Banking – Brazil – Right on cue, BNDES size, subsidy issues take political turn
As predicted by BTG Pactual CEO Andre Esteves earlier this month, the issues surrounding the size and subsidization of Brazilian development bank BNDES have taken a distinctly political turn, as critics of the bank are dismissed by some government officials as politically motivated, Marcio Nakane of consulting firm Tendencias told BNamericas.
“Sometimes it seems like you can’t raise these issues, because you are accused of having some stake in the next elections,” he said of the presidential elections scheduled for October 3.
“If you try to raise any questions about the rationale of these [public sector] measures, [government defenders] will remind you, ‘but no, during the crisis they were important and if it weren’t for BNDES it would have been a much worse crisis.’ So, the discussion right now about BNDES is not really making any headway,” the technical director at Tendencias said in a telephone interview.
The criticisms, including arguments that it is overly subsidized, may be trying to create so-called “national champion” firms and stoking inflation expectations, against BNDES have multiplied since an article in The Economist magazine set off a firestorm.
The politics has also gotten complicated, since BNDES head Luciano Coutinho is viewed as a likely contender for the finance minister job under presidential hopeful Dilma Rousseff – the chosen workers’ party PT heir of President Luiz Inacio Lula da Silva. She is running against opposition party PSDB candidate Jose Serra and green party candidate Marina Silva.
MANTEGA MAKES MORE ECONOMIC, IF UNPROVABLE ARGUMENT
In recent days, several defenders of BNDES have responded to the spate of criticism to the bank and its policies, including finance minister Guido Mantega, who said that the costs of subsidizing BNDES were less than the benefits to the government of increased tax revenue and lower social benefits spending from a healthier economy and the dividends paid by the bank back to the government.
“He’s not only making his argument on a different level, but he’s also directing the argument toward the right one,” said Nakane, who is also an economics professor at Universidade de Sao Paulo, noting that this question is not currently answerable with the evidence available, but that the proper question is whether BNDES investments yield higher returns than the cost to the Brazilian treasury.
JULY DATA PROVIDES SCANT CLUES ON BNDES TREND
According to data released on August 10, BNDES disbursed 72.6bn reais (US$41.4bn) in January-July, which was down 3% from the same months in 2009, but the number would have shown a 48% increase had it not been for a 25bn-real loan to federal energy company Petrobras (NYSE: PBR) cleared in June last year.
Nakane said it was too early to say if BNDES was starting to shift paths on growth, but that central bank BCB data and further disbursement data from the development bank would give more clues, even while the government has shown a very liberal policy with the bank since the financial crisis in late 2008.
“Treasury has made it clear that they have open arms towards BNDES,” he said of the 180bn reais that has been turned over to the bank by the government since 2009. Coutinho put the disbursements from this capitalization process at 116bn reais since then to early July, according to local press reports.
Additionally, the BNDES head also said that the 10 largest companies in the country had received 28.7% of the 261bn reais that had been disbursed between 2008 and end-June 2010, fending off criticism that the bank had overly concentrated its investments in large companies.
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