Brazil’s Congress votes to relax rules for politicians in state-owned companies, unsettling investors

SAO PAULO, Dec 14 (Reuters) – Brazil’s lower house of Congress voted late Tuesday to amend the country’s state-owned companies law to make it easier for politicians to take on roles in state-owned companies, sparking a sell-off early Wednesday in local financial markets .

The bill, now before the Senate, cuts the quarantine from 36 months to just one month for those with decision-making roles in political parties or campaigns to take up positions in state-owned companies.

The Brazilian real tumbled as much as 1.2% against the dollar on the news, while the benchmark Bovespa stock index fell 0.8% on Wednesday morning. (.BVSP)

Shares in state-owned companies suffered some of the biggest losses, with oil company Petroleo Brasileiro SA (PETR4.SA) (Petrobras) down 4% and bank Banco do Brasil SA down 2%.

Petrobras has been at the center of a record-breaking political corruption scandal over the past decade, due in part to political appointments to senior management.

Analysts at BTG Pactual said the revised law would be bad for running state-owned companies as it eliminates one of their key mechanisms to protect against political interference.

Goldman Sachs reiterated the concerns, adding that the large majority by which the law passed shows that “the new administration could potentially have enough political capital to garner congressional support and make further adjustments to the law.” .

The proposal was adopted on the same day that President-elect Luiz Inacio Lula da Silva named a Labor Party veteran, Aloizio Mercadante, as the next head of the state development bank BNDES, sending financial markets into turmoil.

In a campaign interview with Reuters in late September, Congressman Alexandre Padilha – one of Lula’s key contacts with investors and business leaders – said Lula has no plans to change the state-owned companies law.

Reporting by Eduardo Simoes; writing by Steven Grattan and Gabriel Araujo; Edited by Brad Haynes and Mark Potter

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