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In this week's News from Brazil:

• Plebiscite for the Return of Vale do Rio Doce

Vale do Rio Doce, a mining company, was one of Brazil's most lucrative state enterprises.  In 1997, during the presidency of Fernando Henrique Cardoso, the company was auctioned off to the private sector in.  Many claim that the auction was illegal, and that the company should be returned to the Brazilian people.  Social movements and entities have organized a popular plebiscite to vote on the issue next month. 

Plebiscite for the Return of Vale do Rio Doce
by Pedro Carrano and Luis Brasilino

The Vale do Rio Doce Company is the biggest miner of iron ore in the world, and the second biggest company in terms of  variety of minerals.  Because of this company, Brazil is one of the biggest extractors of minerals for exportation. 

The company was created in 1942 when the government took money from the national treasury to buy off stocks of the British company, Itabira Iron Ore, which was operating in the state of Minas Gerais.  Vale do Rio Doce was created through the Washington Agreements, in which the English government permitted the nationalization of the mines, and the United States conceded to finance 14 million dollars.  In return, Brazil had to send troops into the Second World War. 

During the 1950's, the Brazilian government assumed definitive control of the operational board, and assumed control of the stocks.  During the 1970's the company became the biggest exporter of iron ore in the world.  During the 90's the company began to outsource some of its operations. 

In 1995, the Brazilian Institute of Economy considered the company to be number one in the institute's national ranking of best companies.  That same year, President Fernando Henrique Cardoso took office, and two years later he auctioned off the company.  Why?  His justification was based on that which came to be his overall program:  privatization with fiscal policy.  And the reasoning:  Brazil's public debt--both internal and external--was quite high, and this reduced the State's capacity to invest.  The solution was to auction off state enterprises.  This money was then to be used to make payments on the debt. 

Besides this, said the Cardoso government, these state companies were a burden on the State.  If they could be sold, they would have much more efficient management--something only the private sector can do--and thus the government could reduce spending and taxes. 

However clever the argument may have been, between the fantasy of the discourse and the reality of the numbers was a huge abyss.  The Cardoso government managed to sell off 70% of the state's companies,and collected R$60 billion.  This number corresponded to more than half of the internal public debt at the beginning of Cardoso's presidency, which was R$108 billion.  But by the end of Cardoso's eight year tenure, the money collected from the auctions did not cover a tenth of the internal public debt, which shot up to R$687 billion.  The situation with the external debt was the same.  From US$148.2 billion in 1995, the debt was up to US$227.6 billion in 2002.

Today, Vale do Rio Doce is worth US$100 billion.  However, the price for which it sold at the auction was only 3.3 billion.  Since then, the company amplified its exportation efforts, without benefiting the regions from where it is extracting.  For example, in an area called Grande Carajas, in the states of Para and Maranhao, unemployment rates are as high as 65% in surrounding cities. 

After the auction, the priority of the company has been to increase profits and to share these with its stockholders.  The biggest part of these profits are going to foreigners, who have 64.9% of the preferential stocks. 

The critiques of the procedures used to sell the company point out that the Brazilian bank Bradesco, which helped put together the auction, later became one of its controllers (something that is prohibited by law).  Further, when evaluating the worth of the company, Bradesco along with US consultants from Merrill Lynch, took into account only market considerations.  They did not take into account the various infrastructures of the company, like its ports, its vast rail systems, and its centers of technological research.  Even its mineral reserves were underestimated:  on May 8, 1995, the company reported to the Securities and Exchange Commission that it had 7.918 billion tons of mineral reserves in its South System operation.  But two years later at auction time, the estimate given was 1.4 billion.  The same story in the North System operation:  in 1995, the company reported 4.97 billion tons, and then at auction time, 1.4 billion.  Various precious metals, like gold, were left out of the evaluation of the company's financial worth.  The company had 72% of Brazil's titanium reserves, which also were not evaluated.  In short, the company was grossly undervalued and undersold.

Today, the company has authorization for an undetermined amount of time to explore 23 million hectares of Brazilian subsoil, an area the size of Pernambuco, Alagoas, Sergipe, Paraiba and Rio Grande do Norte.  This in a country which prohibits foreigners to own more than 2,000 hectares of land without the express consent of the Senate and the Armed Forces.  This consent still has not been given.

Vale do Rio Doce was always a lucrative company.  Before privatization, the company generated R$ 1 billion in dividends.  In the first three years after its sale, the new owners were able to recover their initial investment and managed to generate R$1.1 billion in profits.  From 1998 until the first half of 2007, the company's profits have totalled R$50.456 billion, not even taking into consideration inflation.

There were still other irregularities around the privatization of the company.  Antonio Carlos Spis remembered the day of the auction:  "We won a judicial decision to impede the auction.  This while they were throwing bombs at protesters.  However, when we went to deliver the decision to the judge on duty, our lawyers couldn't find him.  There was so much deception going on that even the Justice system itself participated in the surrendering of the company.  The judge only appeared after the auction was completed."  In addition to the suits which tried to stop the auction, there were 104 others which questioned the validity of the company's privatization.  Interesting, in 2005, the Justice Department reopened 69 of these.  At this time, the suits are still being analyzed by the Supreme Court in Brasilia.  There is then a slight chance that the auction may be nullified.

For the first week of September, social movements and entities have organized a popular plebiscite to be held around the country.  "The Vale is Ours!" is the theme of the campaign.  The groups hope to bring together Brazilian citizens to push officials to return the company back to Brazilians.  There seems to be some to be a certain level of consensus among Brazilians on the issue.  A recent poll revealed that 50.3% believe the company should be returned to the state.  Only 28.2% were opposed, leaving 21.5% undecided.  

Source:  Brasil de Fato,  Special Edition, August 2007

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