Latin Finance - July/August 2009 - 29

bndes lending analysis four months of the agreement and the first 250 million reais disbursement, however, the company filed for bankruptcy protection. “At the moment of the first [stake] purchase [in November,] the company had demonstrated a comfortable cash position,” says the BNDES in an early March statement. BNDES officials decline to comment further. Still, this was a rare failure for BNDESPar, whose equity portfolio is worth around 80 billion reais, down from 100 billion reais in 2008, in line with the decline in the Bovespa. “This year [BNDESPar] will be much more of a buyer than it will be a seller [of equity positions,]” says BNDES spokesman Paulo Braga. Depressed valuations and a view that recovery for many sectors is not far off will yield interesting opportunities, he adds. Necessary Crutch Whether or not one agrees with the concept of a strong development bank executing the finance ministry’s industrial policy at below-market rates, the BNDES is, for better or worse, a necessary player in a country where nominal rates remain high and local debt markets are hindered by lack of tenor, liquidity and diversity. “The BNDES is today a necessary crutch because it is the only source of long term financing at reasonable rates,” says Fernando Sotelino, Columbia University professor and former co-head of Unibanco’s investment bank. He argues that instead of continuously relying on the BNDES to shell out cheap funds, Brazil should implement fiscal reform that would allow it to issue real-denominated paper beyond 10 years and at below 10%. “The BNDES is hampered by probably the most important function it has been playing for the last few years: an attempt to shelter the Brazilian economy from the consequences of Brazilian monetary policy,” says Hausmann. While the central bank has sacrificed growth by keeping inflation in check, the BNDES has sought to compensate by lending at below-market rates. “This provides an incoherent financial policy,” he says. In addition, says Hausmann, the BNDES should allow TJLP – the rate at which it funds itself – to converge with the overnight Selic rate, at which banks and the sovereign raise debt. “This would allow the Selic to fall faster and allow for improvement of the fiscal accounts in the public sector,” says Hausmann, a former IMF chief economist, as well as Venezuelan minister of planning and central bank board member. The BNDES says that process is already in motion. The TJLP has stuck at 6.25% since June 2007, while the Selic has dropped to 9.25% from 12.00% in the same period. Reduced necessity for the government to finance itself “would also allow for less crowding by the public sector in the capital markets, and that would lead to lower interest rates for everyone,” adds Hausmann. With a drop into the uncharted single digits zone, banks and asset managers have already begun mapping out strategies for a significantly lower interest rate environment. If Brazil’s finance ministry is doing the same, it should strongly consider ways to relieve the BNDES of its lending burden and help nurture the country’s embryonic corporate debt market. Without it, Brazil will continue to lag global peers in a critical aspect of development. LF July/August 2009 LatinFinance 29

Latin Finance - July/August 2009

Table of Contents for the Digital Edition of Latin Finance - July/August 2009