1

The life-cycle of national development banks: The experience of Brazil’s BNDES

Prof. Ernani T. Torres FilhoInstituto de Economia da UFRJ

Presentation to IRIBA Seminar Rio de Janeiro

12/2016

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Paper Objective: NDB is a mechanism to deal with structural

shortage of long-term funds for investment (industry and infrastructure)

Definition of NDB: •Supply Long Term Credit for Industry and

Infrastructure• Funded domestically and provides credits in local

currency•Credit Origination•State Owned

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Life-Cycle Hipothesis (LCH)

• NDBs exist since the XIX century. Increased after WWI and WWII.• Some have lost importance ,were dissolute or changed

their scope, but others are still relevant.• From credit origination to market origination (provision

of funds, subsidies, guarantees)• Effectiveness: literature is inconclusive• Risks : picking losers, crony capitalist, crowding out etc

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BNDES is a case of LCH?

Total Assest/GDP (%)

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BNDES had an important role as a countercyclical tool after 2008, but ...

Total Credit/GDP (%)

Corporate Credit Growth Rate (%)

39142 39539 39934 40330 40725 41122 41518 41913 42309

6.7

10.5

11.7

14.8

13.7

9.8

14.1

12.7

14.7

13.7

12.5

Direc. PJ Livre PJ

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2009 2013

What Changed after 2014

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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-20-15-10

-505

1015202530

19.2

-13.6

29.9

-5.6

9.6

-18.5

PIB Consumo Famílias Investimento (FBCF)

TAXA DE CRESCIMENTO DO PIB, DO CONSUMO E DO INVESTIMENTO

Is it a depression?

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TAXA DE JUROS BÁSICA (SELIC), REAL E INFLAÇÃO (Ac. 12m)

Interest rates increased despite the deep recession

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

13.75

8.75

12.50

7.25

11.00

14.25

3.0

7.3

5.2

10.7

7.9

10.0

7.5

3.4

6.0

4.7

1.3

4.75.9

Taxa SELIC (%aa) IPCA (%aa) Taxa Selic Real (%aa)

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Interests paid by the National Treasury reached 8,5% of GDP

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AnosDespesa

Financeira/EBITDA

Dívida Financeira

Líquida/EBTIDA

Desp. Financeira +Dívida CP t 1‐

/ EBTIDA + Caixa t‐

1

2010 0,36 1,47 0,552011 0,51 1,87 0,632012 0,57 2,46 0,692013 0,58 2,25 0,662014 0,66 2,54 0,772015 1,72 4,20 1,30

Indicadores Financeiros Selecionados para as Principais Empresas Abertas excluída a Petrobras

Fonte: CEMEC (2016)

Corporations are not able to pay their debts

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BNDES credit is shrinking at a fast rate: is it demand or supply?

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BNDES New Role ?• Maria Sílvia, nova presidente do BNDES, em entrevista em junho de

2016, "o empreendedor ia fazer o investimento e apenas substituiu uma fonte de financiamento mais cara por uma mais barata, e a taxa de investimento da economia não subiu. Nessa nova etapa, vemos o papel do BNDES como financiador de longo prazo, que é o existente, mas abrindo cada vez mais espaço para o setor privado. (...) O banco vai entrar em fatia bem menor [nos projetos] do que entrou". (Valor Econômico, 2016c).

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BNDES New Role (2015 on): Fiscal Dominance• Fiscal dominance is an economic condition that occurs when a

country has a large government debt and deficit such that monetary policy targets keeping the government from bankruptcy as opposed to economic targets such as inflation, growth and employment.• BNDES policies have changed from targeting economic development

and growth to paying part of interestfs of thepublic debt in order to reduce fiscal dominance in the central bank, due to effect of very high basic interest rates on the service of the public debt

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BNDES is paying part of the public debt interests in 2016

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The life-cycle of national development banks: The experience of Brazil’s BNDES

Prof. Ernani T. Torres FilhoInstituto de Economia da UFRJ

Presentation to IRIBA Seminar Rio de Janeiro

12/2016