Lula wants to return to financing works abroad with BNDES – 11/26/2023 – Market

The government of Luiz Inácio Lula da Silva (PT) sends this Monday (27) to the National Congress a bill to authorize the BNDES (National Bank for Economic and Social Development) to resume financing for works and other services provided by Brazilian companies abroad.

This type of credit has been suspended since 2016, when large construction companies in the country benefiting from the line began to be investigated in Operation Lava Jato.

In the past, the modality was used to finance controversial works, such as the Caracas metro, in Venezuela, and the Port of Mariel, in Cuba — whose debt the country today says it cannot pay. The group of two countries plus Mozambique currently owes US$463 million to the development bank, equivalent to R$2.27 billion at last Friday’s exchange rate (24).

The proposal is presented at a time when the Legislature is moving in the opposite direction. A PEC (proposed amendment to the Constitution) is being processed in the Chamber of Deputies with the aim of giving parliamentarians the power to veto operations carried out abroad.

The director of Productive Development, Innovation and Foreign Trade at BNDES, José Luis Gordon, states that the measure defended by congressmen has no parallel in any country in the world, and its approval would have negative effects on companies by creating an additional layer of bureaucracy.

For him, it is necessary to “remove the myths” surrounding financing the export of services.

As a kind of vaccine, the development bank discussed the content of the proposal with the TCU (Federal Audit Court). In fact, the Court of Auditors suggested an article that aims to shield the Brazilian government from criticism or even new defaults.

The text of the bill, anticipated Sheetsays that “the granting of new credit operations between the BNDES and legal entities governed by external public law that are in default with the Federative Republic of Brazil is prohibited in financing the export of services.”

Legal entities governed by public law are countries, members of a federation or their respective bodies. This means that, in the current situation, Cuba, Venezuela and Mozambique will not be able to benefit from the new operations, if the project advances in Congress.

The only exception provided is if there is a formal renegotiation of the outstanding debt. In this case, the foreign country could once again be a party to the bank’s transactions.

The restriction already exists today in BNDES’ internal rules, but the institution believes that placing it in a law can reduce resistance, given the controversy that surrounded these operations in the past.

“Why the decision on the bill? So that we can create a new framework, [fazer] a broad discussion with society, with the National Congress, and be calm about this”, he states.

Gordon also says that financing the export of services does not benefit countries, but rather Brazilian companies. “The money enters the Brazilian company in reais. This will generate jobs and income in Brazil”, he says. According to him, there are no subsidies involved, since the rates charged are market rates.

BNDES finances the company in Brazil, as well as inputs, machinery and equipment that it takes abroad. Payment is made by the country where the Brazilian company provides the service. In case of default, the bank relies on the FGE (Export Guarantee Fund), an instrument created in 1997 and linked to the Ministry of Finance.

In the past, BNDES worked with different sectors in the export of services, such as information technology, but the most relevant has always been engineering services, which includes construction companies.

The institution estimates that this segment should once again account for most of the demand for this type of credit. But BNDES also plans to work on financing the export of software services.

“Brazil has become a reference in production in this part of the digital economy and can become even more so. Brazilian companies will be able to export this type of knowledge abroad too”, says Gordon.

The text provides for transparency measures, such as making information about operations available on a public and easily accessible website.

The bank will still need to report to the Senate’s CAE (Economic Affairs Committee), through an annual report with data on these credits, such as the service covered by the contract, the financial conditions, the results for the Brazilian economy and the main aspects socio-environmental factors assessed.

The bill also authorizes BNDES to create subsidiaries within Brazil. Today, the bank can only open new entities controlled abroad.

Although the wording of the article is generic, Gordon states that the intention is to establish a subsidiary along the same lines as an Exim Bank (export and import bank existing in countries such as the United States, Germany, among others).

“This is strategic to signal to the business sector the importance of exports, which the bank is once again supporting, it has a team dedicated to this agenda. It is a paper company [empresa de papel]a CNPJ, will not generate any additional costs”, he says, adding that the new company will use personnel from the BNDES itself.

The proposal also obliges the institution to follow WTO (World Trade Organization) and OECD (Organization for Economic Cooperation and Development) standards when carrying out these transactions.

Since the BNDES began discussing the resumption of financing for the export of services, economists have expressed concern about the risks.

In the past, business and economics researchers have questioned the criteria for selecting countries to receive operations. Many believe that there were political preferences to the detriment of technical selection. The argument gained strength when the most controversial countries did not pay off their financing.

Gordon states that the Executive’s decision to submit the proposal to the National Congress is precisely a way of trying to overcome resistance. For him, the resumption of the line is an important axis of the neo-industrialization agenda defended by the government, especially by vice-president Geraldo Alckmin (PSB), who is also minister of Development, Industry, Commerce and Services.

“We have [no Brasil] 2% of the global market, 98% are out. If companies want to sell more, they will have to export,” he says.

The proportion of exporting companies is low in the country. Only 0.88% of Brazilian companies sell their goods and services on the foreign market. On the other hand, they play an important role in the local economy, accounting for 15% of jobs, points out Gordon.

According to him, in a context where more than 90 countries have banks or agencies that finance their respective exports, not providing support to Brazilian companies means reducing their competitiveness in the international market.

BNDES currently supports companies in the export of goods. Between January and September this year, the bank disbursed R$7.2 billion in export support lines, more than the R$2.1 billion offered in the same period last year (the values ​​are nominal). For the bank, the resumption of support for the export of services can further leverage the Brazilian presence abroad.

WHAT THE BILL SAYS

• BNDES and its subsidiaries will be able to finance productive activities of Brazilian exporting companies and the commercialization of goods and services carried out abroad by Brazilian exporting companies.
• Financing operations for the export of services will comply with criteria for eligibility, recognition and proof of exports established in regulations of the federal Executive Branch, as well as the modes of service provision established within the scope of the WTO (World Trade Organization).
• The granting of new credit operations between BNDES and legal entities governed by external public law (that is, other countries and their respective bodies) that are in default with Brazil is prohibited, except in cases in which debt renegotiation is formalized.
• The BNDES must make available, on a public and easily accessible website, updated information on financing for the export of services granted to legal entities governed by external public law.
• The BNDES must present to the CAE (Economic Affairs Committee) of the Senate an annual report with information on the financing portfolio for the export of services granted to legal entities governed by external public law, indicating the purpose, financial conditions, results for the economy Brazilian country and the main socio-environmental aspects assessed.

PAST OPERATIONS

BNDES financed controversial service export operations, such as the Port of Mariel, in Cuba, and the Caracas metro, in Venezuela. Works had the participation of Odebrecht, investigated in Operation Lava Jato.

Debit balance due for countries (values ​​as of 09/30):

• Cuba: US$378 million
• Venezuela: US$46 million
• Mozambique: US$39 million