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Brazil’s BNDES: The Levy Factor
New BNDES chief Joaquim Levy brings positive changes to bank, experts say.
BY LATIN AMERICA ADVISOR
Inter-American Dialogue
Brazilian President Jair Bolsonaro has pledged to investigate alleged corruption at state-run development bank BNDES, a massive institution comparable in size to the World Bank. Before he took office in January, Bolsonaro also criticized the development bank, saying it funded projects that were unrelated to Brazilian national interests, such as a container terminal at Cuba’s port of Mariel. What are the most important actions Bolsonaro’s government is taking at BNDES? Who will be the biggest winners and losers resulting from proposed reforms at the development bank? How will changes at BNDES affect Brazil’s business sector?
Amanda Mattingly, senior director at The Arkin Group in New York: Brazilian President Jair Bolsonaro came into office with a team of neoliberal economists ready to institute market-friendly reforms in Brazil. Bolsonaro sees the private sector as the engine for growth and development and thus, wants to privatize or reform a number of state-owned entities, including the Brazilian Development Bank (BNDES). It is not surprising, given that BNDES has for some time been criticized for murky deals and lending state funds to private corporations with corrupt practices or that could have financed themselves through international capital markets. For example, Odebrecht, the large Brazilian construction company at the center of the Lava Jato corruption scandal, received large loans from BNDES in the past. Even before Bolsonaro campaigned for president, BNDES came under scrutiny for loans that benefited projects and workers outside of Brazil. The $700 million Mariel port project in Cuba was one. So far, Bolsonaro’s most significant action at BNDES is the appointment of Joaquim Levy to run the bank and initiate the reforms. Levy comes to the job with a lot of experience, having served in previous administrations and most recently at the World Bank. Reportedly, Levy is charged with uncovering corrupt lending practices and opening the so-called ‘black box’ of secret transactions at BNDES. Whether or not secret transactions are actually revealed, BNDES reforms may just mean that the bank scales back its funding in areas such as agriculture, infrastructure or energy that would have benefited Brazil and other countries in the region, leaving the private sector to provide longer-term financing of such development projects.
Monica de Bolle, director of the Latin American Studies program at the Johns Hopkins University School of Advanced International Studies: Bolsonaro has appointed former Finance Minister Joaquim Levy to head BNDES. Given Levy’s vast experience in the public sector and in development banks such as the World Bank, he is taking steps to ensure that the development bank is well-focused on key priorities. BNDES experienced massive balance sheet growth during Lula’s second term in office, and especially during Dilma Rousseff’s first term. A number of opaque loans were either made directly to governments in the region—among them Cuba and Venezuela—as well as to companies operating in those countries and deeply involved in corruption scandals, such as Odebrecht. Over the past few years, the bank has been trying to make its lending practices more transparent, but there’s still a ways to go. Therefore, the most important priorities are ensuring transparency and formulating a clear mandate for the bank. If done correctly, measures would remove distortions from the Brazilian financial sector and improve access to financing, especially for small and medium enterprises.
Joel Korn, president of WKI Brasil and senior international partner at UPITE Consulting Services: As part of the highly regarded economic team that Economy Minister Paulo Guedes assembled, the appointment of former Finance Minister Joaquim Levy as the new president of BNDES reinforces confidence that the institution will be subject to sound governance practices and its role as a development bank will be fully aligned with the government’s liberal economic policies. As such, the bank will be actively engaged in the support of privatization/public concessions programs and priority infrastructure projects. Moreover, BNDES will be committed to significantly expand its support to micro/small-size companies, recognizing its importance in the promotion of economic growth and employment generation. This was confirmed by the recent announcement of a new 1.3 billion-real program targeting this specific segment. Unlike the experience in the past three administrations, it is anticipated that the bank will not be subject to undue political influences that led the institution to finance questionable projects, especially cross-border. Rather, BNDES is expected to focus on sound lending activities that are consistent with the priority demands of the Brazilian economy. The private sector will benefit significantly as BNDES leverages its role in the promotion of economic and social development through further impetus in overdue productivity gains while stimulating innovation, environmental responsibility and competitiveness across a broad spectrum of economic activities. Evidently, opportunities will be limited for companies that fail to adjust to this new reality and continue to rely on protective measures, as opposed to taking bold actions to become intrinsically competitive. The long-awaited social security reform, crucial to addressing the country’s severe fiscal constraints, along with the planned liberalization and microeconomic policies aimed at deregulation and reduction of the huge cost of doing business, represent cornerstone factors for stimulating new investments and economic growth. In this scenario, BNDES will have a key role to play for a constructive impact on Brazil’s business sector.
Welber Barral, senior consultant at BMJ Consultores Associados and former Brazilian foreign trade secretary: The new BNDES president, Joaquim Levy, is a former finance minister and seasoned economist. He declared that BNDES will be more active on innovation and infrastructure, rather than competing with commercial banks. This assertion also reflects the government’s view that state-owned banks should be less interventionist in the financial market. BNDES will reduce its credit offer to traditional industries. It will be useful in the promised privatization process of state-owned companies. It will focus its credit lines on SMEs, start-ups and infrastructure projects. Some sectors that received incentives and were not internationally competitive will have to look for alternative credit lines. Trade finance, for example, was dominated by BNDES and Banco do Brasil in the last decades, and exporters will be forced to look for structured operations with financial institutions and fintechs.
Republished with permission from the Inter-American Dialogue's daily Latin America Advisor
