Centre on Regulation and Competition WORKING PAPER SERIES

Brazil is going through an institutional transition in the provision of public services, which had historically been supplied by State monopolies. A core element in this process is been the creation of a new form of public sector institutions – regulatory agencies with operational and financial autonomy. In this paper we identify their most important decisions and provide detailed analysis of the economic and political context in which they have been taken. We then compare Brazil with some of its peers and argue that its regulatory performance has been rather satisfactory so far, although four main problems must be solved: a. clear governance inadequacies in the coordination between different bodies; b. unclear definition of their respective competencies; c. lack of regulatory sovereignty; and d. inadequacies in design of the new antitrust agency. "What are we doing in practice? Creating regulatory agencies, a new State. And when I say regulation, I mean a radicalization of democracy. Improved control deepens democracy" Fernando Henrique Cardoso (1997) INTRODUCTION Brazil is going through an institutional transition in the provision of public services, which had historically been supplied by State monopolies. Three main factors explain this development: the scarcity of fiscal revenues required to fund important investment needs, technical advances refuting the natural monopoly argument to justify state ownership, and political and ideological changes that have diminished the sensitivity towards private ownership of hitherto strategic industries. The outcome is a set of policies that try to govern ownership transfer and competition with the ultimate aim of improving cost efficiency and service delivery, increasing product variety, enhancing innovation, and reducing prices for users and consumers.