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On May 21 1996, 54.6% of the voting shares of electricity distributor Light were sold to a consortium lead by Electricité de France for US$2.2 billion. This was the largest privatization to date and the second to involve a significant foreign participation. Light has 80% of the distribution market in the state of Rio de Janeiro and has now been granted a new concession for 30 years.

Much more is still to be done and the government recognizes that privatization, at both the federal and state levels, is the only solution for the sector in which investments are now down from 10% of GDP to 4% while consumption has increased substantially. Further falls in investment levels have been caused by Electrobrás's collection problems, including US$3 billion owed by two electricity companies of the state of São Paulo alone.

The federal government is selecting consultants to advise on new rules to be enacted for Brazil's electricity sector. Also, specific rules for independent power producers are expected shortly. The resultant regulatory uncertainty has been deterring some investors and it is to be hoped that the complete framework legislation will soon be in place.

Monetary policy

Encouraged by sustained low inflation, the government has gradually lifted a number of credit restrictions. Relevant measures include Decree 1 893 of May 3 1996, which reduced the financial operations tax (IOF) on consumer credit operations from 12% to 6%, as well as the following Resolutions issued by the Monetary Council on June 5 1996:

  • Resolution 2281 allowed states and municipalities to contract new loans for the repayment of amounts borrowed before December 5 1995 as boosts to budget revenues;
  • Resolution 2282 re-established the possibility of Brazilian financial institutions acquiring asset-backed securities issued by Brazilian companies and underwriting, guaranteeing and/or intermediating public offers of domestic commercial papers by Brazilian joint stock companies; and
  • Resolution 2283 allowed financial conglomerates to keep consolidated accounts in relation to certain minimum equity/risk requirements.

Finally, Central Bank Circular 2688 of June 5 1996 allowed investment funds to acquire domestic commercial paper publicly offered by Brazilian joint stock companies.

Eliana Filippozzi

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