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Cost-cutting takes a private road

Brazil's privatization programme has been given a new lease of life. With no fiscal constitutional reform in sight, the government has accelerated the sale of the biggest public utilities as the best way to downsize the public sector. And that's vital if the Real Plan is to stay afloat

"Privatization is so important because downsizing the government is the only way we can reduce our debt and improve the fiscal situation," says Jose Roberto Mendonca de Barros, the secretary of national economic policy and one of the most senior members of president Fernando Henrique Cardoso's economic team. "We continue to have constraints imposed on us constitutionally, and congress continues to make it difficult for us to get through constitutional reforms."

The privatization law came into force in 1990, but only industrial sectors ­ the "easy" privatizations ­ have been sold off. Brazil has yet to sell any utilities.

So far 45 companies have been sold, for total values of anything between R8 million ($8.1 million) and ­ in the case of Light Sesa, the Rio de Janeiro-based electricity distribution company auctioned in May ­ R2 billion. About 66% of the amount paid for Light Sesa was in cash, the biggest cash amount of any Brazilian privatization so far. So far, privatization proceeds total R12.3 billion, but only a small proportion has been paid in cash. The figure rises to R16.8 billion if the transfer of debt from the public to the private sector is included.