BNDES is calling on Brazilian lawmakers to approve the creation of a new class of securities that would increase funding to local development banks by BRL10 billion ($1.9 billion) per year.
The introduction of so-called LCDs, or letras de crédito de desenvolvimento, was included in draft legislation in December to increase funding to BNDES and other Brazilian development banks but has yet to be voted on by the congress.
The bank’s president, Aloizio Mercadante, said on Thursday that LCDs extend the same kind of tax exemptions that are currently enjoyed by local infrastructure bonds.
“We need this tool badly,” Mercadante said during a BNDES event.
The bank’s planning director Nelson Barbosa added that LCDs would help the bank become “more autonomous and depend less on the Treasury.” However, he said congressional approval may not come before the start of next year.
Mercadente called for an upgrade of the country’s industrial production capacity after what he considers years of deindustrialization. The so-called neoindustrialization policy is a key element of Brazilian President Luiz Inácio Lula da Silva’s economic program.
BNDES says it is responsible for BRL250 billion of the BRL300 billion required under the policy.
LOAN APPROVALS
BNDES disbursements increased by 22% in the first quarter of the year compared to the same period in 2023, while the amount of approved loans increased by 92%, which Mercadante said points to the need of increased funding.
The development bank was suspected of “crowding out” capital markets under previous left-wing governments, but this is not the case now, according to Barbosa. “There is no crowding out, there is crowding in,” he said.
“BNDES now has a smaller size [than before] and a clear intention to crowd in rather than substitute other forms of finance. There is no ‘champion boosting’ by simply offering subsidized finance,” Otaviano Canuto, former World Bank vice president and currently senior fellow of the Policy Center for the New South, told LatinFinance.