Brazilian government continues to subsidize loans to big corporations

Monday, July 4th 2011 - 05:12 UTC

Full article 5 comments

While the Central Bank Selic rate stands at 12.25%, the BNDES lends at 6%

Brazil's state development bank, BNDES, is lending to companies at the lowest rate relative to the country's benchmark in two years, undercutting President Dilma Rousseff's efforts to curb inflation, revealed the Sao Paulo financial press.

The National Monetary Council last week kept the long-term reference rate for loans from the development bank, known as BNDES, at 6% for a seventh quarter, while the central bank has raised the benchmark interest rate four times this year to 12.25% to stem inflation.

The gap between the two has swelled to 625 basis points, the widest spread since February 2009, when it was at 650 points.

Companies, including JBS and Suzano Papel & Celulose are able to get cheaper funding from BNDES even as policy makers increase interest rates, raise taxes on consumer credit and cut spending to slow inflation from a six-year high of 6.55%.

Central bank President Alexandre Tombini has raised the basic Selic rate by 150 basis points this year and is calling on the government to cut loan subsidies.

“The difference between the Selic rate and the BNDES is one of the greatest distortions in the country” Alexandre Schwartsman, a private consultant and a former central bank board member, said in Sao Paulo. “They want to reduce inflation but they don't want growth slowing down”.

Traders estimate the Brazilian central bank will raise borrowing costs by 25 basis points, or 0.25 percentage point, to 12.50% at its July policy meeting, and are split on whether it will then increase rates for a sixth straight meeting in August, interest-rate futures contracts show.

Economists forecast the bank will fail to bring price increases down to the 4.5% midpoint of its target range next year.

BNDES lines of credit to Brazilian companies announced this year include 2.7 billion Real for Eldorado Celulose e Papel, controlled by J&F Participacoes, the holding company of Sao Paulo-based JBS, the world's largest beef producer.

Categories: Economy, Brazil.

Tags: BNDES, Brazilean Central Bank, SELIC.

Top Comments

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GeoffWard2
Let's hear the investment stories where BNDES invests public money in the small, hi-tech Brasilian companies, where real growth can help the common man develop and grow.

Just giving the people's money to the already super-rich is pretty poor strategy and poor tactics for the development of a whole country.
Jul 04th, 2011 - 11:40 am 0
Fido Dido
Why don't you do your own homework? Again you're to lazy and all what you can do is bitch in front of a computer. Old man, why don't you do proper homework about the country you live and barely understand? Ah wait, you're to lazy like most ugly old fashion brits who think high about them self.
Jul 04th, 2011 - 05:27 pm 0
Forgetit87
“Just giving the people's money to the already super-rich is pretty poor strategy and poor tactics for the development of a whole country”

You've never heard of the East Asian strategy of “picking the champion.” That's how Japan and S. Korea created large corporations and made them international players. Creating large enterprises and capturing shares of the international market is a valid and widely used development strategy as they are less vulnerable to international shocks than small companies. Thus they are also more reliable job creators.

The bitching from the São Paulo financial market is understandable because if it was up to it, it would obviously not have to face competition from a fine, large bank that charges interest rates far below market's levels.
Jul 04th, 2011 - 05:46 pm 0

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