Incoming BNDES chief pledges no return to subsidized loans

In an attempt to appease market players following his nomination, the incoming head of Brazil’s BNDES, Aloizio Mercadante, stressed that the development bank’s past subsidized loan model will not return.

"The first indications are positive, as it shows that the new BNDES head is interested in not returning to past practices that did not work out so well. We need to see if what is part of the discourse now is really put into practice," Roberto Troster, former chief economist at Brazilian banking federation Febraban and now an economist at consultancy Troster & Associados, told BNamericas.

Mercadante also defended the continuation of the concessions program, as BNDES has played a key role in structuring a series of concessions offered by federal and local governments.

"We’re not going to bring back the BNDES from the past. It will be a BNDES of the future. There’s no fiscal room for [the government] to finance BNDES. We will have to look for new sources of financing," Mercadante told reporters.

"In many areas, concessions are welcome, and BNDES can help design projects. It can even innovate in the form of financing," he added, recognizing that the federal government does not have deep pockets to finance infrastructure projects via public investments.

The indication that BNDES will continue structuring concession projects was also applauded. "Brazil has great potential for development and capital attraction, what has always been a shortcoming in the country was the absence of well-designed projects and in recent years BNDES has helped with thas," said Troster.

President-elect Luiz Inácio Lula da Silva announced the appointment of Mercadante earlier this month, generating concern among market participants because it was considered a clear political move that raises the possibility that BNDES will return to its old ways of providing subsidized loans to large economic groups.

Mercadante is a former lower house member and senator of Lula’s Workers Party, and has held several cabinet posts in the past. He will take over at BNDES on January 1, the day Lula is sworn in. 

Since 2016, successive administrations have altered BNDES’s role and in recent years the bank has strongly focused on structuring privatizations, concessions and PPPs, helping the federal government and local authorities attract private investors.

During Workers Party governments between 2003 and 2016 – including eight years under Lula – BNDES directly financed projects at subsidized interest rates based on the TJLP index, which was below the country’s benchmark interest rate (the Selic) used by commercial banks in setting their lending rates.

This practice allowed BNDES to become the dominant force in long-term financing, but it had a negative impact on public finances. After new legislation passed, BNDES began in 2018 to gradually migrate its loans from the TJLP to the TLP index, which saw a reduction in subsidized lending.

NEW DIRECTORS

Mercadante also announced the names of some new directors of BNDES from January.

"The names of the new BNDES directors are good, as most already have considerable experience in the financial sector," said Troster. 

Alexandre de Abreu, former CEO of state-run bank Banco do Brasil will be BNDES’s finance director.

Nelson Barbosa, a former finance and planning minister, will be the bank’s planning director, while Natália Dias, head of Standard Bank Brasil, will be director of the capital market area.

José Gordon, head of the government's industrial innovation company Embrappi, will become BNDES’s director of innovation.

The other new directors, with their posts yet to be determined, are Luciana Costa, from Natixis; Luiz Navarro, former minister of the comptroller general; and Tereza Campello, former minister of social development.