Lender, industry protest proposal to require congressional approval for financing abroad
06/20/2023
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Arthur Maia — Foto: Brenno Carvalho/Agência O Globo
Under pressure from independent and opposition deputies, the Constitution and Justice Committee (CCJ) of the Chamber of Deputies will start to discuss next week a proposal to amend the Constitution (PEC) to require congressional approval of loans from state-owned banks controlled by the federal government if they involve overseas’ operations. The measure aims to block financing by the Brazilian Development Bank (BNDES) for construction works and services abroad, an issue used by the opposition to wear down the Worker’s Party (PT) administrations, but which has raised concerns in the industry about the impact on exports.
The PECs of lawmakers Mendonça Filho and Daniel Freitas were filed in March and have the support of 233 deputies. Both are analyzed together and had been stalled in the CCJ since then but gained momentum with the return of negotiations for the Brazilian government to help executive construction works abroad, such as the financing of a gas pipeline in Argentina, and the negotiations of Venezuela’s debt with Brazil. The CCJ is chaired by lawmaker Rui Falcão, who promised the opposition to put the PECs for a vote.
The lawmaker elected as rapporteur, Arthur Maia, told Valor that he would give a favorable opinion to the PECs. “The government must stop these ideological measures that go against the will of the vast majority of Brazilians and the liberal and center-right Congress,” he said.
Valor found that BNDES directors are expected to go to Brasília this week to talk with lawmakers, but Mr. Maia said this will not change his view because the CCJ only evaluates if the PEC hurts some eternity clause. “And there is nothing unconstitutional in them. In the special committee the government will have the opportunity to present its case in more detail and deal with the merits,” he said.
BNDES pushes back in a technical note sent to deputies and said the PEC 3/2023 violates the principle of separation of powers and gives the bank different treatment from other companies in its economic activity. In addition, it points out that the Chamber analysis of the loans will violate banking secrecy, make public sensitive business information, and create legal uncertainty for Brazilian companies. “The proposal will subject exporters to greater uncertainty, for example, when it comes to the approval and the availability period of the financing or guarantee,” says the note.
José Luis Gordon, director of productive development, innovation, and foreign trade at BNDES, says that the narrative that the bank lends money to other countries is not true. “The funds go to Brazilian companies in reais, and these companies will sell their products and services abroad,” he said.
The operations that were controversial with public opinion, and accused of corruption in countries with governments allied with the Workers’ Party, resulted in billions of dollars in defaults. According to the BNDES website, Cuba has $250 million in overdue installments, Venezuela has $722 million, and Mozambique has $122 million. At Friday’s exchange rate, this meant a default of R$5.2 billion. However, it was not the BNDES that took the loss, but the Export Guarantee Fund (FGE).
This fund, according to Mr. Gordon, is not in deficit. The Cardoso administrations (1994-2002) contributed $1 billion and today, with the payment of premiums by the companies that used it, it would have a balance of $7.5 billion. “Since it is an accounting fund and not a financial one, it has to be included in the budget as an expenditure, but it’s not taxpayer money,” he said.
For Mr. Gordon, the current level of public sector involvement in export financing is very low. In countries such as Turkey, India, South Korea, and China, more than 10% of total credit comes from government agencies. In Brazil, this support was only 0.2% in 2022. “There are 90 countries with institutions similar to BNDES and export guarantee funds, such as the United States and Germany. Those who want to be internationally competitive are following this type of standard,” he said. “In 2010, Brazil supported $11 billion in exports. Last year, this amount fell to $600 million,” he said.
According to Venilton Tadini, a former director of BNDES in the Collor administration and current CEO of the Brazilian Association of Infrastructure and Basic Industries (ABDIB), the PEC will affect the international integration of the Brazilian economy, and deputies “want to set up a control structure that makes no sense.”
“Brazil’s banking sector is already highly regulated and state-owned banks are still subject to inspection by the Federal Court of Accounts (TCU),” he said. The PEC would not only affect BNDES but also loans from Banco do Brasil and Caixa Econômica Federal.
The Brazilian Machine and Equipment Industry Association (Abimaq) says that the proposal will hinder the export of machinery, pipes for oil exploration, and energy transformers produced in Brazil. “The proposal’s justification, that it aims to avoid actions that ‘benefit one or another government, but not the country,’ has no economic basis. On the contrary, the performance of financial institutions controlled by the federal government, by focusing on improving the competitiveness of domestic companies, whether they are producers of goods or service providers, moves a large chain of Brazilian suppliers in projects carried out by exporting companies and, therefore, has a direct impact on job creation, income, tax collection and foreign exchange in the country,” said the entity in a statement.
*Por Raphael Di Cunto, Marcelo Ribeiro — Brasília
Source: Valor International