Mar 29, 2012

The president of the BNDES, Luciano Coutinho, and the presidents of the development banks in China, Russia, India and South Africa, all countries that comprise the so-called BRICS bloc, signed two accords today that pave the way to intensifying economic relations between these emerging powers.

One of them, the Master Agreement, establishes the general guidelines for granting lines of credit in local currency, while the other, the Letter-of-Credit Agreement, defines the rules for letters of credit in export operations between the five countries. The agreements expire in five years.

The agreements were signed during the Fourth Meeting between the leaders of the BRICS, in New Delhi, India. Those present at the ceremony included Brazil’s President, Dilma Rousseff, and the leaders of the other BRICS countries: Presidents Hu Jintao, from China, Dmitry Medvedev, from Russia and Jacob Zuma, from South Africa, besides the prime minister of India, Manmohan Singh.

The master agreement outlines the mechanisms for the five signatory institutions to negotiate loans in local currency. The aim is to expand not only financial cooperation, but also commercial exchange and investments between countries.

The institutions, however, are expected to examine the conditions for making the loans feasible, in light of the legislation and the norms in the respective countries. All analysis will be on a case-to-case basis. Once operational, loans in local currency will prevent exchange-rate risks for companies in their international operations. 

The accord was signed between the BNDES, the China Development Bank (CDB), Russia’s Development Bank (Vnesheconombank), India’s Eximbank and the South African Development Bank (DBSA).

Faced with the growing internationalization of Brazilian companies and the role of the Brazil in the international scenario, the initiative presents an opportunity for the BNDES to provide support to the growth process of national companies. 

Export credit – The second accord outlines the conditions that make it possible to confirm the letter of credit in export operations. Development banks are committed to discussing bilateral instruments on a case-to-case basis to grant a letter of credit.

In other words, the institutions involved can establish bilateral accords in which they commit to a letter of credit sent by commercial banks in the country of the importer. As a counterpart, the other party will guarantee or compensate the payment to the committing bank.

Situation – As of the global financial crisis that began in 2008, the BRICS bloc has taken on a strategic role in the international economic order and perspectives for growth are above those in developed countries. Brazil, China, India, Russia and South Africa account for more than 40% of the planet’s population and have managed to increase their participation in the worldwide GDP.

Parallel to the efforts aimed at strengthening political-economic relations between the governments of the BRICS, there has been an approximation of their development banks. These institutions have been joining forces to implement collective efforts, and four instruments have already been drawn up, including cooperation agreements and memoranda of understanding.

The latest one, signed in 2011 in China, provides for the creation of a technical group aimed at studying the feasibility of granting loans in local currency, as well as the creation of other cooperation mechanisms. The first meeting of the bloc leaders, before South Africa became a member, was held in June 2009 in Russia. In April 2010, Brazil hosted the second meeting, and in the same year, South Africa became a member of the bloc.