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[Enclosure]
The following clauses of the new draft constitution seem to have a
direct bearing on the investment of foreign capital in Brazil.
Undoubtedly many other clauses of the draft constitution will be of
interest in this same connection, particularly those affecting the
rights, privileges and opportunities of foreigners resident in
Brazil, but for sake of brevity comments are submitted only on the
following articles:
Article 164, paragraph 6. It seems likely that reference to the
“progressive nationalization of banks, insurance and investment
companies”, et cetera, will have the effect of deterring further
foreign capital investments of such enterprises. While it is
recognized that the Government of Brazil, as well as any other
country, may wish to reserve to itself the right to nationalize such
institutions at any time it deems convenient to do so, to insert
into the constitution the phrase “progressive nationalization” might
be interpreted as an indication of policy on the part of Brazil
which would render it speculative and unattractive to invest private
capital in these enterprises. Not only would there be a danger of
discouraging foreign investment in these particular enterprises but
also the policy of nationalization implied by the article might have
a deterrent effect on foreign capital investment in all other types
of enterprise. Furthermore, the broad constitutional powers granted
the Union under paragraph 3 of the same article would seem to render
unnecessary specific reference to the possibility of nationalizing
certain specified types of enterprises.
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Article 164, paragraph 7. The same comments made above in regard to
paragraph 6 apply with equal force to the first sentence of
paragraph 7, which refers to the “nationalization of public
services”.
In addition, to provide in the basic law of the land a procedure for
determining the rate structure of the various types of public
utilities would seem to be going beyond the normal scope of the
Constitution, particularly when the entire question of rate fixing
in public services is so highly technical, complicated and
controversial.
Article 164, paragraph 9. It is understood that one of the major
objectives of the Brazilian Government is to permit and encourage
the participation of foreign capital in the development of Brazil’s
mining and petroleum resources. A careful reading of this paragraph
leads to the conclusion that the participation of foreign capital in
such enterprises is permitted in the present draft, but doubts have
been expressed as to whether such capital participation is
encouraged. In other words, the interpretation of the phrase
“empresas organizadas no país” appears to be susceptible of
subsequent legal interpretation by the congress and the courts in
such a way as to have an adverse effect on foreign capital
participation. In such circumstances, foreign companies would be
reluctant to make large-scale investments of capital unless their
constitutional right to continue in business were more fully
guaranteed by the constitution and not subject to the vicissitudes
of congressional action at any given time. It would not seem
difficult, by very slight rewording, to make this guarantee
absolutely unequivocal and thereby give effect to the Brazilian
Government’s desire to create conditions favoring the investment of
foreign capital in the development of these major resources.
