Brazil’s Bolsonaro Taps Privatization Advocate to Lead Petrobras

November 19, 2018 Updated: November 19, 2018

RIO DE JANEIRO—Brazil’s government on Nov. 19 turned to a University of Chicago-trained economist who has spoken in favor of privatizing Petroleo Brasileiro SA to be the head of the state-controlled oil company.

The nomination of Roberto Castello Branco is the latest in a string of appointments of Chicago-trained, free-market economists to the team President-elect Jair Bolsonaro, who takes office on Jan. 1.

Castello Branco has in the past advocated the privatization of Petrobras, Brazil’s largest company by market capitalization and the employer of 60,000 people.

He shares his University of Chicago ties with Bolsonaro’s influential pick for economy minister, Paulo Guedes, as well as Joaquim Levy, who has been tapped to lead Brazil’s powerful state development bank, BNDES.

Chicago’s economics department has long been known for orthodox economics, particularly in Latin America, and much of Brazil’s business elite is enthused by the prospect of Chicago-linked appointees in top posts in public administration.

“He’s been public in the past about advocating for less government intervention … all the way to privatizing parts of Petrobras,” James Gulbrandsen, chief investment officer for Latin American investments at NCH Capital, said of the appointment.

“We basically have the University of Chicago economics department taking over the Brazilian economy.”

Castello Branco, a member of Petrobras’s board until 2016, has also held executive positions at Brazil’s central bank and at iron ore miner Vale SA.

He will take over from Ivan Monteiro, who will remain CEO of the oil company until Castello Branco is officially appointed by Bolsonaro, Guedes said on Nov. 19.

In a June letter to newspaper Folha de S.Paulo, Castello Branco wrote in favor of privatizing Petrobras, a strong hint that he will aggressively push forward with the company’s ambitious divestment plans.

“We expect Petrobras’ deleveraging process and divestment program to continue under Castello Branco’s tenure,” Vincente Falanga and Oscar Camilo, analysts at Banco Bradesco BBI, wrote in a note to clients.

 

Challenges Ahead

Castello Branco will take the helm at Petrobras amid a debate within Bolsonaro’s team over the direction of the oil producer.

Guedes has advocated a full privatization of the company while military generals around Bolsonaro oppose such an idea. Bolsonaro himself has said he favors keeping the company in state hands but is open to privatizing certain assets.

Petrobras, which has played a leading roll in developing a bonanza of deep-water oil finds in recent decades, is a source of national pride for many Brazilians.

Yet its central role in the “Car Wash” investigation, considered by many to be the world’s largest corruption probe, has hurt its public image and bottom line in recent years.

With Petrobras burdened by some $88 billion of gross debt, the market is eager to see an ongoing divestment program maintain a full head of steam in coming years.

Castello Branco’s appointment follows the Nov. 16 nomination of banking executive Roberto Campos Neto as head of Brazil’s central bank. University of California-trained Campos is a senior executive at Banco Santander Brasil SA.

Bolsonaro’s team first sounded out Castello Branco about his interest in the job in October, shortly after Bolsonaro won the presidential election, sources with knowledge of the matter told Reuters.

Traders said the appointment of a market-friendly CEO at Petrobras was widely expected. Some said they would have seen keeping Monteiro on as a positive as well.

“I preferred that Ivan (Monteiro) stay on, but given the change, given that (Castello Branco) was on the board, he already knows the company and he has a good profile,” said a Rio de Janeiro-based trader, who requested anonymity to speak frankly.

Preferred shares of Petrobras were down 0.3 percent in early afternoon trade, while Brazil’s benchmark Bovespa index was off some 1.2 percent.

 

By Gram Slattery, Rodrigo Viga Gaier & Marta Nogueira

RECOMMENDED