector investment

Brazils GDP % Growth


20

15

10

-5

-10

Consequences of
Corruption.

Indicators: Transparency International


(Corruption Perceptions Index); World
Bank (Index of Corruption)

Sources: The Good, the Bad and the Ugly:

Controlling Corruption in the European Union.


ERCAS Working Paper # 35, 2013.
Mauro, P. 2004. The Persistence of Corruption
and Slow Economic Growth, IMF Staff Papers 51.
Johnson, N. et al. 2011. Corruption is Bad for
Growth (even in the United States), Public Choice
147.
You, J.S. and S. Kahagram. 2005. A Comparative

Consequences of Corruption

Decreases growth, investment


Creates inefficient monopolies (less
competition and higher prices)
Reduces quality of governance and
institutions
Distorts expenditures:

Reduces tax collection

Decreases health care, education and social protection


Increases defense, fuel, energy, construction, culture
(easier)

Increases brain drain (talented people


leave)

Transportation
Brazil Soy Production 19802014
Brazil Soy Production
(Million Tons)

100
90
80
70
60
50
40
30
20
10
0

1980

1985

1991

1996

2006

2007

2011

2012

2013

2014

Soy Frontier and Center-West


Region (Cerrado)
10
9

Mato Grosso

Gois

7
6
5
Million Hectares
4
3
2
1

Soy Production 2012

Soy Production, Municipal


Level
Top 10 Municipal Production
1

Sorriso - MT

1.961.880

Sapezal - MT

1.130.326

Nova Mutum - MT

1.107.481

Campo Novo do Parecis - MT

1.063.800

Formosa do Rio Preto - BA

1.012.879

Rio Verde - GO

Nova Ubirat - MT

890.988

Querncia - MT

882.126

Diamantino - MT

873.6

10

Jata - GO

863.1

907.5

Regional Soybean Production


Million Tonnes
45
40

2007

2008

2009

35

2010

2011

2012

30

2013

25
20
15
10
5
North (Amazon)

Northeast

Southeast

South

Central-West

The Cerrado Frontier and


Transportation

Over 2 million km
Embrapa and soybean

Soy production already a vital sector.


Major stress on transportation/distribution
system.

Land-Clearing and soybean production will continue to


grow at a fast rate due to comparative advantages
(cost of production).

High transportation and shipping costs.


Infrastructure as public policy priority to Brazils
development and modernization.

But government lacks the $, political- institutional


context, and organizational capacity to do it
alone.

Infrastructure Gap
- Transportation is 30% of final price of agricultural
commodities.
- Total investment needs: R$ 400 billion (BNDES)

Transportation

Poor road and railroad conditions


Railroad bottlenecks around urban centers (Sao
Paulo)
Tracks of different sizes

Port

Backups and congestion -- delays


Often obsolete facilities

(Istoe online 10/25/2006)

Railroad Projects

Background: Railroad policy a federal


matter (long-term context of
nationalization, followed by privatization
via concession in 1990s)
North-South railway
(from PPP to regular concession; government priority)

Ferronorte (extension of Sao Paulo rail


system toward Mato Grosso. Role of ALL
Ferroanel (metro Sao Paulo bypass)

Concessions in Brazil

Democracy and state reform, 1985

Privatization became a key element of state


reform followed by the use of regular
concessions to finance infrastructure
development, recovering costs largely via
user fees. Major infrastructure needs and
limited public budget.

PPP a further step in Public-Private


Collaboration

Idea from FHC government (Planning) but


next government began implementation.

Public Private Investment in Infrastructure


in Brazil, 1990-2010

140000
120000
100000
80000
Total60000
Investment (US$ millions)
40000
20000
0

Public-Private Investment in
Infrastructure in Brazil, 1990-2010

Telecom Privatization

30000
25000

Energy

120000

20000

Transpo
rt

100000

15000
Total Investment (US$ million)
10000
5000

80000
60000
40000
20000

0
1996 1997 1998 1999 2001 2002 2003

The PPP Phenomenon in


Brazil

Congressional debate during 2002-2004,


leading up to Law 11,079 of December 2004.
Ambitious plans and adoption of PPP programs
by states, but 2005-06 delay
Why PPPs? Significance.
Are PPPs viable in terms of support from
politicians and public?

Attracting Investment

Govt. guarantees minimum income


Govt. compensates if exchange is too low
Main risks that threaten the success of
partnerships:

Poor institutional framework and governance


Inadequate legal structure
Lack of political support

Brazils Railroads and PIL

Railroads Under
Construction

Under
Under

Construction
Construction

Under Construction and PIL

Under Construction
PIL

PIL and PIL Phase 1

Under Construction
PIL
PIL fase 1

North-South Railroad

From PPP to
concessao comum.
Much of total grain
production in MT and
MS in the area
influenced by N-S
Railroad.
Compare to
Ferronorte.
Problems: Delays,
Corruption ..

2010: Faxina nos


Transportes

Estimated cost of corruption scandal


totals $ 682 million reais.
27 senior officials fired

11 Ministerio dos Transportes (including the


Minister and other high-level personnel)
3 Valec (including Director and others)
13 DNIT

Ferronorte

Ferroanel

Cargo and passenger


trains share tracks
running through
RMSP. Access to
Santos.
Frequent delays (24
90-minute episodes
per month. Slowmoving freight vs.
faster passenger
trains).
Operators (CPTM and
MRS/ALL) expected to
grow substantially:
CPTM aims at 3
million passenger and
reduce interval from 7

State Programs: Legislation

BahiaLaw 9.290 of December 2004.


CearLaw 13.557 of December 2004.
Pernambuco Law 11.079 of December 2004
GoisLaw 14.910 of August 2004.
Minas GeraisLaw 14.868 of December 2003.
Law 14.869 of December 2003.
Decree 43.702 of December 2003.
Rio Grande do SulLaw 12.234 of January 2005.
Santa CatarinaLaw 12.930 of February 2004.
So PauloLaw 11.688 of May 2004.

Liberalizing Reforms in Sao Paulo

Mario Covas, 1995-1999

Programa Estadual de Desestatizacao (PED)


Privatization

(telecom, banespa, others) yielding


R$32.9 billion by 2000

Public sector modernization/ anti-corruption


Public-Private investment in Brazil, 1990-2013 (US$)
19901995

Sao Paulo
Rio de
Janeiro

19962000

20012005

20062010

20112013

393

36,344

9,755

33,428

34,721

1,002

8,058

3,220

6,808

12,541

Sao Paulos PPP Projects


1. Subway: Line 4 (Linha Amarela), other
2. No takeo-off: Airport Express (fast train, up to
100 km/hour, linking SP to Guarulhos
International in 20 minutes) (US$572 million);
Expresso Bandeirantes (fast train linking Sao
Paulo-Campinas in 50 minutes. 93 km, US1.2
billion.
5. Others: sports arena.

Evaluation

Considerable new infrastructure already in place


and acceptance high; momentum but
Challenges: institutional, political, legal; Limited
federal-local partnership;
Doubts about big government administration (did
not do well in past; corruption)
Consensus on existing plans? (Sustainable?
Priorities?)
Delays due to inadequate studies (environment,
demand, engineering, financial ...)
Impact on port access and capacity
Role of BNDES

Reforms

Institutional backbone (trained


personnel, transparency, accountability)
Needed: Less politics and more efficient
civil service
Private sector participation?
Collaboration with subnational
governments

Much remains to be done

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