Social mobilisation against privatisation

Juan Carlos Yuste; Diego Brom
Decidamos, Campaña por la Expresión Ciudadana

Privatisation in the 1990s was marked by state de-capitalisation, the absence of benefits for the people, high rates and insufficient coverage. In the year 2000 the promotion of privatising was reactivated through promulgation of the Law for Privatisation of State Companies. The attempt at privatising telecommunications within this legal framework was carried out in a context of swindles and corruption. Social mobilisation managed to have the law repealed, but it is feared that the privatising agenda will be taken up once again.

Thefailure of the 1990s wave[1]

Historically,the process of privatising state companies has not been very successful. It wasstarted in 1991 – two years after the dictator, Alfredo Stroessner, wasoverthrown – with the adoption of various laws declaring several nationalcompanies subject to privatisation. In this context, the National ConstituentAssembly studied the modification of the National Constitution, with the aim ofestablishing a legal and political framework that would promote strengtheningand modernisation of the Paraguayan economy.

In1991, the first state companies were privatised: the Paraguayan AlcoholAdministration (APAL), the State Merchant Fleet (Flomeres), the ParaguayanAirline (LAP) and Paraguayan Steelworks (Acepar).

Thestate collected over USD 50 million with the sale of these corporations, butthis income was diluted in state expenditure without having concrete effects onthe population’s daily life. Presently, all these companies – with theexception of LAP, which merged with Transporte Aéreo del Mercosur S.A. (TAM)– are either bankrupt or de-capitalised. In most of the sales of these statecompanies, the mass media denounced corrupt actions.

Sinceits foundation in 1909, APAL had the monopoly of aging, distilling and marketingsugar cane spirits (aguardiente). In 1991, its privatisation process waslaunched and it became the Paraguayan Sugar Cane Company (Cañas ParaguayasSociedad Anónoma - Capasa). Today it is practically bankrupt. The purchasers ofthe company – shareholders, purveyors and APAL workers – acquired 70.8 % ofthe shares in 1996 for a total of approximately USD 2.7 million at today’sexchange rate. In March 1998, the members of the corporation purchased thetotality of the shares.

InJanuary 1999, the Privatisation Council audited Capasa. The report, submitted inAugust 2002, revealed that the corporation had lost a total of USD 2.5 millionat the present exchange rate over the 1996, 1997 and 1998 periods, or 47.5% ofits original net worth. At the end of 1995, before privatisation, the only bankdebt held by the company was under USD 200,000. In 1998, following three yearsof administration by the corporation, the total debt with the banking systemamounted to almost USD 1.5 million. The auditors stressed that the company washighly profitable and that the increase in the debt was a result of pooradministration.

Anotherexample of the disastrous results of privatisation is the Paraguayan StateMerchant Fleet, created in 1966 as a shipping line for river and maritimetransport of passengers and cargo. It remained thus until 1991, when it wasdeclared to be subject to privatisation and divided into five companies.

Oneof these, the Flota Mercante Paraguaya S.A. (Paraguayan Merchant Fleet), wassold at the end of 1996. The sale of the total number of shares amounted toapproximately USD 4.8 million. Another of the companies arising from theprivatisation was the Compañía Transporte Fluvial S.A. (River TransportCompany), sold to Medill & Associates Financial Services[2]at the end of 1996. The sale of the total number of shares amounted to USD 4.8million. In February 1998, a shipping agent informed the Ministry of Finance andthe Privatisation Council that the three ocean-going vessels of the company hadbeen robbed and abandoned in Porto Alegre, Brazil. The authorities were unableto find the company officials.

InApril 1998, the Privatisation Council cancelled the contract with the companyand ordered it to be officially inspected. Additionally, the Paraguayan Statestarted legal action against the officials of Medill & Associates FinancialServices for damages, demanding them to deliver the goods that had been sold.The main argument of the government was that the company had abandoned thevessels that they had sold it. This scandal caused great turmoil in the massmedia, which underscored for many weeks the extremely poor business done by theState. In July 1999, the judge ruling on the case authorised the ParaguayanState to have the Privatisation Council resume management of the company.Presently the vessels that used to belong to the company are beached andpractically useless, and the company has ceased operating.

ParaguayanAirlines (LAP) was established in 1963 as a company for passenger and cargo airtransport. It was privatised in 1995. Eighty percent of the shares were sold tothe Ecuadorian Consortium “Cielos de América” at a sales price of USD22,125,000. The transfer was carried out in October 1994. The Cielos de AméricaConsortium then transferred the company rights to TAM and Trans América LíneaAérea S.A. In 1999, TAM purchased the remaining shares (20%) at approximatelyUSD 5 million. So far, the company has not paid out the total compensation tothe state workers who had been part of LAP.

Finally,in 1997, the Paraguayan State sold Acepar to the Paraguayan Steel WorksConsortium (Cosipar), comprising the Multi-active Cooperative of Acepar Workersand the Lorito S.A. Company. The sale amounted to USD 35 million. However, thebuyers were unable to continue paying their instalments and a long conflictbetween them and the State started.

Insufficientcoverage and excessive rates

Inthe sectors where private companies can offer their services on the market (suchas housing, education, water and sewage, health and cellular telephony),naturally they only invest where they can obtain fast returns on their capital.Given the conditions of poverty of most of the population, the results aremeagre coverage and a high cost of services.

Thus,in the health sector, 81% of the population does not have any medical insurancewhatsoever. This rate is approximately 95% among the poorest groups of thepopulation. Medical insurance by the Institute for Social Security (State IPS)covers 10.9% of the population, where constant complaints of corruption,misappropriation of funds, shortage of drugs and poor service are recorded. Onlya small percentage of the population has private medical insurance, as most ofthese services have high costs.

Regardingurban public transport companies, the State grants licences to private companiesenabling them to operate in a given area. This measure has not had a positiveimpact either, and the population constantly complains about the poor servicethey provide and the terrible state of repair of the buses. The service isinterrupted during the night and the cost of tickets goes up several times ayear. Presently the price of an inter-urban ticket is approximately USD 0.20,and the minimum wage is barely USD 180 a month. However, many companies continueto operate, given their privileged relationship with the politicians thatprotect them, because the main political parties use the transport companies’buses on voting days to take voters to the election centres. In return, thegovernment in office grants the bus companies tax privileges and allows buses inpoor condition to continue operating, even placing the lives of users at risk.The main transport companies owe millions of dollars to the state NationalDevelopment Bank for loans taken out almost ten years ago.

Presentlythere are two state bodies responsible for regulating the public transportsystem: the National Transport Office (Dinatran) and the Metropolitan AreaTransport Secretariat (Setama), which comprises officials from the executivepower, the local governments and the municipalities. These bodies have obtainedsome victories for the citizenship, preventing an increase in the price oftickets on various occasions.

Regardingcellular telephony companies, 28.5% of the population enjoys the service,[3] which is only provided by private companies. The numberof users continuously increases in spite of the high cost of calls. It isestimated that presently there are over 1,150,000 subscribers to the cellulartelephony companies existing in the country. According to the NationalTelecommunication Commission, (Conatel), there are 50,000 new subscribers everymonth. However, the users continuously complain about over-invoicing, cuts intransmission and excessive costs.

Socialmobilisation against privatisation

In2000, President González Macchi reactivated the Reform Secretariat andpromulgated Law 1615 on Privatisation of State Companies, set up as the legalframework for privatisation. The first state company on the privatising agendawas basic telephony (the National Telecommunication Administration, ANTELCO),which became a private company with 100% state capital under the name of COPACO,S.A. (Paraguayan Communication Corporation). The Reform Secretariat was advisedby national and international companies that accompanied the process andprepared the technical framework. An international call for bids was made forthe purchase of ANTELCO with submission of bids by the major multinationaltelephony companies (Telefónica Española, France Telecom and Deutsch Telecom,among others).

Atthe same time, severance negotiations started between the government and theworkers of the former ANTELCO and at the end of 2001 an agreement was reached onthe sale of COPACO. The government offered two options: either to pay two monthsalary per year of employment (option selected by 3,425 employees) or to payone-and-a-half month salary per year of employment in cash and the remainingamount in shares of the new company (this option was selected by 962 employees).The total amount of compensation agreed on for the 4,287 employees amounted tosome USD 79 million.

Theprivatisation process was marked by various corrupt actions, such as missingmoney (USD 192,174) under the previous minister and the Secretariat coordinator;[4]hiring of a notary public, a friend of the President of the Republic, for anamount of USD 536,000, to prepare a protocol that could have been done gratis bythe High Notary of the Republic; and direct hiring of private companies (withoutan open bid), by the Reform Secretariat.[5]

Thisattempt at privatising basic telephony cost the State USD 6.4 million. Thisamount was shared in payment of foreign and national consultants, officialsassigned to the Secretariat, travel and unnecessary payments to officials’friends, plus the explicit theft of USD 383,000 by the Reform Secretariat staff.These expenditures were funded from a World Bank loan of USD 12.6 milliongranted for the reform of the water and telecommunication sectors.

Inthe midst of these denunciations, peasant, trade union and left wing sectors setup the People’s Democratic Congress that took up the repeal of Law 1615 as oneof its main demands.[6]During May and June 2002, many mobilisations took place (such as the blockage ofhighways and demonstrations), which paralysed the country. Finally, followingthe repression of the demonstrators during which a young peasant died,Parliament repealed the law. The government then raised rates in sectors such aswater, electricity, public transport and basic telephony, putting the blame onthe suspension of privatisation. It also announced that 550 COPACO employeeswould be dismissed at the end of the year.

Asa result, no legal framework presently exists in the country for privatisation.The official candidate of the National Republican Association (the governmentparty, known as the Colorado Party) has stated the privatisation issue will betaken up again by the next government.

Statedecentralisation: a more hopeful direction

Throughstate decentralisation, the citizenship has achieved some successful venturesthat are slowly being reproduced throughout the country. For example, in thedrinking water sector, various communities, mainly those in municipalities nearAsunción and the departmental capitals, have organised themselves and set upSanitation Boards. These are organised in places the state drinking waterservices do not reach and, through a collaborative system, the neighbourhoodestablishes the whole system of water pipelines, distribution and sanitation fortheir own benefit. Each member of the community or family pays an accessibleprice for this service and can control it, as it is the neighbours themselves,with the acknowledgement of their municipalities, who administrate the funds andmonitor the quality of the system.


[1] Fernando Masi, compiler. Privatizaciones en América Latina y en Paraguay. Asunción: Centro de Análisis y Difusión de la Economía Paraguaya (CADEP), 2000.

[2] The company Medill & Associates Financial Services was conformed by American capital at the moment of the purchase of the Paraguayan merchant fleet. Once the ships were found abandoned, the government tried to locate the directors of the company, but it was in vain. The company had dissolved.

[3] Office of General Statistics, Survey and Census (DGEEC). Integrated Household Survey 2000-2001.

[4] Juan Ernesto Villamayor and Luis Sisul, respectively. The latter has fled the country and has an international search and capture warrant over him.

[5] Baker & McKenzie, Banco Santander, Sanchís Asociados and the sub-consulting company Vouga & Olmedo.

[6] Other demands were to curb the public banking reform process, to withdraw the law on highway concessions, to withdraw the anti-terrorist law, to withdraw the law on VAT on agricultural and livestock products in their natural state, and to struggle against corruption and impunity.