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1
Introduction
The Fiscal Stabilisation
Programme, initially proposed in October, 1998, represented a landmark
in the process of transformation of the Brazilian fiscal regime.
The programme is made up of two sets of initiatives: (i) structural
and institutional measures, aimed at promoting the definitive fiscal
equilibrium of public accounts, in order to allow the co-existence
of sustainable growth and economic stabilisation; and (ii) a short-term
fiscal programme aimed at obtaining increasing primary surpluses
enough to stabilise, at the end of 1999, the ratio debt/GDP at the
level of 46.9%.
The Federal Government
has been successful in implementing these two sets of measures.
The fiscal results of 1999 and the ones already achieved in 2000
surpass by far those of past periods. Furthermore, there have been
several institutional improvements.
2
Fiscal recovery
Along 1999, the Brazilian
Government has unmistakably proven its commitment to fiscal austerity.
The replacement of a vision that privileged a gradual approach in
the treatment of the fiscal issue by a more solid commitment to
the generation of expressive surpluses was extremely successful.
All quarterly targets have been met. The consolidated outcome of
the public sector evolved from 0% of GDP in 1998 to a primary surplus
of 3.1% of GDP in 1999.
Two aspects must be
taken into account regarding fiscal recovery. Firstly, within the
Federal Government, the reduction of expenses was essential for
the results achieved, although a portion of the adjustment derived
from an increase in revenues (partly extraordinary). While revenues
increased by 0.5% of GDP in 1998, expenditure diminished by 0.9%
of GDP in the same period. This result is quite demonstrative, if
one takes into consideration the rigidity of public-sector expenses.
In addition, it demonstrates, once more, the commitment to fiscal
austerity.
Secondly, it is important
to highlight that the adjustment was applied at all levels of Government.
Not only the Central Government had a substantial improvement in
its accounts, but also state-owned enterprises, the States and municipalities
recorded very positive developments. As to the States and municipalities,
the improvement is to a large extent a consequence of contracts
for the re-financing of State debts vis-à-vis the Union,
which were followed by several institutional changes aimed at restricting
additional indebtedness by those Units of the Federation.
The remarkable result
of 1999 has been maintained throughout 2000. In the first quarter,
the primary result of the public sector was of R$ 13.6 billion,
or 3.3% of GDP. In contrast, in 1999 and 1998, those results were
respectively R$ 9.7 billion and R$ 3.1 billion for the same period.
The nominal result
of the public sector also starts indicating improvement. With the
end of the effect of the devaluation of the currency and the reduction
of the interest rate (1999), the consolidated nominal deficit of
the public sector should reduce, from the threshold of 9.5% of GDP,
in 1999, to a level between 3.5% and 4% of GDP, in 2000.
3 Structural changes
Achievements worth
highlighting include the developments intervened in the reform of
social security. Two bills were approved by the National Congress
in late 1999 and early 2000, aimed at allowing the reduction of
the deficit of the social-security system. The first one relates
to Law Nş 9.876, of November, 1999, which alters the rule for calculating
benefits within the General Regime of Social Security (RGPS), and
created the social-security factor. The new rule makes the benefit
to be received dependent upon the amount of contributions paid,
upon the age at the moment of retirement and of the expectation
of duration of said benefit. Thus, actuarial criteria have been
introduced in the social-security system, which ensures the stabilisation,
in the medium run, of the deficit of the general regime of the National
Institute for Social Security INSS at a level slightly above 1%
of GDP. It is important to recall that, without this change, the
trend of this deficit would be explosive.
The second bill approved
has to do with the adoption of a new labour regime for federal civil
servants. According to the new regime, employees admitted to the
federal civil service will have their labour relationship governed
by private-sector contracts, in accordance with the Consolidation
of Labour Legislation (CLT). The major difference is that, according
to the CLT, social-security obligations are limited to the National
Institute of Social Security INSS "ceiling", while in
public service they were previously linked to the full salary at
the moment of retirement.
With these changes,
Social Security long-term obligations pertaining to the payment
of benefits will be reduced. Social Security is the main source
of fiscal unbalance in Brazil, and the Federal Government is committed
to the solution of this problem.
Another highly important
progress is the approval of the Fiscal Accountability Act (LRF),
which represents a landmark for the change of fiscal management
in the Country. LRF is a true new code of conduct for public administrators,
for it sets forth principles, norms and limits that will allow the
implementation of the culture of accountable fiscal management in
the Country. The new act incorporates prudence, reporting and transparency
in the management of public funds, at the three levels of Government
and within the three branches of power. It is, therefore, a key
instrument for the sustainability of the long-term fiscal adjustment.
The LRF also establishes
limits for personnel-related expenditure, for public debt, and determines
that fiscal targets are to be established. No ruler will be able
to create new continued expense (for over two years) without indicating
the source of revenue or without reducing other existing expenses.
In addition, the act defines other mechanisms for the control of
public finance in election years. Another important aspect is the
prohibition of the re-financing of debts between to units of the
Federation. Thus, each unit of the Federation will have to effectively
maintain an accountable fiscal behaviour.
In order to render
concrete the adjustment of public accounts, several countries have
resorted to changes in their institutional frameworks. Rules, transparency,
targets and limits set forth in specific legislation, all these
have proven to be powerful allies in the quest for fiscal equilibrium.
Whether by means of collective or individual initiatives, the fact
is that all these movements tend to limit the ability of bodies
or spheres within the public sector to increase their indebtedness,
which used to transfer to coming generations the burden of adjustment.
In Brazil, the treatment
of this crucial issue has not been different. Parallel to the reform
process, the country has made progress in institutionalising the
commitment to equilibrium and to the proper management of public
accounts. The Fiscal Accountability Act is the height of this process.
Furthermore, other
aspects deserve to be highlighted, such as recent improvements in
the Budgetary Guideline Act (LDO). For the first time, the Budgetary
Guideline Act approved included the forecast of surplus. This represents
the commitment of Congress to the austerity policy, and means great
progress in the institutionalisation of the fiscal adjustment. In
addition, the bill of the Budgetary Guideline Act sent to Congress
in 2000, which deals with the guidelines for the preparation of
the budget for 2001, contains an Appendix of Fiscal Targets with
an analysis of past targets. More importantly, this Appendix presents,
as required by the Budgetary Guideline Act, a definition of fiscal
targets for the three subsequent years. This represents progress
in terms of fiscal forecast, programming and transparency.
PRIVATISATION
The National De-Statisation
Programme PND was responsible, in the period from 1991 to May,
2000, for the privatisation of 65 enterprises and State federal
equity participation cases, in the following domains: electricity,
petrochemicals, mining, port exploitation, financial, information
technology and railway grids of the Federal Railway Network RFFSA.
Until May, 2000, the
privatisation programme (including the PND, the former state telecommunication
sector and privatization at the state level) produced total revenues
of US$ 91.1 billion, including debts transferred.
THE
ROLE OF THE STATE IN PRIVATISATION
AND REGULATORY AGENCIES
Pursuant the world-wide
trend and changes required by Brazilian society, the modern State
ceases being the direct responsible party for economic development
via the production of goods and services, in order to reinforce
its position as the promoter and regulator of this development.
With the privatisation programme, the Brazilian State reduced its
role as executor and as direct provider of services. Within this
new perspective, it has reinforced its regulatory and coordinating
functions, particularly at the federal level. By creating a regulatory
agency, the Government determines that such agency will establish
several criteria for the improvement of service delivery and assistance
to the public by privatised enterprises or concessionaires, such
as an increase in the supply of such services, and standards of
efficiency and transparency in the conduction of their activities.
Along this line, Government
has created, since Plano Real was launched, the following
regulatory agencies:
- The National Agency for Telecommunications
(ANATEL);
- The National Agency for Electric
Power (ANEEL);
- The National Oil Agency (ANP);
- The National Agency for Sanitary
Surveillance (ANVS); and
- The National Agency for Supplementary
Health (ANSS).
Although each agency
has its own legislation, discussed with the central areas of Government,
and also in the light of decisions by the corresponding ministries,
all of them fit the overall approach of a modern State. In order
to improve its functions even more, there is a bill currently under
scrutiny, meant to define what is a Regulatory Agency and to apply
to all of them the same type of rules for operation and the same
limits to their operational autonomy and flexibility, as allowed
by the Constitution.
Continuing the Governmental
effort, ten more regulatory agencies will be created by the present
Government, among which the National Agency for Water, the National
Mail Agency, the National Transport Agency, the National Agency
for Complementary Social- Security and the National Agency for Civil
Aviation.
With the creation of
these agencies, which will be added to the already established large
institutions of this sort, there will be a clear, defined and significant
mission, operating based upon a differentiated administration. It
is the shaping of the regulatory State to replace the entrepreneur
State.
THE
DEFENCE OF COMPETITION
In Brazil, the State
is increasingly performing a regulatory role, which is visible in
the battle against abuse of economic power and in the defence of
competition. Such activities befall the Brazilian System for the
Defence of Competition (SBDC), made up of three organisations: the
Secretariat for Economic Follow-up, of the Ministry of Finance;
the Secretariat for Economic Law, of the Ministry of Justice; and
the Administrative Council for Economic Defence (CADE).
Through this system,
the Public Power has set forth guidelines to regulate market relations
and to promote the defence of competition.
This Government action
became essential, as a function both of the privatisation process
and of the growing number of mergers and associations among enterprises
formerly competing with each other.
In 1999, CADE examined
218 cases of concentration, which represents a 16% increase as compared
to 1998; 541% as compared to 1997; and 891% as compared to 1996.
The increasing action of Government in the area of the defence of
competition shows the growing ability of the Brazilian State to
respond to the challenges of modernisation, of technological progress
and of globalisation.
Cases examined by CADE
include the privatisation of the Telebrás System and the
judgement of the merger (AMBEV) of the two largest breweries of
Brazil (Antarctica and Brahma, for the creation of Americas Beverages
Ambev).
THE
DEFENCE OF THE CONSUMER
The National System
for the Defence of Consumers, on the one hand, aims at ensuring
the adequacy and the necessary level of information to consumers,
and, on the other, to inhibit abuse against consumers.
The Programme for the
Defence of Consumers intends to provide all municipalities with
a population of over 20 thousand inhabitants PROCON services, or
those of civil bodies organised for the defence of consumers.
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