By Jeffrey T. Lewis 

SÃO PAULO -- Oil giant Petrobras lost almost a fifth of its market value Monday after Brazil's President Jair Bolsonaro named an army general to take over the company in an apparent bid to control fuel prices, sparking a crisis of confidence in his administration's commitment to free-market policies.

Mr. Bolsonaro's plans to appoint Joaquim Silva e Luna, who served alongside the president decades ago under Brazil's military dictatorship, came as a blow to the oil producer, which was recently pushed to the brink of bankruptcy through government intervention. The appointment must still be approved by the state-controlled company's board at a meeting scheduled for Feb. 23.

Shares in Petrobras fell nearly 20% in late afternoon trading on Monday, and the Bovespa index fell more than 4%, with the Brazilian real sliding more than 1% against the dollar.

"It's a complete disaster," said Mailson da Nóbrega, a Brazilian economist and former finance minister.

He said Mr. Bolsonaro is increasingly ruling like a populist by intervening in Latin America's largest company. "This creates insecurity about other areas of the government...it's going to take a long time for us to come back from this," he added.

Shares in Brazil's biggest power companies also slumped after Mr. Bolsonaro told supporters over the weekend that he planned to "stick his finger" in that sector too.

But it was Mr. Bolsonaro's naming of Mr. Silva e Luna, to replace Roberto Castello Branco, a University of Chicago-educated economist, that has prompted market turmoil in Brazil. His term was to end on March 20, but the board was expected to extend it another 2 years.

With unemployment above 14% and anger growing over Mr. Bolsonaro's handling of a pandemic that has killed a quarter of a million people in Brazil, the president has increasingly embraced policies that entail big spending plans and heavy intrusion into the economy.

Under the rival leftist Workers' Party, Petrobras was used between 2011 and 2016 to spend about $30 billion funding gasoline and diesel subsidies to combat inflation. It also lost billions of dollars to corruption in a scandal that ensnared company executives and politicians, say investigators.

Speaking to crowds of supporters at a beach on Saturday, Mr. Bolsonaro called Petrobras's management "cowards" for recent fuel price rises, and Sunday accused the company of pandering to investors and having "zero commitment to Brazil."

The president denied he was interfering in the company, saying he was instead demanding greater "predictability and transparency," playing down the move.

Write to Jeffrey T. Lewis at jeffrey.lewis@wsj.com

 

(END) Dow Jones Newswires

February 22, 2021 15:39 ET (20:39 GMT)

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