Lower House is moving to limit loan capabilities; industrial sector criticized measure, citing risks
12/05/2024
In a setback for the Lula administration, the Constitutional and Justice Committee (CCJ) of Brazil’s Lower House approved on Wednesday (4) a constitutional amendment proposal (PEC) mandating that loans from federally controlled state-owned banks require congressional approval when involving international operations. The measure was passed with 31 votes in favor and 27 against.
The proposal aims to block financing by the Brazilian Development Bank (BNDES) for projects abroad, raising concerns within industrial sectors. This issue has been a contentious point for administrations led by the Workers’ Party (PT) and was one of the first topics brought up by the opposition following President Lula’s return to office.
Introduced in March, the PEC has been on the legislative agenda since then. Initially, the government faced challenges with the proposal in the CCJ. However, in August, following the inclusion of members of Republicans and the Progressive Party (PP) in cabinet positions, the proposal was temporarily withdrawn from the agenda—until Wednesday, when it resurfaced and was passed with support from these parties.
The BNDES attempted to persuade lawmakers with technical notes arguing that the amendment would reduce its competitiveness against private-sector lenders. The bank also warned that congressional oversight of loans could breach banking confidentiality, expose sensitive business information, and create legal uncertainties for Brazilian companies. “The PEC harms Brazilian corporate exports, creates excessive bureaucracy, reduces the competitiveness of Brazilian industry, and hinders income generation in the country,” said José Luís Gordon, BNDES’s director of productive development, innovation, and foreign trade, in a statement.
The PEC’s rapporteur, Congressman Arthur Maia, noted that the proposal could be amended in the Lower House’s special committee but emphasized the importance of debate. “It is crucial for the Parliament to take a stand against a practice that the Brazilian society finds objectionable: BNDES funds being sent abroad based on ideological criteria, which have caused losses for Brazil,” he said. “We cannot ignore the fact that Brazil is being harmed.”
Controversial operations associated with public dissent and corruption allegations in PT-allied foreign governments led to significant defaults. According to BNDES’s website, Cuba owes $250 million in overdue payments, Venezuela $722 million, and Mozambique $122 million. However, the entity that bore the accounting loss was not the BNDES, but the Export Guarantee Fund (FGE).
The Brazilian Development Association (ABDE), representing development banks and cooperatives, highlighted that the proposal also affects Banco do Brasil, Caixa Econômica Federal, Banco da Amazônia, and Banco do Nordeste. “In all forms of export support, disbursements are made in Brazil, in reais, to the Brazilian exporter, with no funds sent abroad; the money remains in Brazil,” the association stated.
The vote complicates another proposal from the Lula administration. In November last year, the federal government introduced a bill to update BNDES regulations to align with current practices and requirements from Brazil’s Federal Court of Accounts (TCU) and reinstate financing for exports of goods and services, which has been suspended since 2017.
The proposed rules include prohibiting loans to countries in default with Brazil and publishing information about the export financing portfolio on the bank’s website, with annual reports to the Senate on these loans. Although submitted over a year ago, the bill has not yet been forwarded to the committees by Lower House Speaker Arthur Lira. It is up to him to establish a special committee to discuss the PEC.
*By Raphael Di Cunto
Source: Valor International