Opinion – Rodrigo Zeidan: BNDES has room for development, but this is not the 1970s

“Fool me once, and it’s your fault. Fool me a second time, and it’s my fault.” This is the potential situation in Brazil with the BNDES president’s idea of ​​proposing a bill to change the TLP (Long Term Rate), which guides the bank’s loans.

Forcibly lowering interest rates only makes sense if there is no demand for the bank’s loans or the BNDES is unable to raise more funds, which is far from the truth. The bank continues to function as it always has, taking orders and carefully approving them. In addition to putting money directly into the pockets of national entrepreneurs, what would subsidized credit do?

BNDES should have been used more heavily during the height of the pandemic, to bridge the gap between the period of social distancing and the resumption of economic activity. The government at the time sort of threw the BNDES to the sidelines. The bank has space in Brazilian development, but this is not the 1970s. Trying to reindustrialize Brazil, one of the most closed economies in the world, with cheap credit will only result in transferring income from the poor to the rich. The role of the BNDES is to increase long-term credit without megalomaniac attempts to create national champions.

The BNDES has fixed funding sources, such as the Worker Support Fund (at the end of 2021, the balance of FAT resources in the BNDES System was R$ 347.3 billion). Before, the bank used these and other cheap sources, including contributions from the Treasury, to lend very cheaply, even well below the Selic rate. With the reform of the TJLP to TLP, the bank starts to lend according to the rates paid by long-term public securities, such as the IPCA Treasury.

Recently, the financial director of the BNDES, Alexandre Abreu, argued that the fact that the TLP is higher than the Selic would be a problem. But that has neither foot nor head. For a borrowing company, what matters is whether it manages to borrow money from the BNDES below what it would borrow from the market, not whether the rate is higher or lower than the Selic.

The interest rate in Brazil remains absurdly high (the reasons for this I explained in a scientific article awarded by the Brazilian Journal of Finance). The demand for BNDES credit remains high. What happens is simple: for the bank, it is much more comfortable to lend at low interest rates, even more so if the money is subsidized indirectly by the government. The bank’s balance sheet looks good, as well as operations become easier: who doesn’t want to distribute benefits with infinite demand? The industry would love the return of absurdly subsidized interest rates.

As in previous PT governments, it is difficult to curb businessmen’s interest in cheap public money combined with the party’s developmental bias. The BNDES’ problem was never corruption. The bank is very judicious juridically. The problem is the political use of society’s resources for industrial sectors that do not want international competition. And the government, with this talk of reindustrialization, tends to once again hand out cheap money without seeing results.

What is the next step? The return of the Information Technology Law? Another PND? It is very difficult for the new management of the BNDES to emerge from the 1970s, but it is not impossible. Leave TLP as it is. There is no lack of demand for BNDES money. It is not convenient. We’ve already seen where this leads. Brazil dies in the end.