BRAZIL
1996: |
6. DIRECTIONS FOR 1996
What Do We Want for 1996?
- To consolidate the Real
- To invest in order to grow
- To achieve a better income distribution
What Do We Need to Do?
- To balance the public accounts
- To reduce production costs (see annex)
- To reform the State administration
Balancing the public accounts is one of the government's priorities for 1996. The fiscal imbalance in 1995 produced an over-all deficit equal to 4.2% of GDP, as opposed to a 1.1% surplus in 1994. The federal accounts alone moved from a surplus of 1.48% of GDP to a deficit of 1.1%. In 1995, the deficit of the states and municipalities was practically double the federal deficit, going from 0.79% of GDP in 1994 to 2.10% in 1995. In most states, personnel expenditures accounted for more than 80% of receipts.
Why do we need State reform and how does it relate to the fiscal imbalance?
The need to balance the public accounts is one reason for reforming the State. In 1995, there was a public deficit in spite of a 17% increase in government revenues. At the same time, the total tax burden reached the historic level of 30% of GDP, practically exhausting the country's capacity to tax society further. Thus, the deficit problem must be addressed from the spending side while continuing efforts to combat fraud and corruption. These efforts depend to a large extent on the reforms proposed by the government.
TAX BURDEN
(% of current GPD)
YEAR FED STATE MUNIC TOTAL 1986 16.7 5.1 0.6 22.4 1987 15.3 4.4 0.6 20.3 1988 14.9 4.5 0.6 22.2 1989 14.7 6.9 0.6 22.2 1990 19.9 8.8 0.8 29.5 1991 16.1 7.0 0.6 23.7 1992 17.0 7.2 1.0 25.2 1993 17.6 6.3 0.9 24.8 1994 19.5 7.5 1.3 28.3 1995 20.7 7.8 1.6 30.1 Source: Ministry of Finance
What Causes the Deficit?
In spite of the real increase in government receipts last year, there was an imbalance in the public accounts. In 1995, we reached the point at which the Social Security System's benefit payments exceeded its revenue collections.
Personnel-related expenditures increased from R$28 billion in 1994 to R$36 billion in 1995. Social Security expenditures grew from R$25 billion to R$33 billion. Interest payments rose from R$8.5 billion to R$12 billion. Social Security and personnel expenditures are, therefore, the two items exerting the most pressure on the federal accounts. Thus, the solution for these public account imbalances lies in the approval of the administrative and Social Security reforms. At the same time, the trend toward lower interest rates, which should continue in 1996, will relieve some of the pressure on the federal accounts.
Administrative Reform
The administrative reform will create the conditions necessary to reduce personnel expenditures, to improve the salaries of government employees and to provide better services to the population. The principal points of administrative reform are:
- To modify the tenure regulations for civil servants;
- To require legislation for salary increases to employees in the three branches of government;
- To grant more flexibility for managing foundations and independent agencies;
- To require performance evaluations of government agencies and employees;
- To implement new management methods; and
- To improve the image of public servants.
Social Security Reform
The Social Security reform seeks to reestablish a balance between contributions and benefits, and to correct various systemic privileges and injustices, such as retiring at a rather early age, accumulating rights to several retirements, or receiving very high retirement annuity payments. The new Social Security model would stimulate the creation of supplemental retirement insurance programs, sparking a healthy increase in savings and investments. Two basic elements of the new retirement insurance would be: tying retirement to the length of time contributions are made, and establishing a minimum retirement age.
Tax Reform
The tax reform is a fundamental measure in the reduction of production costs. Its objectives are to reduce the tax impact:
- on investment by granting exemptions from the sales tax (ICMS) for new investment; by waiving the industrial production tax (IPI) for the purchase of equipment, machinery and selected instruments; by reducing the weight of the social integration fund tax (PIS) on investment loans; by collecting no import duties for purchases of machinery and equipment until December 1996; and by giving corporate loans a 50% reduction in the financial operations tax (IOF);
- on agricultural production by removing the sales tax on agricultural exports and on various products consumed domestically, including items in the basic "food basket;"
- on exports by reducing total taxes, and especially for primary products as indicated in the following graph.
Continuing the Privatization Program
Simultaneously with the constitutional reforms, the government should accelerate privatizations. The steel and petrochemical sectors have already been privatized. Now, a new phase is beginning in which an attempt will be made to create appropriate conditions for investment and expansion in such public services as electrical energy, water and gas.
NATIONAL PRIVATIZATION PROGRAM
Sector/Company Current Status Chemical/Petrochemical EDN Auction suspended by courts Polipropileno Under review Deten Auction pending Metanor Under review Nitroclor Suspended Polibrasil Under review Koppol Under review Electrical Sector Light Under review Eletrobrás Eletrosul Companies are being hired to estimate the market value of theses firms Chesf Furnas Others Lloyd Brasileiro Sold RFFSA Under review Agef Under review Banco Meridional Under review Valec CVRD Companies are being hired to estimate the market value of theses firms. Source: Central Bank
NATIONAL PRIVATIZATION PROGRAM
Total Value of Company Shares Sold1
(US$ millions)2
Company Auction Date3 Value of Sale Debt Transferred 1. Usiminas 10/24/91 1,941.2 369.1 2. Celma 11/01/91 91.1 4.5 3. Mafersa 11/11/91 48.8 0.5 4. Cosinor 11/14/91 15.0 0.0 5. SNBP 01/14/92 12.0 0.0 6. Indag 01/23/92 6.8 0.0 7. Piratini 01/17/92 106.7 2.4 8. Petroflex 4/10/92 234.1 20.7 9. Copesul 05/15/92 861.5 9.2 10. Alcalis4 07/15/92 81.4 5.7 11. CST 07/16/92 353.6 483.6 12. Nitriflex 08/06/92 26.2 9.2 13. Fosfértil 08/12/92 182.0 44.0 14. Polisul 09/11/92 56.8 131.0 15. PPH 09/29/92 59.4 35.0 16. Goiasfértil 12/08/92 13.1 9.3 17. Acesita 10/23/92 465.3 232.2 18. CBE 12/03/92 10.9 0.0 19. Poliolefinas 03/19/93 87.1 0.0 20. CSN 04/02/93 1,495.3 532.9 21. Ultrafértil 06/24/93 205.6 20.2 22. Cosipa 08/20/93 585.7 884.2 23. Açominas 09/10/93 598.5 121.9 24. Oxiteno 09/15/93 53.9 2.0 25. PQU 01/24/94 287.5 40.9 26. Arafértil 04/15/94 10.8 1.8 27. Caraíba 07/28/94 5.8 0.0 28. Acrinor 08/12/94 12.1 0.7 29. Coperbo 08/16/94 25.9 0.0 30. Polialden 08/17/94 16.7 1.5 31. Ciquine 08/17/94 23.7 6.3 32. Politeno 08/18/94 44.9 28.4 33. Embraer 12/08/94 192.2 263.4 34. Escelsa* 07/11/95 399.8 2.0 35. Copene* 08.16.95 270.4 342.6 36. CPC* 09/29/95 99.7 27.4 37. Salgema* 10/05/95 139.2 32.0 38. CQR* 10/05/95 1.6 0.0 39. CBP* 12/05/95 0.0 NA 40. Nitrocarbono* 12/05/95 29.6 NA 41. Pronor* 12/05/95 63.5 NA Source: BNDES
(*) In process
(1) Corresponds to the auctions of ordinary and preferred shares, including those sold to employees. (Sales of government minority holdings are not included).
(2) Values were converted at the commercial dollar selling rate on the date of the sale payment.
(3) Refers to the principal auction.
(4) Includes US$ 32.4 million in financing (41% of the auction value).
NATIONAL PRIVATIZATION PROGRAM
Total Value of Company Shares Sold1
(US$ millions*)
Year Number of Companies Value of Sale Debt Transferred 1991 4 1,613.6 374.1 1992 14 2,401.2 982.3 1993 6 2,620.5 1,561.2 1994 9 1,576.4 348.8 1995 8 1,003.8 404.4 Total 41 9,215.5 3,670.4
Source: BNDES
(*) Values were converted at the commercial dollar selling rate on the date of the sale payment.