Economic reforms – reduction in public debt

The privatization and economic liberalization programme, a key element of the Brazilian Government´s economic strategy, continues to gather pace in Brazil.

Following the recent decision by President Fernando Henrique Cardoso to utilise the receipts from the privatisation programme to reduce the Brazilian public debt, economists are predicting a fall in the same over 1997 and 1998 equivalent to 3 per cent of gross domestic product.

It is estimated that proceeds from privatization of state-owned entities will enable the debt to be cut by some U.S. $ 7.3 million in 1997 and U.S.$ 17 million in 1998.

In the first six months of 1997 privatization proceeds in Brazil reached U.S.$ 4.7 billion, including the successful sale of part of the mining giant Companhia Vale do Rio Doce (“CVRD”) for U.S. $ 3.3 billion. Additionally, in the same period, mergers and acquisitions in Brazil reached the record level of U.S. $ 8.4 billion, 37 per cent higher than in relation to the first half of 1996.The first stage in the privatisation of the Brazilian telcommunications system has commenced with the public bidding for the concession to operate mobile celullar telephones over the so-called Band B frequency (Band A relates to public telephones).

In relation to such bidding process, the country has been geographically divided into various areas and is being keenly contested by consortia composed of major international players in the telecommunications sector.

The first concession was granted in July 1997 to the Americel consortium for U.S. $ 350 million in relation to the area surrounding the Federal District of Brasilia. The economically most significant concession, covering the metropolitan area of Sao Paulo, was won by the ConsortiumBCP, comprising Bellsouth, Banco Safra, Splice do Brasil and the Grupo Estado de Sao Paulo, which will pay U.S. $ 2.4 billion for the concession, representing a premium of some 341 per cent over the minimum price established in the bidding process.

The concession for area 9, representing the States of Bahia and Sergipe has been won by the Vicunha Consortium, which includes the Italian telecommunications giant Stet, who will pay U.S. $ 230 million, a premium of some 8.5 per cent over the minimum price.

It is expected that all the Areas will have been adjudicated by the end of the year when the even more ambitious project of privatising the Brazilian state telecommunications system will commence, with the privatization of Band A expected for June 1998.

Analysts and executives of state telecommunications operators estimate that the minimum value of the 26 state operators to be privatised will represent approximately U.S. $ 4.6 billion, while the separate privatisation of the national company (EMBRATEL) will represent a minimum value of R$ 5.5 billion, resulting in a total of some U.S.$ 10 billion.