The document discusses the life cycle of national development banks using Brazil's BNDES as a case study. It argues that BNDES has gone through different phases: from being an important countercyclical tool during the 2008 recession to seeing its lending shrink rapidly after 2014. This is possibly due to both falling demand from corporations that are struggling with high debt loads and interest payments, as well as BNDES shifting its role to focus more on reducing fiscal dominance by paying part of the public debt interest rather than targeting economic growth and development. The recession in Brazil has been unusually long and severe, with interest rates remaining high despite falling inflation and economic activity.

1. The life-cycle of national development banks: The
experience of Brazil’s BNDES
Prof. Ernani T. Torres Filho
Instituto de Economia da UFRJ
Presentation to IRIBA Seminar Rio de Janeiro
12/2016
1

2. Paper
Objective: NDB is a mechanism to deal with structural shortage of long-
term funds for investment (industry and infrastructure)
Definition of NDB:
• Supply Long Term Credit for Industry and Infrastructure
• Funded domestically and provides credits in local
currency
• Credit Origination
• State Owned
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3. Life-Cycle Hipothesis (LCH)
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• NDBs exist since the XIX century. Increased after WWI and WWII.
• Some have lost importance ,were dissolute or changed their scope, but
others are still relevant.
• From credit origination to market origination (provision of funds,
subsidies, guarantees)
• Effectiveness: literature is inconclusive
• Risks : picking losers, crony capitalist, crowding out etc

4. BNDES is a case of LCH?
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Total Assest/GDP (%)

5. BNDES had an important role as a countercyclical
tool after 2008, but ...
5
Total Credit/GDP (%)
Corporate Credit
Growth Rate (%)
6.7
10.5
11.7
14.8
13.7
9.8
14.1
12.7
14.7
13.7
12.5
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Direc. PJ Livre PJ

6. 6
2009 2013
What Changed after 2014

7. 7
19.2
-13.6
29.9
-5.6
9.6
-18.5-20
-10
0
10
20
30
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
PIB Consumo Famílias Investimento (FBCF)
TAXA DE CRESCIMENTO DO PIB, DO CONSUMO E DO INVESTIMENTO
Is it a depression?

8. 8
TAXA DE JUROS BÁSICA (SELIC), REAL E INFLAÇÃO (Ac. 12m)
Interest rates increased despite the deep recession
13.75
8.75
12.50
7.25
11.00
14.25
3.0
7.3
5.2
10.7
7.9
10.0
7.5
3.4
6.0
4.7
1.3
4.7
5.9
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
Taxa SELIC (%aa) IPCA (%aa) Taxa Selic Real (%aa)

9. 9
Interests paid by the National Treasury reached 8,5% of
GDP

10. 10
Anos
Despesa
Financeira/
EBITDA
Dívida
Financeira
Líquida/EBTIDA
Desp. Financeira
+Dívida CP t‐1
/ EBTIDA + Caixa
t‐1
2010 0,36 1,47 0,55
2011 0,51 1,87 0,63
2012 0,57 2,46 0,69
2013 0,58 2,25 0,66
2014 0,66 2,54 0,77
2015 1,72 4,20 1,30
Indicadores Financeiros Selecionados para as Principais
Empresas Abertas excluída a Petrobras
Fonte: CEMEC (2016)
Corporations are not able to pay their debts

11. BNDES credit is shrinking at a fast rate: is it
demand or supply?
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12. BNDES New Role ?
• Maria Sílvia, nova presidente do BNDES, em entrevista em junho de
2016, "o empreendedor ia fazer o investimento e apenas substituiu
uma fonte de financiamento mais cara por uma mais barata, e a taxa
de investimento da economia não subiu. Nessa nova etapa, vemos o
papel do BNDES como financiador de longo prazo, que é o existente,
mas abrindo cada vez mais espaço para o setor privado. (...) O banco
vai entrar em fatia bem menor [nos projetos] do que entrou". (Valor
Econômico, 2016c).
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13. BNDES New Role (2015 on): Fiscal Dominance
• Fiscal dominance is an economic condition that occurs when a
country has a large government debt and deficit such that monetary
policy targets keeping the government from bankruptcy as opposed
to economic targets such as inflation, growth and employment.
• BNDES policies have changed from targeting economic development
and growth to paying part of interestfs of thepublic debt in order to
reduce fiscal dominance in the central bank, due to effect of very
high basic interest rates on the service of the public debt
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14. BNDES is paying part of the public debt
interests in 2016
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15. The life-cycle of national development banks: The
experience of Brazil’s BNDES
Prof. Ernani T. Torres Filho
Instituto de Economia da UFRJ
Presentation to IRIBA Seminar Rio de Janeiro
12/2016
15