Given the current climate of high levels of government debt in many developed countries, do you see Brazil following a different PPP path in terms of types of projects and frameworks?
Not necessarily a different path, but I see an increase in private participation in infrastructure and in the provision of public services, such as health, prisons and public transportation. Thanks to years of fiscal consolidation and sound macroeconomic management, Brazil has recovered from the 2008 international financial crisis rather quickly.
The fiscal situation has not deteriorated as in other countries in spite of significant countercyclical fiscal stimulus. Net public debt is now around the same level it was in September 2008 (41% of GDP) – the month we were most hit by the crisis. The economy is expanding rapidly. Private analysts' projections point to a GDP growth of 7.5% in 2010.
Such economic performance is welcome but it raises the challenge of closing the infrastructure gap Brazil has faced for many years, and which has prevented it from growing sustainably in the past.
What path is being followed at the moment?
Governments at all levels (federal, state, municipal) have been concentrating efforts on closing the infrastructure gap. However, budgets have their limits and there is no way of thoroughly facing the infrastructure challenge without promoting partnerships with the private sector.
Private participation in infrastructure is already large in Brazil. We have, in absolute terms, the largest programme among developing countries, but relative to the size of our economy numbers are not as impressive. There is still much potential to grow. Private provision of public services is in its infancy in Brazil. Some states and municipalities are taking promising steps towards PPP, particularly in health and prisons.
How are international lenders and the private sector responding to this?
The role of private lenders and banks in PPP is timid in Brazil, possibly because of the overwhelming presence of state-owned development banks, especially BNDES. It was instrumental in lifting the Brazilian economy out of the crisis and it will continue to be an important source PPP funding in the near future.
While credit was contracting elsewhere, BNDES was able to expand it – compensating some of the crisis' effects. However, a stronger participation of private financing is needed in order to fulfil our investment needs. I believe it is up to the public sector to create the conditions to increase private participation in PPPs on the lending side. There have been initiatives in this direction. The Ministry of Finance has recently announced it is discussing with the private sector a set of measures aimed at developing a long-term private credit market.
What would you use as good examples of new PPP innovation or behaviour in Brazil?
Recently some of Brazil’s major cities (Rio de Janeiro, São Paulo and Belo Horizonte) have engaged in developing PPPs.
São Paulo and Belo Horizonte are working on the development of PPPs in healthcare – which is free and universal in Brazil and mainly a local responsibility – while the city of Rio is studying PPPs in public transportation.
Brazil has a long-standing tradition of private participation in infrastructure at the federal level, but not of private participation in public service provision (at any level). This is a very recent development. There are only a few such arrangements in place such as Hospital Suburbio in the state of Bahia – the first long-term PPP contract in the health sector in Brazil – and the pioneer PPPs in prisons in the states of Minas Gerais and Pernambuco. The engagement of municipalities in PPPs and the use of PPPs in public service provisions broaden considerably the spectrum of private investment opportunities in Brazil.