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Brazil may bid farewell to many of its costly state companies

By Mac MargolisSpecial to The Christian Science Monitor / March 20, 1984



Rio de Janeiro

In the popular Brazilian stage play ''Vargas,'' a theatrical homage to the country's most adored leader, Getulio Vargas, a samba-like chorus line sings over and over the heady slogan of his day:

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''O petroleo e nosso.'' The petroleum is ours.

It refers to the birth of Petrobras, Brazil's oil company and the mightiest in the portfolio of state-owned enterprises that have piloted Brazil's economic development for the last half century.

But the singing refrain could well be a finale. As audiences applaud ''Vargas'' in Rio de Janeiro's municipal theater, his legacy is coming largely undone.

Trammeled by its $100 billion debt, scrutinized by the International Monetary Fund (IMF), and pressured by private business, the Brazilian government has been forced into a crash diet to reduce its bloated public sector. More than 50 state companies have been sold off, merged, or shut down in the last two years. And the government is planning to unload some 100 more.

The 317 remaining state companies will suffer a 24 percent budget reduction in 1984, cuts that will virtually halt new investment and paralyze numerous work projects in mid-stride. A series of decrees by President Joao Baptista de Oliveira Figueiredo in recent months has pared most salary increases to below the rate of inflation and cut deeply into the benefits and perks that public employees enjoyed.

Even the staunchest defenders of the state companies concede there are excesses in the system. Created to develop economic sectors neglected by private enterprise (roads and communications) or dominated by multinationals (oil exploration), state firms in the 1940s and '50s propelled Brazil into the industrial age.

But that era's principle of guided development gave way in the '60s and '70s to a credo of breakneck growth stewarded by the military-technocratic regime. In these two decades of Brazil's touted economic miracle, almost 370 state firms were created. During that period, the economy grew by 10 percent a year.

But the state sector spun out of control. Congress, stripped of a significant voice under Brazil's military regime, had no say over the budgets of the government companies, which competed willy-nilly for public funding. In many cases, companies had competent technical staffs but were run by appointed executives, frequently retired generals, who treated their firms like private fiefdoms.

''They grew not according to development needs of the nation but in order to enrich their own directors,'' charged Emilio Alfieri, economist for the Sao Paulo Commercial Association.

''The joke was, by 1979, the government didn't even know how many companies it owned,'' said an embassy official in Brasilia.

The happy economic times of the miracle produced unrealistic targets and oversized projects - ''pharaonic works,'' they are often called here.

Funded largely by easily obtained foreign credit and loans, these long-term projects have been plagued by delays, soaring interest rates, and spiraling energy costs. The Sao Paulo Commercial Association estimates that they have rung up a tab of nearly $100 billion, and represent half of Brazil's foreign debt.

Itaipu, the world's largest hydroelectric plant, will produce more energy than Brazil can absorb in several years and has added $12 billion to the country's debt. Siderbras, the government holding company for steel production, aimed a decade ago to produce 25 million tons of steel per year. Today, this is nearly 10 million tons more than the glutted market can absorb.

The crowning criticism was that these massive projects were captial intensive and produced relatively few jobs. Of Brazil's work force of 45 million, state enterprises employ only 1.2 million.

Yet not everyone is applauding the government's campaign to shrink the public sector.

The 1984 across-the-board cuts in the public sector could have a ''catastrophic impact on employment in an economy already gutted by three years of recession,'' warns Rogerio Werneck, an economist at Rio's Catholic University.

Although the government has pledged not to eliminate jobs, the budget cuts represent 10 percent of its total investment. Firms that thrive on government orders, particularly machine and equipment manufacturers, will likely be badly hurt.

Nor are state enterprises liable for all the evils attributed to them, observers say. For example, Petrobras has been slow in producing petroleum, but since 1979 has more than trebled production.

Economist Werneck also noted that state firms were often pushed into taking loans at unfavorable terms because the government needed foreign currency to service its foreign debt. The loan money entered through Brazil's Central Bank, which kept the hard cash and passed on the loan to the borrowing company in Brazil's inflation-battered cruzeiros.

The current budget-cutting, Werneck charges, has less to do with frugal economics than it does with the government's desire ''to show its creditors and the IMF it is behaving well.''

Nor will the 1984 budget reductions be swallowed easily. The decrees limiting employee benefits and public-sector salaries provoked in June and July Brazil's largest street demonstrations in 15 years. What's more, this is the year when President Figueiredo's successor will likely be selected. In the thick of the campaign, politicians will be loathe to move further against the powerful state enterprises.