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Brazil needs to overcome deviation that made BNDES Robin Hood upside down


In 1973, in the city of Stockholm, capital of Sweden, a bank robbery with four employees hostage would inspire the expression “Stockholm syndrome”. emotional involvement between victims and kidnappers. As if that weren’t enough, the hostages also raised money to support the defendants’ defense. Although the syndrome has never been officially classified as a psychiatric disorder, it seems that some Brazilian people and institutions suffer from it.

In a market economy, where the state must not intervene to favor any specific group or company, the rules must apply to everyone. The more impersonal, general and abstract, the lower the risk of capture or undue favoritism. This generates a fairer, more competitive market, where everyone has a chance to prosper.

In the line of promoting a market economy, development banks were created to offer medium and long-term loans to promote the productive sector, without distorting the competitive environment. These loans are often accompanied by technical assistance so that companies can become self-sufficient. These banks, therefore, exist to accelerate, encourage and improve economic development, always in a sustainable manner and without harming the smooth functioning of the market economy.

In Brazil, unfortunately, some of these objectives were distorted in the past. State development banks were used to capture support from the private sector and persecute those groups that were not aligned with the government on duty, refusing any loans. Nothing worse for a market economy than when the state decides to elect groups and companies that will be privileged to receive subsidized loans by taxpayers.

Alone, the J&F group, which includes JBS, received BRL 17.6 billion between 2003 and 2017 from the National Bank for Economic and Social Development (BNDES), equivalent to R$ 38.53 billion in today’s values. The group, headed by the famous “Baptist brothers”, from Operation Car Washonly did not receive more money than Petrobras, Embraer, Odebrecht and Oi, according to BNDES itself.

The revelry for the king’s friends was even greater at Odebrecht. Between 2003 and 2018 — that is, even after businessman Marcelo Odebrecht was arrested by Lava Jato — the taxpayer, through the BNDES, allocated an expressive R$ 32.9 billion to Odebrecht. It is the equivalent of R$ 63.32 billion in updated values.

However, instead of the above loans having been carried out through the usual mechanisms (either the capital market, the public issuance of shares or the issuance of debentures), with full transparency and giving other investors the opportunity to contribute resources (and thus mitigating risks for BNDES), the bank chose to make the loan directly, without a proportional counterpart from the shareholders of these companies.

In addition to distorting the private sector within Brazil, the BNDES was also used to benefit socialist dictatorships, in the interests of former presidents of the Republic. Lula da Silva and Dilma Rousseff. Under the pretext of encouraging the export of services, the development bank poured around R$11 billion into Cuba and Venezuela, which subsequently defaulted. The two countries still owe BRL 3.3 billion to the BNDES.

If the examples above are not enough, I strongly recommend reading two books that bring names, dates and numbers about operations that involved state-owned development banks and generated a lot of controversy: The organization
(Companhia das Letras, 2020), by Malu Gaspar; and Why Not? (Intrinsic, 2019), by Raquel Landim.

Even after all the inefficiencies and distortions generated by the controversial policy of national champions and the export of services to socialist dictatorships, a recognized industrial entity in the southeast of the country advocates for the return of development banks to the old days, where these institutions provided subsidized credit for high-income groups or countries with government allied leaders in power, using resources extracted from society. They want to re-establish the “Robin Hood in reverse” model, taking from the poor to give to the rich, a model that accentuates social inequalities and favors corruption. All this, of course, without going through the capital market, which requires a level of transparency and governance that they do not want to adopt.

Fortunately, in recent years, the BNDES has revised its way of acting and focused its technical team on structuring and modeling infrastructure projects, contributing to the privatization of public assets, consolidating the market for credit guarantees for micro and small companies and initiating the carbon credits. It also focused on enabling the development of “project finance” in Brazil, which are loans obtained based on the cash flow coming from the financed project itself. As the president of the bank Gustavo Montezano summed it up well: “now, we are no longer financing national champions, we are financing national heroes”.

So we can’t have any more setbacks. The policy of increasing public spending in an uncontrolled way to make the economy grow, including favoring “friendly” business groups, much defended by some of the so-called “developmental candidates”, will generate inefficiencies and distortions, such as reduced productivity, economic freedom and of competitiveness. As a consequence, the country will have higher inflation, higher interest rates and private capital will end up being expelled (an event known as crowding out). However, the worst damage is the risk of capture of the private sector by political agents, a risk that has already materialized in the country on other occasions. The incentive to seek capital markets diminishes, and the strength of political connections in Brasília increases.

Instead of improving all macroeconomic indicators, in order to reduce the interest rate in a structural way for all companies and people, the government maintains a policy of high public spending and, consequently, high interest rates. And it favors only those groups that have political connections. In addition to being extremely inefficient, this policy is unfair and increases social inequalities.

For all these reasons, Brazil can choose to suffer from Stockholm syndrome and defend the use of development banks to strengthen political ties and exchanges of favors – which has already harmed the Brazilian people -, or learn from the mistakes of the past so that the banks development companies adopt market practices, without favoring specific groups or companies. The focus must be on building a healthy, free, competitive, dynamic and fertile market economy so that everyone has the same opportunities.

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