BNDES wants to reduce interest rates, but denies plan to subsidize credit

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The president of the BNDES (National Bank for Economic and Social Development), Aloizio Mercadante, and its financial director, Alexandre Abreu, defended this Tuesday (31) changes in the TLP, the long-term interest rate charged by the bank. Both, however, stated that the development bank does not intend to resume subsidized credit policies, and that any adjustment will not be financed by the Treasury.

After meeting with Febraban (Brazilian Federation of Banks) in the morning, Mercadante stated that he proposed that the government and the federation discuss a bill to reduce the TLP (Long-Term Rate).

Currently, it considers the consumer price index (IPCA, official inflation) plus the real interest rate on Treasury bonds (NTN-B). TLP remunerates the main sources of funds for BNDES loans.

Mercadante ruled out, however, an eventual return of the TJLP. “The BNDES does not need and is not able to receive subsidies from the Treasury, but it has room to reduce this interest rate and we want to do this together with Febraban”, he said.

He also defended the need to reduce interest rates and spreads and said he hoped the bank would manage to be more present at Febraban.

“We have the highest interest rate in the world economy, we have to reduce spreads. The public sector, together with the private sector, will improve credit to produce more and generate more jobs in Brazil”, he said.

In the afternoon, during an event promoted by Credit Suisse, the financial director of the BNDES, Alexandre Abreu, also stated that he intends to make adjustments to lower the TLP (Long-Term Rate), but without using public resources to finance the operation.

“Today the TLP ended up being, at times, bigger than the Selic [taxa básica de juros]. That is, the BNDES was charging more amounts in its loans, a higher percentage, than the government’s debt financing itself.”

Changes in the TLP, however, arouse the fear of analysts of a new intervention in the economy via subsidized interest rates, like what was done during the Dilma Rousseff government.

Dispelling speculation, Abreu said that, in recent years, the BNDES returned R$628 billion to the National Treasury, and that the idea is not to “take that back”. The aim, he said, is to use other funding mechanisms to increase participation in projects.

Like Mercadante, Abreu reinforced that there will be no type of subsidy in financing from the development bank, as there is no fiscal space for this type of policy.

“There is no fiscal space in Brazil today to take money from the Treasury and subsidize a large-scale financing operation. And there is no need,” he said.

According to the director, the BNDES has the capacity to attract resources without having to use public money. He said that a small participation by the bank in a project, for example, is capable of signaling that that investment is within the interests of the government, which helps to attract foreign and national investors.

“Our mission is to make the money available to the BNDES ever more efficient, in order to reduce the final price for the borrower, but never burdening the National Treasury.”

Regarding the strategies to achieve this, he mentioned instruments such as international funding that, added to domestic funding, may allow for a mix to offer a lower interest rate.

According to Abreu, in the 1990s, the development bank made an annual disbursement of around 2% of GDP (Gross Domestic Product). In the 2000s, this figure reached 4%, and today it stands at 0.7% of GDP.

“We understand, in principle, that 4% is an exaggeration. Perhaps there is no room for that. But, perhaps, going back to what was the historic role [do banco] 2% could be a good indicator”, he said. “But, I repeat, without any kind of subsidy from the Treasury, because the Treasury doesn’t have fiscal space for that”, he added.

The event also had the participation of Natália Dias, appointed director of capital markets at BNDES. According to her, the increase in disbursements should occur in a complementary way to other instruments.

One of the ways, she said, is to use mechanisms —such as co-investment in funds— where the development bank uses its analytical expertise to attract private funds.

BNDES priorities

Abreu said that the new BNDES board is still defining what the management plan will be, but that there are already some priority points where the institution intends to act.

One of the focuses will be what he calls reindustrialization. According to the director, Brazil once had 27% of its GDP based on industrial activity, a figure that is currently around 11%.

“It is extremely important for us to be an exporter of agricultural products, but bringing Brazil to a more adequate level of industrialization is among our priorities,” he stated.

The director also listed other measures, such as the support that the bank intends to give to infrastructure projects, considering that the preferred model will be that of partnership with the private sector. “It doesn’t make sense for the BNDES to act in areas where the capital market resolves itself. Our idea is never to compete. It’s to work in cooperation with the financial market.”

Another point of attention of the new management will be the promotion of energy transition. According to Dias, Brazil has a good capacity to leverage funds to finance projects with a socio-environmental impact — and the BNDES can help with that.

The directors highlighted that the priority of reindustrializing Brazil goes hand in hand with building a green agenda. An example of this are the green hydrogen projects, which are already on the radar of the development bank.

According to the director, bank executives met with members of the German government this Monday (30), who showed great interest in putting green hydrogen initiatives in Brazil on paper.

“It is definitely an agenda in which we managed to reconcile the two agendas: the energy transition and investments in production”, he said.

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