Lula to use BNDES for greater State role in economy

Brazilian development bank BNDES is expected to be one of the main tools that President Luiz Inácio Lula da Silva's administration uses to expand the State's role in the economy. 

"The new BNDES administration will focus on providing more financing for all types of projects that are of interest to the government. The volume of BNDES loans will tend to rise in the coming years to more than double that of the bank's previous administration," Luís Otavio Leal, Banco Alfa chief economist, tells BNamericas. 

"We will see a bank that is much more active in local and international projects, but let's see over time whether that funding will really be operations that are complementary to private banks and the capital market or if BNDES competes with private sector banks." 

During previous workers' party (PT) administrations, BNDES had an outsize role in the economy, particularly by financing projects. That policy was criticized by economists who argued the development bank operated with subsidized rates, competing with private banks and generating costs for the national treasury at the same time.

Lula is a strong advocate of greater State participation in the economy. By contrast, during the administration of former president Jair Bolsonaro, the scope of BNDES's activities was limited to structuring projects for concessions and public-private partnerships in order to attract private sector investments.

The new team of executives at BNDES, including incoming bank president Aloizio Mercadante, took office on Monday. During the inauguration ceremony, Lula spoke about BNDES having a more active role. 

"In 2002, BNDES loans totaled 37bn reais [US$7.1bn]. In 2013 we reached 190bn reais and in 2021 only 64bn reais. We have a total of 14,000 infrastructure works paralyzed and this country needs to be rebuilt. BNDES urgently needs to be the bank that fuels the development and economic growth of this country again," Lula said. 

Lula also said that BNDES should expand its funding of engineering projects carried out by Brazilian companies abroad, as a measure to accelerate regional integration and generate more jobs for local companies.

During his inaugural speech, Mercadante outlined certain priorities for BNDES.

"A development bank has to have a long-term vision and one of those strategies is the financing of exports. In addition to agricultural products, Brazil is also trying to export industrialized products. We need to scale up our exports of industrialized products and insert ourselves into global value chains. We want to constitute an Eximbank within BNDES," he said. 

"We need to have a more active BNDES, but we don't intend to compete in the market with private banks. That is not the role of BNDES. We need a partnership. BNDES can contribute to reducing risks and developing projects. Currently, there is a shortfall of 2.6% of GDP for investments in infrastructure and BNDES can support that." 

According to Mercadante, a change in the methodology of the long-term interest rate (TLP) that is used to pay back BNDES financing will be discussed in congress in order to find a mechanism with less volatility.

Mercadante also supported the idea of BNDES participating in financing more projects to increase regional integration. 

"Our development involves the integration of Latin America. Brazil has more than half the population and GDP of South America, and we're inserted in this region. Brazil is big and will be even bigger when it works together with its neighbors," he said.