Friday, 23 January 2009

Brazil Beefs Up BNDES Budget by 100 Billion Reais. Where the Money Will Come From? ... Yes, That's The Answer!

Debt, debt, debt.

The state development bank, BNDES, will get an additional 100 billion reais in fresh funds to lend to companies that are facing cash shortages or need to bankroll ongoing investment projects. Finance Minister Guido Mantega (Mr. Criswell) said the money will be pumped into the BNDES in the form of government bonds (who will buy them? You, dear reader and taxpayer, via Banco do Brasil and affiliates) and through transfers from the cash cushion that the Treasury holds. Remember that the cash cushion owned by the Treasury is emergency money that the government has in case no one wants to roll over debt maturities in the local markets.

This is another step in the same direction, that is, making a stronger BNDES that helps avoid the unavoidable at the expense of taxpayers -- who always pay the bill in Brazil. The record of investing by the BNDES isn't quite remarkable: it has invested in the Votorantim-Aracruz merger (some people call it the most expensive merger in the cellulose industry,) in Sadia (yes, the same company that lied to investors over its exposure to currency derivatives and is now struggling to survive,) in the merger of Oi and Brasil Telecom (to fulfill President Lula's dream of competing with giants Telmex and Telefonica.) The list of (questionably good) investments is long.

In accessing the funds of taxpayers, BNDES will pay its own benchmark lending rate, known as the TJLP, plus a 2.5 percentage-point spread for 70 billion reais in funds. That is 8.75 percent. And the remaining 30 billion reais will pay some rate linked to the Libor (it is not clear whether it will pay a spread on that. Criswell's remarks are all about transparency.) Such is Mantega's thinking of how markets work that he affirmed that ``public banks cannot charge high lending rates,'' as if the problems was one of cutting spreads by decree. Poor us, taxpayers.

In the face of the current credit constraints, Lula expects the BNDES to act as ''lender of last resort'' for his $250 billion investment programme (PAC.) The newly-founds source of funding hasn't assuaged concerns about the government's ability to process the avalanche of loan requests. No matter how much money the government pumps into the BNDES and how much it promises to loan to businesses this year and next, companies will face extended delays in accessing BNDES loans.

But there is another reason that, in my view, is behind all this hysteria about boosting the BNDES's capital. The government is interested in building up an important participation in what they call ''strategic sectors,'' or, summarising, those that might be eyes by foreigners as acquisition targets in the future. They are quite profitable too and therefore, easy to tap as a source of jobs for ruling party accolades. Telecom, banks, real estate, commodity producers ... all these sectors are receiving BNDES money in exchange for equity stakes, convertible bond issuances, etc.

No comments:

Post a Comment