Venezuela, Cuba and Mozambique add up to US$ 1 billion in debt arrears with BNDES

Venezuela, Cuba and Mozambique totaled US$ 1.03 billion in late payments to the BNDES (National Bank for Economic and Social Development) until September 2022, the most recent period with data available on the institution’s website.

The default refers to policy loans classified by the bank as exports of Brazilian engineering goods and services.

This initiative generated controversy during PT administrations due to the record of defaults and financing that benefited contractors cited in cases of corruption.

This week, the theme returned to the center of the debate after President Luiz Inácio Lula da Silva (PT) indicated, on a visit to Argentina, that the BNDES could once again finance Brazilian projects abroad.

Launched in 1998, the export financing program for engineering goods and services has paralyzed disbursements in recent years amid the discovery of cases of corruption with contractors.

Through the initiative, resources were allocated to Brazilian companies, in reais, and the importing countries assumed the debts. Payment should be made with interest, in dollars or euros.

In cases of default, the BNDES has to activate the structure of guarantees that allows reimbursement via the FGE (Export Guarantee Fund), funded with resources from the National Treasury.

the financing

Venezuela leads the default ranking. Until September, the country’s arrears amounted to around US$ 682 million.

Of this amount, US$ 641 million had already been compensated by the FGE to the BNDES. The other US$ 41 million still appeared as overdue installments to be compensated.

Cuba comes next on the list. Until September, the country registered around US$ 227 million in default with the bank.

Of this amount, US$ 214 million had already been compensated by the FGE. Another US$ 13 million still appeared as arrears to be settled.

Mozambique is the third country with records of default. The arrears amounted to US$ 122 million. This amount had already been compensated by the FGE.

The three countries still have another US$573 million due at dates ahead. Cuba accounts for most of the outstanding balance (US$406 million), followed by Venezuela (US$122 million) and Mozambique (US$45 million).

The impact on the bank

BNDES disbursed around US$ 10.5 billion between 1998 and 2017 to carry out projects in 15 countries. Most, 88% of the total, was in the period from 2007 to 2015.

Until September of last year, the bank had received back US$ 12.8 billion. The amount includes the principal portion of the loans plus interest.

Six countries benefited from 89% of disbursements under this policy. They are as follows: Angola (US$3.2 billion), Argentina (US$2 billion), Venezuela (US$1.5 billion), Dominican Republic (US$1.2 billion), Ecuador (US$0.7 billion) and Cuba ($0.65 billion).

On its website, the BNDES states that support for the export of engineering goods and services represented only 1.3% of the total disbursed by the institution between 2003 and 2018, while investments in infrastructure in Brazil, in the same period, accounted for 36%.

The average payment period for financing projects abroad was 11 years and 2 months.

The disbursement did not cover, for example, goods acquired outside the country or expenses with local labor.

The money was intended exclusively for goods and services of Brazilian origin used in the works, according to information made available by the institution.

In 2019, the TCU (Tribunal de Conta das União) even audited export financing operations for road engineering services granted to Brazilian contractors abroad. 67 operations were analyzed for 29 works, carried out from 2006 to 2014, covering Angola, Dominican Republic, Ghana, Guatemala and Honduras.

At the time, evidence of deviations of BRL 4 billion in loans was identified.

The process, under the report of Minister Augusto Sherman, concluded that there were indications that the bank approved and disbursed a volume of resources greater than necessary. It was found that the probable deviations were only possible due to flaws in the standardization of the resource release process, including deficiencies in the preparation of analysis reports of credit requests.

TCU has made recommendations to avoid future distortions. According to the TCU press office, there are no restrictions on the part of the control body for the BNDES to use credit for works abroad again.

BNDES, however, suspended this type of operation. Sources linked to the bank claim that the institution has no expectations at the time of financing works in other countries. The preference at this moment is to evaluate the financing of machines and equipment, produced in Brazil, that can be used abroad.