Bloomberg — Brazil’s development bank BNDES intends to set aside as much as 30% of its disbursements to finance local companies in the areas of innovation, sustainability and energy transition, as part of a plan to support the industrial sector with affordable interest rates.
Credit to the industry will grow gradually until the end of President Luiz Inacio Lula da Silva’s term and could reach as much as 60 billion reais ($12 billion) if the bank meets its target to expand disbursements to about 200 billion reais by then. It will also depend on congressional approval of new rules allowing BNDES to set lower interest rates for specific sectors it wants to support, according to Jose Luis Gordon, director for development, foreign trade and innovation at the bank.
“How is it possible to finance technology innovation with interest rates of 14%, 15% or even 16%? It’s impossible as no one will take the risk,” Gordon said Wednesday in an interview. “We also have to think of more stable rates that provide conditions for companies to plan their businesses.”
BNDES financing is a crucial part of Lula’s plans to re-energize Latin America’s largest economy, which is slowing down under the weight of high interest rates. The bank’s potential use of subsidized rates is a concern for central bank chief Roberto Campos Neto, who has warned they could reduce the power of monetary policy and force the benchmark Selic rate to remain high for longer.
Gordon said, however, that lower interest rates would be used in a strategic way to support projects that wouldn’t receive funding elsewhere. Moreover, unlike in previous administrations of Lula and his successor Dilma Rousseff, those loans won’t be subsidized by the Treasury and won’t back large companies embarking on acquisition sprees and global expansions.
BNDES’s role during past leftist governments was marred by allegations that it was favoring political allies and handing generous bonuses to its employees based on the volume of credit operations they closed, which led to corruption probes. Internal investigations carried out by the bank found no wrongdoing.
Now, the team running the institution wants to limit the scope of its loans to strategic projects that lack private funding, either because they’re too long term or in untested areas. The BNDES also plans to finance exports of goods by Brazilian companies, Gordon said, adding that the bank is considering reducing the spread it charges on those types of loans, currently between 0.9 and 1.3 percentage points.
If the plan works, BNDES would still be supporting the industrial sector with less than it did in its heyday. Between 2000 and 2010, an average of 45% of its disbursements were directed to industry — in 2009 alone, the bank loaned to the sector 63.5 billion reais ($12.9 billion) from a total of 137.4 billion reais in outlays.
That percentage fell to less than 20% during Jair Bolsonaro’s administration, when a liberal economic team slashed the bank’s holdings in equities, local bonds, investment funds, also cutting credit lines.
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