Brazil unveils own ‘tapering’ plan

Brazil’s development bank BNDES plans to cut credit exposure in a move that its president compares to “tapering” by the US Federal Reserve

  • By Thierry Ogier, Lucien Chauvin
  • 12 Oct 2013
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Brazil is to launch its own version of “tapering” – the term used to describe the withdrawal of extraordinary stimulus in the US.

Its powerful national development bank (BNDES) has said it would “moderate its operations”. Brazilian officials said they would limit the credit exposure of public-controlled banks in response to strong criticisms by the IMF and investors of the fiscal stance adopted by Latin America’s largest economy.

“The government has already taken the necessary initiatives to maintain gross indebtedness under control in order to achieve a virtuous trajectory towards its slow decline, and that includes a moderation of BNDES operations,” Luciano Coutinho, president of the BNDES told Emerging Markets. “We should taper.”

Following the global financial crisis, the Treasury injected more than $100 billion to boost BNDES’s firepower, whose disbursements are expected to reach BRL190 million ($85 billion) this year.

Gross public debt is expected to increase to 68.3% of GDP this year, compared to an average of 35.5% in emerging markets, according to the IMF. Martine Guerguil, the IMF’s deputy director of the fiscal affairs department, said Brazil was “certainly one of the countries were fiscal risks are on the increase”.

Brazilian officials said the IMF had not really understood the nature of the support that the BNDES provides to investment. The change in Brazil’s quasi-fiscal policy will be gradual and “not radical”, Coutinho said.

The BNDES is reported to be negotiating extra funding from the Treasury before the end of the year. He said the BNDES would start to soften the pace of its operations next year, without jeopardizing its efforts to boost Brazil’s fledgling investment rate. “The secret is to crowd in the public sector,” he said.

“We are talking about reducing the extra funding for the Treasury in an orderly way. But it needs coordination with the private sector... We are fine tuning, doing it in careful way, so as not to harm the investment drive. We should obtain both fiscal control and growth.”

The gross debt and the sluggish economic growth were the main motives behind the recent decision of Moody’s and Standard and Poor’s to revise down their outlooks on Brazil’s sovereign debt ratings.

“We have seen some loosening of rules on state borrowing, which brings up questions about a violation of the fiscal responsibility law, while in the meantime you have the government saying they are going to curtail lending from state-owned banks,” said Lisa Schineller, managing director, sovereign rates at S&P.

Earlier this month, Moody’s also changed its tack on Brazil, which was criticized there. “We see this move more as policy surveillance exercise and commentary rather than a new assessment of Brazil’s net external debt.

“We see the change from positive to neutral as Moody’s being less sanguine about Brazil’s economic prospects than it was two years ago. But this has nothing to do with the deterioration of Brazil’s net external debt, which is less than 2% of GDP and 10 times smaller than central bank reserves,” said Joaquim Levy, CEO of Bradesco Asset Management.

  • By Thierry Ogier, Lucien Chauvin
  • 12 Oct 2013

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