Brazil & Southern Cone - September 2007 (ISSN 1471-4431

Since last years re-election of President Lula da Silva ideas such as "the enterprising state" and having "strategic control" over sectors of the economy have become more apparent in his administration. These ideas, however, have always been hidden in the agenda of Lula's Partido dos Trabalhadores. Indeed, despite being praised for honouring the inheritance of the previous administration - of fighting inflation, balancing accounts and maintaining free currency exchange rate - the Lula administration has also been responsible for swelling in the size of the state machine. Does this mean the PT and the government will promote a new wave of nationalisations?

Since coming to power in 2002 the Lula administration contracted more than 200,000 new civil servants. This means the government has hired an average of 162 people every day since they came into power. The federal government alone (the executive, the legislative and the judiciary) together have some 1.2m employees. On top of that, it also pays pensions to a further 1m retired employees. This incurs an annual expense of R$100bn (US$53bn). Indeed, the expenses and salaries of all civil servants working for the lower state and municipal levels of government are believed to be equivalent to 2.7% of Brazil's GDP, twice as much as that of the ratio in the US. This ratio is exaggerated for a country with low financial capacity and defective public services, say many economists.

Historically, the Brazilian public sector has been hijacked by political interests, making true the claim that the higher the number of people working for the government, the higher the likelihood of corruption. Indeed, the federal executive alone employs over 22,000 people in so-called 'trust positions'. These are political appointees who do not need to have any technical expertise. The only competence required appears to be that they have to "know someone somewhere in the government", as the popular Brazilian saying goes. Unsurprisingly, the government uses these positions as a bargaining tool to win support. Indeed, Lula's governing coalition is made up of ideologically unrelated parties, many of them unprincipled and only concerned with guaranteeing positions in government agencies and state-owned companies, thus winning easy access to funding, legally or illegally.

The hiring of new civil servants is the backdrop for a discreet nationalisation drive by the PT government. Since coming to power in 2002, public money has, following the example of the military regime in the 1970s, become foremost in certain areas of the economy. The majority of Brazil's petrochemical sector is now under direct control of the government through Petrobras, whose management is all politically appointed. In 2002 46% of the sector was owned by Petrobras, now 63% of it is under the company's ownership. The government's control of other "strategic sectors" of the economy has also increased considerably in the period: the hydroelectric energy sector is now 44% owned by state companies, up from 11% in 2002, and fuel distribution 32%, up for 24%.

Now the government is preparing bills to help Petrobras and other public companies to win control of other sectors. The mines and energy ministry, for instance, has a bill ready to be sent to congress which centralises all key decisions of the ethanol industry under Petrobras. This decision was taken because, since the spread of the dual (flex-) fuel technology just a few years ago, Petrobras has seen its profits with the sale of petrol fall considerably. The government is also eyeing up the banking system, having already incorporated, through Banco do Brasil, regional banks that would otherwise be privatised and through the Post Office. The communications ministry, meanwhile, is preparing a bill to guarantee the state's veto in decisions taken by the not-long-ago privatised telecommunications sector. 

• Nationalising CVRD?
  The ruling Partido dos Trabalhadores approved a motion support a popular plebiscite to re-nationalised Brazil's mining giant Companhia Vale do Rio Doce (CVRD) during its national convention in late August. The CVRD was privatised under the previous administration of former president Fernando Henrique Cardoso. Since then the company became a global leader in the mining sector, and able to finance infrastructure projects which failed under the state.