Allies must prevent BNDES ‘return to the past’ under Lula, analysts say

The BNDES (National Bank for Economic and Social Development) should have a reinforced role during the third term of Luiz Inácio Lula da Silva (PT), economists project.

They, however, do not see for now the return of the public bank to policies adopted – and much criticized – in previous PT administrations, such as abundant and subsidized credit for large companies, the so-called national champions.

“In the government’s plan, Lula indicated that he would reinforce the importance and weight of the BNDES in the economy. There is a sign that the bank will take more intense action”, evaluates economist Carla Beni, a professor at FGV (Fundação Getulio Vargas) .

“But we have to remember that the PT was not the only one who won the election. It was a coalition. I believe that this movement will prevent the government from falling into the same model as before, even so as not to make a mistake again”, he adds.

In an interview in April, Lula spoke of “transforming the BNDES into a great investment bank for small and medium-sized companies.” This association was made again throughout the campaign.

“We are going to encourage micro-entrepreneurship, and the BNDES will now finance small and medium-sized companies, micro-business, entrepreneurship,” said Lula in August.

On the eve of the second round, the PT campaign released a letter in which it indicated that public banks, “especially BNDES”, in addition to companies such as Petrobras, “will play a fundamental role in this new cycle”. The government program also talks about strengthening public banks.

“We tend to see a more active BNDES, more reinforced. What is expected is that there will be a more strategic position now”, says economist Rafael Cagnin, from Iedi (Instituto de Estudos para o Desenvolvimento Industrial).

“We are not talking about those loans from the past, when the bank grew with transfers from the Treasury. The bank does not need to leverage itself to that extent. It needs to be more effective, more strategic”, he adds.

Created 70 years ago, the BNDES expanded its operations during the PT era, with low-cost credit for large companies.

During the Dilma Rousseff (PT) government, disbursements reached R$ 190.4 billion in 2013 alone, according to data available on the institution’s website.

Resources shrank from changes adopted in the terms of Michel Temer (MDB) and Jair Bolsonaro (PL). The bank then began to focus more efforts on structuring projects in areas such as infrastructure and privatization.

In 2021, disbursements dropped to BRL 64.3 billion. This year, from January to June, the amount was R$ 33.2 billion.

“There is an arc of political alliances [com Lula], and learning from previous experiences is also expected. Thus, the performance of the BNDES should not be seen only as a rescue of the past”, points out Cagnin.

The betting exchange for the presidency of the bank was opened shortly after the definition of the second round of elections.

One of those listed is economist Gabriel Galípolo, former president of the Fator bank. He acted in the PT campaign as Lula’s economic adviser, seeking to bring the then candidate closer to the financial market.

Nor is the hypothesis of former minister Aloizio Mercadante occupying the presidency of the BNDES completely ruled out.

In the view of Sergio Vale, chief economist at the consultancy MB Associados, it is still necessary to wait for the first confirmations from the new government to understand the role of the bank from 2023 onwards.

He sees a “more restricted” picture for the institution’s sources of resources (funding), compared to previous PT administrations.

Thus, the way forward for the BNDES, he assesses, would be to concentrate efforts on financing projects that arouse less interest in the private sector, including initiatives by small companies and in the basic sanitation sector.

“Trying to compete with the private sector, with subsidized rates, as in the past, would be a colossal mistake”, says Vale. “A strategy like that of the national champions has to be avoided at all costs.”

According to data available on the BNDES website, the National Treasury represented 40% of the bank’s funding sources in 2018. On June 30, 2022, the share was 15%.

“The country needs to invest in small and medium-sized companies, in startups. These are the businesses with the most difficulty to obtain credit, and not the great national champions, who can go to the capital market”, evaluates Alexandre Espirito Santo, chief economist at Órama and professor at Ibmec-RJ.

He believes that Lula will assume the presidency in the midst of a “more challenging” external scenario than in previous terms, which also reinforces the need to be concerned about the fiscal framework.

Since 2018, BNDES loan agreements are linked to the TLP (Long Term Rate), which is more associated with market rates.

This modality replaced the TJLP (Long-Term Interest Rate), which was lower by a government decision and ended up imposing non-explicit costs on the bank’s credit policy.