Price stability, privatization, the opening of the economy to foreign trade, and the many other reforms implemented in this decade have forced Brazil to rethink its development model. Since the state is the main party responsible for inducing development, it faces the greatest challenge in adapting to this new scenario.

And the BNDES has not escaped this necessity in the last few years. The process began 15 years ago when the Bank perceived that Brazil would have to integrate itself more decisively into the global economy, and that for this purpose, greater attention must be focused on the country’s level of competitiveness. The process continued with Brazil’s pioneering spirit in privatization before the end of the 1980s; the Bank’s entry into export financing in 1990; the search for private-sector partners to make viable the resumption of investment in infrastructure; and its emphasis on offering investments in production that do not sacrifice the environment, etc.

Prior to this transformation, the BNDES was viewed as a bank that channeled public-sector savings, at times with high levels of subsidies, for financing the public sector itself, state-owned companies and Brazilian companies involved in the process of import substitution, within a development model that at times sacrificed economic efficiency and social equity in exchange for the greater objective of national self-sufficiency. Today it may seem strange to see the BNDES managing the privatization process and placing Brazil’s competitiveness as one of its principal objectives.

However, it is no surprise that some individuals question the Bank’s new actions. It is in this context that one must view, for example, the debate over the support that the BNDES occasionally provides to foreign companies. Some ask, shouldn’t the BNDES reserve its funding solely for Brazilian companies? In my view, the answer is no.

To better understand why, first we must answer one basic question: What function does the BNDES serve? Or, putting it another way: What justifies the existence of an official investment bank? The answer is that the bank exists to provide long-term financing for investments in production, an activity that the local private-sector does not perform. It is important to note that this does not merely apply to intermediating funds, but also to analyzing, selecting and monitoring investment projects, thus assuring that the funds will be invested in projects with the greatest capacity to leverage development in Brazil. This will allow the BNDES to make good investments that will lead to expanding production capacity and Brazilian jobs and exports.

The BNDES’s mandate does not include, nor should it, a deliberate action for or against capital merely due to the passport that its owners hold. As mentioned before, the Bank’s objective should be, the expansion of production, employment and exports. A "good" investment is that which generates development, and this can be presented to the Bank by both Brazilian and foreign companies. Only the development needs to be Brazilian, not the owner of the company.

Of course, all of us prefer that the investments to be financed are for the installation or expansion of a factory. But the logic does not change when the financing occurs within the scope of privatization. By making credit available to interested buyers, the BNDES increases the attractiveness of the operation (similar to when an owner finances the sale of a home), and thus allows the seller (in this case the Treasury representing the general public) to obtain a higher price for the asset being sold.

Obviously, I do not want to dispute that the BNDES should continue to be more important for Brazilian companies than for foreign companies. If not only because foreign companies have greater access to international capital markets and at times have no interest in borrowing funds at the conditions offered by the BNDES. Incidentally, the same situation occurs with many large Brazilian companies, which have easy access to international financing.

For foreign companies, the option of obtaining credit from the BNDES constitutes an additional, sometimes decisive, factor in the attractiveness of the asset in a globalized world in which they have at their disposal various alternatives in selecting a country in which to invest.

Implicit in the criticism of the use of funds for financing foreign companies is the idea that as a result, many projects with Brazilian capital are "tabled" or "never realized". This idea is based on the assumption that the BNDES has not been able to finance all of the projects presented. On the contrary, the Bank’s volume of lending has grown significantly in the last few years, and, like any other financial institution, it has been borrowing to meet the growing demand. The Bank has managed this because, as already stated, it is concerned with selecting and monitoring the projects that it supports. Yes, the BNDES has refused financial support to some companies, both Brazilian and foreign, in the last few years, not due to the lack of resources but due to the companies not presenting projects that in the Bank’s view contribute to Brazil’s development. The Bank – in order to continue to have and grant credit in the future – must be careful in selecting projects to support. The important point is that there is no single Brazilian business group that can complain about requesting support from the BNDES and being refused with the excuse that the Bank did not have sufficient funds.

A priority for Brazilian companies in the granting of public credit exists and is justifiable. But priority does not mean a market reserve. The only absolute priority is national development.

November, 1999