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Financing Development: the case of BNDES May 2012 João Carlos Ferraz Vice President Arguments A Development Bank should be: - neither the vanguard or rearguard but the co-guard of sustainable development - an instrument to: - fill gaps, fix failures, induce externalities - foster an innovative, sustainable long term financing industry - an agent of systemic stability - a competent institution in appropriating and distributing (to society, via the State) benefits of its intervention 2 The Brazilian economy: trends Social and economic inclusion Macroeconomic stability Investment expanding ahead of GDP growth Challenges: innovation capabilities and efficiency of private and public sectors 3 Industrial Policies since 2004 • PITCE (2004-2007): Industrial, Technology and Trade Policy – Foster technology based sectors – The return of Phoenix • PDP (2008-2010): Productive Development Policy – Innovate and invest to sustain growth – Riding favourable winds and the storm • PBM (2011-2014): Plano Brasil Maior – Innovate to compete; compete to grow – Against a hostile environment, aggregate value through innovation • Long term policy but adaptable to face unexpected challenges • Industrial policy: a team player of development policies 4 BNDES in a nutshell - Since 1952, BNDES flexibly adapted to different stages of Brazil's development. It has always had the means – political influence, resources and instruments- for accomplishing mandates - Now, the economic horizon is extending. Investment may lead the way. Long term financing is a decisive factor & BNDES will be present. But, two challenges ahead: - Untangling and paving the way for the private long term financing industry to “crowd in”. - BNDES evolving towards: complex financing for infrastructure; support for “intangibles”; innovative instruments for widening access 5 BNDES role in long term financing and as a counter cyclical agent BNDES has a very prominent role in long term financing in Brazil Growth of disbursements for capital goods acquisition and GFFC (3Q08 = 100) 200 180 160 140 120 100 PSI begins Credit for Companies (maturity >= 3 years) 80 60 3o tri/08 4o tri/08 1o tri/09 2o tri/09 3o tri/09 Finame Disbursements 72,4% 6,1% BNDES CAIXA FEDERAL B. BRASIL 2o tri/10 3o tri/10 GFFC Investment Support Program in which interest rates were reduced by an equalization program of Finance Ministry Other Banks Source: Brazilian Central Bank 1o tri/10 PSI 12,8% 8,7% 4o tri/09 Data from Brazilian Central Bank based on banks´ balance sheets – Dec 2011 6 Scale and scope matters Main provider of long-term financing in Brazil 100% state-owned company under private law Gross Fixed Capital Formation (GFCF) & BNDES disbursements (US$ Billion) 500 450 400 90 80 GFCF 70 60 350 50 Institutional funding 300 2,500 employees 200 40 250 BNDES disbursement for GFCF (*) 150 Instruments Direct operations Indirect operations MSME (financing & guarantee) 100 Project finance Equity investments Grants 20 10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 (*) exc. BNDES Exim; working capital, M&A and Equity Financing. BNDES contribution to investiment and employment 27% 20% 22,6% 24% 21% 21,7% 14% 10,8% 15% 12,1% 12% 10,1% 10,9% 11,4% 6% 9,9% 13,0% 10,5% 3,9% 4,1% 4,4% 12% 10% 7,2% 9% 3,5% 12,5% 18% 16% 19,7% Investiments supported by BNDES / Total national investiment (GFCF) 18% Exim 30 8% 5,3% 6% Jobs created ou maintained due to BNDES / Total formal employment at the end of the year 3% 4% 2% 0% 0% 2003 Source: BNDES 2004 2005 2006 2007 2008 2009 2010 2011 Development financing: food for thought • Each nation has its own structure, history & aspirations. Hence, singular institutions. BNDES is a singular institution. But, some features of its “DNA” may serve as “food for thought”: – Flexibility: learning and adaptation to change – The spirit of serving the public interest – Competence to be effective and efficient – Team player: instrument to build for the long term – Obsession with investment, with development – Political leadership – at the institution, in the country Financing Development: the case of BNDES May 2012 João Carlos Ferraz Vice President