RIO DE JANEIRO, Brazil - President Luiz Inacio Lula da Silva of the center-left Workers' Party has opened a wide lead in the polls over his challenger, Geraldo Alckmin, by accusing him and his centrist Brazilian Social Democracy Party of planning to privatize state-run industries it didn't get around to during the 1990s, when it led the government.

Brazil's President Luiz Inacio Lula da Silva greets supporters gathered outside the Alvorada Palace to celebrate his 61st birthday in Brasilia October 27, 2006. REUTERS/Jamil Bittar

Under President Fernando Henrique Cardoso, the government privatized dozens of enterprises ranging from the country's railroads to aircraft manufacturer Embraer.

Many Brazilians feel that companies were sold at fire-sale prices and that privatization has raised service costs and reduced government revenues without helping to pay off the country's debt, and the issue is playing a major role in the runoff race for the presidency Sunday.

Alckmin, the former governor of the country's biggest state, has pledged repeatedly to keep his hands off state-run companies such as energy firm Petrobras and bank Banco do Brasil. He appeared at a news conference last week wearing a jacket and baseball cap covered with the logos of state-owned companies.

The strategy hasn't worked, and public opinion polls show that Lula has all but secured victory Sunday, enjoying about 60 percent of voters' support.

"Politically, the (Workers' Party) played the privatization card very well," political analyst Luiz Pedone said. "It's an issue that has cost (Alckmin's party) in the past, and he lost time this time around saying he was not going to do this or that.

"The average voter doesn't know much about privatization. He only knows public property was sold."

Rio de Janeiro computer analyst Pedro Bruno Rodrigues Lourenco said he planned to vote for Lula, and he called the privatizations carried out during the 1990s "badly done."

"We pretty much lost sovereignty over these companies," Rodrigues Lourenco said. "I think Alckmin will privatize more if he gets a chance."

Studies have found that Brazilian privatization has produced more efficient, profitable companies and better, although sometimes more costly, services. Privatization defenders often cite the improved telephone network as an example of what went right.

Applying for a phone line used to mean paying thousands of dollars in start-up fees and waiting for years while the state-run phone company, Telebras, processed the paperwork.

That changed after the government broke up Telebras in 1998 and sold the pieces to private investors, many of them foreign. The number of Brazilians with phone lines and cell phones jumped nearly tenfold, and getting a line now takes less than a week.

"In the past, the state companies had lost all of their capacity for investment," said economist Alexandre Mendonca de Barros, who consults for Alckmin's campaign. "It's all different now. The situations of the companies that survived are very good."

Even Lula's advisers say privatization was mostly successful, and Lula has said he won't renationalize companies that were sold. In fact, he has championed public-private partnerships that award concessions over roads and other public goods to private companies for limited terms.

"The issue was brought into the campaign not necessarily to criticize the privatization of the 1990s but to avoid future privatization," said Nelson Barbosa, the economic policy coordinator for Lula's campaign. "It was a different time then, and the state companies are doing very well now."

Many Brazilian companies have chalked up spectacular profits since they were privatized. The mining firm Companhia Vale do Rio Doce, which was privatized in 1997, saw annual profits more than triple from 2001 to 2005, and this week it became the world's second-biggest mining company after it bought Canadian firm Inco for $13.2 billion.

Critics charge that such companies were sold for much less than their market prices in corrupt auctions. The mining company fetched about $3 billion, about what it earned in just the first half of this year.

"These privatizations were a disaster for the country," said Joao Paulo Rodrigues, the national secretary of the Landless Workers' Movement, an agrarian reform group. He wants the government to take over the mining company again.

"They sold our assets at awful prices, almost for free, and this country has lost out on millions of dollars in revenue," he said.

Privatization in Latin America has disenchanted many by raising service rates while failing to reduce public debts as leaders had promised, said Joseph Stiglitz, a Nobel Prize-winning economist at Columbia University. Brazil's debt has doubled to about $500 billion since 2000.

"There was in many cases increased efficiency, but the question is, `Who benefited?''' he asked. "Did the people benefit or just the corporations?"

The power of the issue and the nationalist feelings it stirs have been evident this month, economist Selene Peres Peres Nunes said. Two days after Alckmin donned the jacket and baseball cap, he acknowledged that he had erred in engaging in the debate.

"There's still a lot of anger over what happened, despite the successes," Nunes said. "Many people still feel like they were cheated and lied to."

© Copyright 2006 McClatchy Newspapers

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