How BNDES, Brazil’s Development Bank, benefits the country’s wealthiest

. Apr 24, 2018
bndes BNDES still lends more money to established corporations

BNDES still lends more money to established corporations

BNDES stands for Brazilian National Economic and Social Development Bank. While the institution has been of paramount importance to the Brazilian economy, it has also arguably failed in its mission – especially that “social” part.

The bank is financed by compulsory contributions from Brazilian workers. In theory, that money would facilitate small companies’ access to cheap credit, helping them to develop into more robust players. In practice, however, the bank has been used to benefit large corporations by securing them loans at below-market rates.

Until last year, BNDES offered loans at rates that were lower than the Selic benchmark interest rate. While the Selic was at 9.25 percent, companies were given loans rates of 7 percent.

</p> <p>According to a study published by BNDES itself, one-third of the credit offered by the bank goes to micro, small, and medium-sized companies (defined by annual turnover of up to 300 million BRL). Meanwhile, the large corporations get the remaining two thirds.</p> <p>Truth be told, that ratio used to be far more unbalanced. Thirty years ago, micro, small, and medium-sized companies used to receive only 16.3 percent of the money loaned by BNDES (see chart below).</p> <p>[infogram id=&#8221;aa11694c-e9a2-4a93-9636-a0f3621c5a53&#8243; prefix=&#8221;kbG&#8221; format=&#8221;interactive&#8221; title=&#8221;Who is BNDES lending money to?&#8221;]</p> <p>“The data shows that BNDES has increasingly worked with smaller companies, to the detriment of big players,” the study explains. However, that statement conveniently forgets that the bank has spent tens of billions of dollars on just a handful of companies.</p> <p>In 2013, for example, the list of the <a href="">25 companies</a> receiving the most money from the bank included names such as Mercedes-Benz, Volkswagen, Fiat, Novartis, Braskem (owned by Odebrecht), Anglo American, Telefônica, and Petrobras.</p> <p>Not exactly startups struggling for funding.</p> <h3>BNDES and the “national champions”</h3> <p>A running joke among business circles is that the best way to boost a company’s results is to take a flight to Brasília. The long-running joke is a nod to Brazil’s crony capitalism. Companies owned by friends of the sitting government have traditionally been looked upon fondly by public banks – and this happens in all administrations.</p> <p>However, one such policy deserves to be singled out: the effort to create “national champions.” Created during the Lula administration (2003-2010), this policy was meant to turn Brazilian corporations into leading global players through the injection of public money.</p> <p>While the government indeed helped to create major players, it is safe to say that the program was an utter failure.</p> <p>What was supposed to be a way out of the 2008 international economic crisis has turned out to be little more than a textbook example of crony capitalism.</p> <p>To finance that dream, the National Treasury transferred over 500 billion BRL to BNDES between 2008 and 2013. While the government was paying interest rates of 14 percent, it was lending to already established companies at rates no higher than 6 percent. Nevertheless, the criteria to choose who would benefit from these great deals were never clear, and ultimately helped to create oligopolies in Brazil.</p> <p>One of the companies blessed to be included among the “national champions” was meat producer JBS. Between 2005 and 2014, BNDES injected over 10 billion BRL into the company of brothers Joesley and Wesley Batista.</p> <p>Just a few years later, the brothers would find themselves at the center of several scandals – from taping the president negotiating the payment of hush money to a former House speaker to insider trading. And that’s not to mention the billions they paid to congressmen in bribes. Just to Senator Aécio Neves (the runner-up in the 2014 presidential election), the Batistas illegally gave 110 million BRL, per their own accounts.</p> <p>There’s also <a href="">Oi Telecom</a> – which became a “super telecom,” as the government stated a few years back, but the company has now accumulated over 65 billion BRL in debt and is now in the bankruptcy protection program.</p> <p>Another emblematic case involves businessman <a href="">Eike Batista</a>, who spend time in prison due to accusations of corruption and money laundering.</p> <p>In 2011, Batista had the world’s seventh-largest fortune and was a rising billionaire. He appeared to have the Midas touch: when he said that he would become the world’s richest man, few doubted his abilities.</p> <p>Six years ago, Batista owned a fortune of $30 billion. His larger-than-life persona helped boost his 14 businesses in industries ranging from mining to events. He captured more than $30 billion in investments, one-third of which came from BNDES.</p> <p>According to Time Magazine, he was among the 100 most influential people in the world. The crown jewel of his EBX Group was a mining company, which would extract more than 1 trillion USD in oil and gas. At its peak, the company was worth roughly 19.9 billion USD.</p> <p>But the promise wasn’t real. Oil production fell far below expectations, which eroded the confidence of investors. In just twelve months, the company lost 96 percent of its value. In 2013, Eike’s mining company had 5.1 billion USD in debts and filed for bankruptcy protection.</p> <p>Even when his businesses plummeted, Eike made a significant amount of money by selling his stocks – and was accused of fraud and insider trading. He had most of his assets seized by the justice system, paid a 21-million-BRL fine, and could face up to 13 years in prison.</p> <p>In 2016, the economist Sérgio Lazzarini <a href="">analyzed</a> the national champions strategy and labeled it a “fiasco.” He claimed that the Brazilian strategy lacked the main requirements to create global players through public investments, which he outlined as follows: (1) choose companies with human capital and expertise that allow them to set themselves apart from the competition; (2) insert the companies on global value chains; and (3) demand results.

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