Reply: The BNDES and the Marshall Plan – 04/04/2023 – Market

The debate on the role of the BNDES in the Brazilian economy is necessary and welcome, but it is important to separate the wheat from the chaff in the opinions that are returned to the media from time to time.

Recently Marcos Mendes published in this Sheet yet another erroneous text about the BNDES, where it states: “In the four years between 1948 and 1951, the Marshall Plan cost, on average, 1.1% of the North American GDP per year. With these resources, the reconstruction of Europe was made possible in the post-war period. The National Treasury injected 1.5% of GDP into the BNDES per year, over seven years (2008-15), and we saw more problems than solutions”.

By using a grandiloquent comparison, the columnist of Sheet ended up making some mistakes.

First, most of the Marshall Plan was a transfer from the US to European countries, in dollars, under strict conditionalities. The “injection” of Treasury resources into the BNDES was a loan! In other words, it was programmed that the BNDES would pay back the resources to the Treasury, which has been happening since 2015, in a process initiated by the Dilma government.

Second, as is commonplace in alarmist articles about the “clear and imminent danger” of restructuring the BNDES, Mendes miscalculates the cost of Treasury contributions to the BNDES. In nominal values, from 2008 to 2022, the Union “invested” BRL 441 billion in the BNDES and “withdrawn” BRL 688 billion from the bank. A “prepayment” of R$ 23 billion is still missing from the BNDES to the Treasury, but considering only what has already been done, the nominal internal rate of return of the operation for the Union was 6.7% per year.

The central point of the debate about the “BNDES of the past” is the carrying cost of Union loans to the bank. According to Treasury data, from 2008 to 2022, the difference between the interest paid by the Treasury in the market and the interest that the Treasury received from the BNDES was R$146 billion in current prices.

In parallel with the carrying cost of BNDES loans (what economists call an implicit subsidy), the Treasury spent R$ 60 billion, also at current prices, with interest equalization on loans granted by BNDES with resources lent by the Union (the what economists call an explicit subsidy).

The total value of the “loan and equalization” operation for the BNDES was therefore BRL 206 billion over 15 years (BRL 13.7 billion per year). In proportion to the size of the economy, total implicit and explicit subsidies via BNDES was 3.7% of GDP in 2008-22, or 0.24% of GDP per year, a value five times lower than the 1.5% of GDP mentioned by Mendes!

Although the BNDES of the past cost much less than the Marshall Plan, readers must be wondering: is spending 0.24% of GDP on financial subsidies high or low for Brazil? This is the relevant question, the answer to which depends on assessing both the costs and benefits of the measure. Mendes considered only the costs.

Criticisms of the BNDES in the past are based on the assumption that any and all actions by the bank had zero impact on the economy – which is one of the possible cases, not the only possible case. The literature on the impact of the BNDES on the economy also includes positive results on GDP, employment and tax collection, that is, the literature indicates that part of the subsidy granted returns to the Treasury in the form of additional tax revenue.

How much back? This is the debate that the BNDES of the future intends to resume, but for the process to be constructive, it is necessary to abandon ideological sophisms of the past, in addition to knowing how to differentiate loans from transfers.