Lula to turn Brazil development bank BNDES into loan guarantor if he wins

"For large companies, the BNDES needs to offer guarantees for loans made by private financial sources for public sector projects, as the IADB and other multilateral banks do," he said in an interview on Wednesday. That would mark a sharp departure from the PT's previous left-wing governments, which used aggressive loans and equity investments to build up "national champions" in key sectors, often at significant cost to public finances.

Former President Luiz Inacio Lula da Silva would use Brazilian development bank BNDES to attract foreign investments via loan guarantees rather than direct financing of projects and firms if he wins office again in October, a senior adviser in his Workers Party (PT) said.

Aloizio Mercadante, who is working to draft proposals for a Lula government, told Reuters the National Bank for Economic and Social Development, as it is formally known, would shift its focus to guaranteeing international loans for project financing, as the Inter-American Development Bank (IADB) does. "For large companies, the BNDES needs to offer guarantees for loans made by private financial sources for public sector projects, as the IADB and other multilateral banks do," he said in an interview on Wednesday.

That would mark a sharp departure from the PT's previous left-wing governments, which used aggressive loans and equity investments to build up "national champions" in key sectors, often at significant cost to public finances. At the time, critics accused the PT of using the state bank to give easy money to major political donors, such as meatpacker JBS and to help allied foreign governments including Cuba, where BNDES money helped build the port of Mariel.

Lula is the frontrunner in Brazil's presidential race, with a narrowing lead over far-right President Jair Bolsonaro, who has made hay of PT corruption scandals and BNDES loans using public funds to build projects for foreign allies. The BNDES has offered subsidized long-term corporate loans for decades to boost growth and create jobs in Brazil.

It also invested directly in companies such as oil company Petrobras and power utility Eletrobras. Share sales have brought the market value of its equities portfolio to 79.5 billion reais ($15.7 billion) currently, down from 130.4 billion reais at its 2019 peak. Lending also dropped off during Brazil's deep 2015-2016 recession, when a political graft investigation also targeted the county's biggest engineering and construction conglomerates, which were among the banks main private borrowers.

Mercadante, who was chief of staff to Lula's impeached successor President Dilma Rousseff, today heads the Perseu Abramo Foundation, a PT think tank vetting policy proposals. He said the BNDES should still be able to make large loans in specific cases, but its focus should shift to attracting global investments with guarantees, noting that the Ukraine war has redirected financial flows seeking markets in the West.

"There's no investment in infrastructure if you don't have long-term credit, and the private sector's long-term financing capacity is very low," he said. "But if the state, through the BNDES, gives guarantees for funding, you bring in private funding and multiply our investment capacity." ($1 = 5.0436 reais)

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