Latin America Bureau

BNDES 6: The Bank speaks out

BNDES 6: The Bank speaks out

Published on: Wed Apr 13, 2016
Author: Sue Branford
Source: Mongabay

BNDES: a bank loans billions to tame South America’s wild waters

Brazil’s development bank explains policies, answers critics concerning Amazon dams, the environment, and indigenous groups in exclusive interview with LAB's Sue Branford, which concludes her six-part series about BNDES

  • Founded in the 1950s, BNDES today is the largest development bank in the Americas. Through the decades, serving both the military dictatorship and elected governments, the bank helped elevate Brazil into the world’s top ten economies.
  • BNDES has predominantly focused its energy and investments on massive public works — dams, the power grid, highways, ports, canals, and other infrastructure construction projects, in both Brazil and across South America.
  • Criticisms of the bank are many: that it focuses on infrastructure at the expense of the environment, indigenous people and the poor, that it backs huge companies and mega-projects, while smaller programs could do more good for the people of Brazil.
  • A common critique is that BNDES lacks transparency, and is unwilling to open a productive dialogue with environmental and social NGOs. Here in a Mongabay exclusive, BNDES offers an in-depth interview, laying out its record and point of view.

BNDES headquarters in Brasilia. The Banco Nacional de Desenvolvimento Econômico e Social is the largest development bank in the Americas. Photo: BNDES

Brazil’s BNDES (Banco Nacional de Desenvolvimento Econômico e Social) is the largest development bank in the Americas. The largely taxpayer-funded bank has played a key role in Brazil’s economic development since it was created in the 1950s, but its rapid expansion in the 21stcentury has generated widespread alarm among critics who say that it lacks transparency, and is unresponsive to the needs of Brazil’s people and its environment.

Having long studied the bank, journalist Sue Branford has just completed a five-article series for Mongabay chronicling the bank’s history, and closely examining its record regarding Amazon and international dams, the environment, indigenous people and Brazil’s current Lava Jato corruption scandal. That series may be accessed here: part #1 (Lava Jato), part #2 (BNDES history), part #3 (Four Sisters construction firms), part #4 (BNDES and the Belo Monte dam), and part #5 (IIRSA international development).

As part of that investigation, Mongabay interviewed BNDES by email. While in the past, BNDES has been reluctant to talk in-depth with the press, the bank provided a lengthy response, topping 5,000 words. Mongabay welcomed the full answers provided, which could be indicative of a new era of transparency in the bank’s relations with the media. While excerpts were used in the article series, Mongabay presents the bank’s responses to our questions here in full, with minimal editing to enhance flow and clarity.

Sue Branford/Mongabay: BNDES originated in 1952. What does it see as its role in Brazil’s economy, and as its achievements for the nation, and its people, since the bank’s inception?

President Getúlio Vargas (1951-1954). His administration created BNDES in 1952 as a development bank largely funded by taxpayer contributions. Photo: Agência BrasilBNDES: It is difficult to provide a brief answer to such a broad question. It is rather challenging to summarize the 63 years of the BNDES’s history. The BNDES was created in 1952 and, ever since the [Getúlio] Vargas administration, has operated as an instrument to implement public policy for economic development outlined by the successive governments. That has been essentially to provide support for national industry, infrastructure and technological innovation, spanning across six decades, with the increasing generation of jobs and income. In this period, Brazil, which was predominantly an agricultural country, took on the form of an industrialized nation.

When founded in June 1952, the BNDES assumed the role as the main booster of economic development, focusing on public investment in transport and energy, as well as renewing shipping and port machinery and equipment. The aim of the Vargas administration was to substitute imports, with the State taking on the provision of infrastructure and basic industrial projects, while the remainder was left to private initiative. During the JK years [President Juscelino Kubitschek de Oliveira, 1956-1961], the Bank’s mission was expanded, with an even greater emphasis on industrialization, within the goal set by the then President Kubitschek to grow “fifty years in five”. Across the JK administration, the BNDES financed more than a hundred projects and diversified its sources of financing.

President Juscelino Kubitschek de Oliveira (1956-1961), known to Brazilians simply as JK, expanded the Bank’s mission with an even greater emphasis on industrialization. Photo: Agência BrasilThe beginning of the 1960s was marked by political and economic crises, which led to the coup in 1964. During the military government, the State took on the complementary role of promoting the private sector. With the creation of publicly-owned companies, such as the Federal Railway Company and Eletrobrás [Brazil’s major electric utility company] — which began to plan and implement their own specific projects —, the BNDES was free to offer financing to other sectors of the economy, especially projects in the private sector, focusing on manufacturing. Finame, the Special Agency for Industrial Financing, dates back to this period, and its goal was to increase the competitiveness of nationally-produced machinery and equipment and to implement a network of financial agents who would lend on the BNDES’s resources.

In the 1970s, during the [Ernesto] Geisel government, the BNDES was dedicated to reducing the country’s dependence on imports. It became the main player in the II National Development Plan, with incentives and credit for private sector investment in capital goods and basic inputs. In 1982, the Bank, until then known as the BNDE, incorporated the “S” into its acronym, for Social, thus opening up a new path for investments in social programs.

Once democracy was reinstated [in 1985], the profile of the BNDES as an engine for development and industrialization was maintained throughout the José Sarney government [1985-1990]. The Bank played a key role in financing public projects, providing resources for the Itaipu hydroelectric plant, the Rio subway system and modernizing urban railway transport. During the governments of Fernando Collor [1990-1992] and Fernando Henrique Cardoso [1995-2003], BNDES operations were aimed at privatizing large-scale publicly-owned companies, such as the National Steel Company (Companhia Siderúrgica Nacional), the Vale do Rio Doce [mining company] and the National Telecomunications System. Even so, it was still deeply involved in public investment.

The Itaipu dam was well funded by BNDES loans. Declared one of the Seven Wonders of the World in 1994 by the American Society of Civil Engineers, it was built on the Paraná River on the border between Brazil and Paraguay. Photo: International Hydropower Association on flickr.

Another wonder of the world, the Guaíra Falls, the world’s largest waterfall by volume, was destroyed by the Itaipu dam’s reservoir in 1982. The Brazilian government liquidated Guaíra Falls National Park, and dynamited the rock face where the falls had stood. Photo: Mario Cesar Mendonça Gomes on flickr

From 2003, during the Lula [Luiz Inácio Lula da Silva, 2003-2011] and Dilma Rousseff administrations [2011-present], the role of the BNDES as the main agent for economic development was reinforced, with the Bank always adhering to the main principles behind governance and impartiality in its decisions. With annual disbursements of over R$100 billion (US$28 billion), the Bank prioritizes industry with high levels of national content in production and aims to increase the competitiveness of Brazilian companies. It still focuses on large-scale infrastructure works and has innovatively given priority to projects in renewable energy, especially wind parks. It is important to mention the creation of the BNDES Card, earmarked for micro, small and medium-sized companies, which, in 2015, carried out close to 800,000 operations, disbursing more than R$11 billion (US$3 billion).

As you can see, it is impossible to talk about the progress of Brazil’s economy from the 1950s to the present day without mentioning the important and strategic participation of the BNDES. Brazil has developed expressively over the last few decades. It is now among the top tem economies in the world. Brazilian people have also benefitted, with an increase in their level of income and their standard of living. Without a shadow of a doubt, the BNDES has fulfilled its role.

Presidents Lula and Rousseff. Both are members of the Workers’ Party which has ruled from 2003 to the present. Photo: Fabio Rodrigues Pozzebom/ABr

Mongabay: The BNDES mission is “to foster sustainable and competitive development in the Brazilian economy, generating employment while reducing social and regional inequalities.” How do large-scale infrastructure projects, such as the Belo Monte dam, or dams planned for the Tapajós Basin, exemplify this mission?

BNDES: Throughout its history, the Bank has successfully carried out its mission to support sustainable development in the country. The BNDES is the country’s main long-term funder, accounting for more than two-thirds of these loans in Brazil’s economy, especially in infrastructure investments, which are the Bank’s priority. One of Brazil’s main challenges is to invest in infrastructure in tune with the need for long-term economic growth.

In electric power, specifically, the BNDES over the last 13 years has provided R$165.9 billion (US$45.8 billion) in financing, representing a growth of 52.5 GW [gigawatts] in power generation for the country and some 34,300 km in transmission lines. In keeping with its mission, the Bank’s support for the sector has resulted in the creation of a power grid in which renewable energy accounts for 70 percent, well above the world average of 22.8 percent.

One of the BNDES’s priorities is to provide support for investments in renewable energy and it was responsible, from 2006 onwards, for financing a series of wind parks in the country with total installed capacity of 8.98 GW. With this, Brazil has become one of the largest producers of wind-based energy, with 2 percent of the global capacity, ranking number ten in the Global Wind Energy Council’s (GWEC) TOP 10.

According to information in the sector, the 8.98 GW installed in Brazil represents a total accumulated investment above R$52 billion (US$14 billion), generating some 130,000 jobs across the entire production chain, and avoiding close to 16 million tons of CO2 [emissions].

Concerning the Belo Monte hydroelectric power plant, specifically, this is a project with studies that began in 1975 and, since then, have been fine-tuned through discussion and debate with civil society, academics, environmentalists and governments. These debates resulted in several changes over the decades and the current model is the consequence of a mutual agreement in which the need to increase the power supply, helping Brazil grow, and is combined with the need to preserve the environment as well as to satisfy the social demands from the population in that region.

The just completed and highly controversial Belo Monte dam was largely funded by BNDES loans. The government and the dam’s builder have been accused of ethnocide against indigenous groups, and numerous environmental violations. Lava Jato investigators are currently conducting an in-depth investigation of possible corruption related to the dam’s construction. Photo: Pascalg622, GNU Free Documentation License, Version 1.2

Belo Monte is the third largest hydroelectric power station in the world, after China’s Three Gorges, with 22,500 MW [megawatts], and the bi-national Itaipu, with 14,000 MW. However, different from other large-scale hydroelectric power plants, Belo Monte has a small reservoir in proportion to its installed capacity. Its “flooded area-generation capacity” ratio is among the world’s best.

With respect to Belo Monte, the BNDES finances investments focused on environmental and social benefits to the tune of R$4 billion (US$1.1 billion), the Bank’s largest loan to date for socio-environmental initiatives, equivalent to 12 percent of the total amount invested in the plant. Proposals were made for each of the impacts identified in the environmental impact studies (EIA-RIMA), including control measures, monitoring, mitigation and compensation. These [mitigation and compensation] measures led to the design of several programs, resulting in the Basic Environmental Program (PBA), approved by Brazil’s environmental agency, Ibama, which consists of 117 environmental projects, 49 social and economic projects, 11 land-title projects and 57 of a physical-biotic nature, that is, related to living beings.

The mitigation and compensatory efforts related to the indigenous population are part of the PBA. They include protecting territories and the conditions needed for physical and cultural survival, as well as the wellbeing of the indigenous communities. They also encompass the surrounding areas and the external activities that may have an impact on the population’s standard of living. Funai [the Brazilian government’s National Indigneous Foundation] presented a technical report stating that the undertaking was feasible and that the claims laid forth by the indigenous communities in the surrounding areas of the plant were taken into account in the project. With regards to reducing the outflow from a stretch of the Xingu River, from diverting a part of the water, an agreement was reached between Norte Energia (the body responsible for Belo Monte) and Ibama that only the bare minimum would be taken, so as to keep enough water to sustain the region’s flora and fauna. The environmental license establishes that the hydrological characteristics should be tested and monitored over a six-year period after the plant becomes fully operational, to identify any resulting impacts.

Mongabay: BNDES has implemented environmental criteria for lending in the commodity sectors. How were these criteria developed and implemented?

BNDES: Beef-cattle rearing and sugarcane cultivation were the first sectors to receive a list of guidelines established by the Bank, in 2009 and 2010. Such guidelines have contributed to a considerable improvement in social-environmental practices in the beef industry, with measures against illegal slaughtering houses, child labor and deforestation. Besides that, 26 sectorial guidelines are being elaborated at the Bank.

Harvesting sugar cane in Brazil. Agribusiness is another large-scale area of investment for BNDES. Agribusiness has become a powerhouse of the Brazilian economy. Photo: Jonathan Wilkins Creative Commons

While designing the criteria, not only did we rely on the experience of the Bank’s technical staff, but also on external references, such as: socio-environmental criteria used by other financial institutions for these sectors, terms for adjusting company conduct, which are signed by companies and the Federal Prosecutor’s Office, and reports from civil society organizations.

Once the guidelines had been released, new financing or accords with share participation signed together with the BNDES began, including contractual clauses that legally bound the BNDES and the beneficiary, formally stating the obligations to fulfill the criteria established by the Bank in each sector. Monitoring the fulfillment of these clauses is ongoing throughout the term of the financing.

Mongabay: Does BNDES have any plans to develop similar environmental criteria that could be applied to infrastructure projects?

BNDES: The BNDES’ general guidelines and principles that refer to social responsibility are in the institution’s Policy on Social and Environmental Responsibility (CSR), approved in 2010 and updated in 2014. They apply to the bank´s financing in general, including infrastructure projects.

The CSR policy aims to provide greater consistency to the BNDES’ existing tools related to socio-environmental issues, as well as to guide the development of other instruments based on the same principles and guidelines.

The Policy sets out four principles and ten guidelines related to the strategic and operational activities of the Bank, its relationship with stakeholders and its role in encouraging and fostering sustainability. Moreover, within the CSR Policy, a definition of social and environmental responsibility is clearly presented: “… to value and ensure the integration of social and environmental aspects in its strategy, policies, practices and procedures, in all its activities and relations with its various stakeholders”.

Freshwater Amazon River dolphins are among the many aquatic animals that could be threatened by new BNDES funded Amazon dams, such as those proposed for the Tapajós River basin. Photo: Stefanie Triltsch, Creative Commons

On an operational level, the Socio-Environmental Policy lays forth the principles and the guidelines established at the CSR Policy. The Socio-Environmental Policy describes the procedures when identifying and addressing the social and environmental impacts of financed projects (in the non-automatic direct and indirect modalities) at the different stages of the financial support process.

The Socio-Environmental Policy specifies, for example, that at the screening stage (“eligibility”) a preliminary analysis of socio-environmental matters related to the project and the beneficiary must be carried out. This is based on a set of data requested from the applicant (Application Form and its Annexes) and on a survey of the borrower’s registration, including verification of any records related to labor practices concerning slavery, environmental crimes and activities in areas forbidden by IBAMA. As specified in the Socio-Environmental Policy, projects are also ranked according to their environmental risks (A, B or C), considering sector, type of activity, location, and the size and nature of the environmental impacts related to the project.

This preliminary analysis results in social and environmental recommendations to be observed during the analysis stage. These recommendations aim to promote environmental compliance and sustainability in the projects supported by the Bank. The Eligibility and Credit Committee (CEC), which comprises the BNDES’ deputy managing directors, is responsible for ratifying the appropriate social and environmental recommendations.

The Socio-Environmental Policy also sets forth procedures to be followed during the analysis, approval, awarding and monitoring stages.

BNDES manages the Amazon Fund, which is raising donations to prevent deforestation like that seen here in the Amazon. Photo: NASA

Mongabay: The Bank manages the Amazon Fund which is raising donations “to prevent, monitor and combat deforestation, and to promote preservation and sustainable use of forests in the Amazon.” Does BNDES have plans to use the assessment tools developed for that program to assess current and future Amazon dam projects, whose reservoirs will likely contribute to deforestation?

BNDES: The guidelines and criteria for investing resources from the Amazon Fund, which are established by its Guidance Committee, already reflect the concern with projects of this nature. Current guidelines have given priority to support for projects in municipalities that are impacted by the PAC, the Brazilian government’s growth acceleration program, which includes electric power generation projects.

This priority to large-scale PAC projects likely to have impact on territories is, to give an example, in the point-based criteria adopted in the recent public call-for-submissions to select proposals seeking support from the Fund for Territorial and Environmental Management Plans on Indigenous Land in the Amazon Biome. The Bank considers that proposals including “indigenous land located in the surrounding areas of large-scale infrastructure projects” in its area of coverage would score better.

Within this context, it is also important to mention that the Amazon Fund earmarked R$122 million (US$48 million) for the indigenous populations, of which R$106 million (US$41 million) is for nine projects that consider these populations a priority. Others R$16 million (US$7 million) that will benefit these populations through 10 other projects receiving support, besides the projects mentioned in the public call-for-submission to design and implement Territorial and Environmental Management Plans on Indigenous Land which have not yet been awarded and which are currently undergoing technical analysis.

In relation to the impacts from constructing large dams in the Amazon, we advise that new hydroelectric power plants in Brazil are built sparingly, that is, with small reservoirs to reduce the socio-environmental impacts. Therefore, it is not the reservoirs that are mainly responsible for deforestation in these projects. Besides this, the BNDES, when supporting large-scale infrastructure projects, always respects, rigorously, environmental legislation, as well as the conditions established in the licensing for such projects. The Bank’s financing is conditioned to meeting environmental requirements and the licenses issued by the responsible governmental bodies.

It is important to mention that environmental governance in Brazil has greatly improved, and, due to the fact the country is a consolidated democracy, there is public space to discuss the impacts of large-scale infrastructure projects, especially those that directly affect local populations.

Deltan Dallagnol, a public prosecutor in the Federal Public Ministry (MPF) and head of the Lava Jato corruption investigation that is looking into inflated construction company contracts and political bribes related to large infrastructure projects — including the Belo Monte dam. BNDES contributed the majority of loans to build Belo Monte, but has not been charged with any corruption. Photo: José Cruz/ABr, Creative Commons

Mongabay: Brazilian newspapers have reported that the Lava Jato scandal has created uncertainty surrounding the future of Brazilian government funded projects. Have any BNDES dam infrastructure loans been put on hold, or are any of the many dams slated for construction in the Tapajós Basin and elsewhere on Amazon tributaries on hold for now, as a result of this uncertainty?

BNDES: The BNDES made consultations with the Attorney General of Brazil and the Central Bank, its regulatory agency, concerning the Bank´s financing to companies that are under investigation in the Lava Jato operation. The advice given to the BNDES was that the Bank could maintain these contracts provided that the due risk and credit analyses were conducted on these companies and that the guarantees were appropriate. The Bank has continued with its regular meticulous processes and is following legal requirements to the letter.

All BNDES contracts, including those that involve companies under investigation in the Lava Jato operation and which were signed after reports were made, contain clauses that establish the possibility of freezing releases and/or applying severe penalties, such as the advanced call on the loan (a situation in which the company would have to pay off its entire debt to the Bank in one lump sum). In addition, due to the Anti-corruption Policy, the Bank’s contracts have specific clauses related to this issue.

With specific regard to the projects in the Tapajós basin, the BNDES, at this moment, has no credit operations for undertakings in that region.

Mongabay: A study by Ibase (Instituto Brasileiro de Análises Sociais e Econômicas/Brazilian Institute of Economic and Social Analysis) argues that a past BNDES focus has been on loans to large infrastructure projects, while putting little focus on a more comprehensive development strategy, for Brazil. Ibase claims, for example, that less than 5 percent of the Bank’s disbursements are invested in science and technology. How does BNDES respond, and does it plan to broaden its development loans program?

BNDES: The BNDES’ growth over the years has focused on reinforcing its priorities, which include expanding investments in infrastructure; helping strengthen the competitiveness of Brazilian companies; contributing to social and production inclusion; and fostering innovation and environmental sustainability.

These results show the Bank has achieved its objectives. Disbursements to these priorities surpassed 76 percent of the total the BNDES released in 2007, reaching 88 percent of the total in 2014.

In innovation, disbursements in the period grew 333 percent, well above the expansion in disbursements to infrastructure, up 77 percent; socio-environmental, up 79 percent; and MSME [Micro, Small and Medium Enterprises Development], up 40 percent.

This increase includes new companies, specifically micro, small and medium-sized. The number of companies receiving support annually grew from 44,000 in 2007 to 277,000 in 2014.

For the green economy, the BNDES’ disbursements went from R$12.8 billion (US$3.5 billion) in 2008, the year this classification was created, to R$31.3 billion (US$8.6 billion) in 2015.

The number, as can clearly be seen, reflect the Bank’s efforts towards implementing its strategies.

Mongabay: The IBASE study also asserts that the federal government and BNDES failed to fully monitor the practices of large construction companies that have been accused of environmental and social abuses committed in the Amazon. If such abuses are proven to be true, what actions can the Bank take? Has it ever taken action against a Bank client found guilty of environmental or social abuses?

BNDES: The BNDES has instruments to inhibit and punish perpetrators for environmental crimes, slavery practices or those of a similar nature, child labor, as well as discrimination of race and gender if proven that beneficiaries of the Bank’s loans are guilty. Any beneficiary of credit from the Bank that disobeys the legislation regarding these crimes is subject to suspension of advanced call on the loan (a situation in which the company would have to pay off its entire debt to the Bank in one lump sum), besides the penalties established in law.

In every contract signed with the BNDES, there is a so-called Social Clause which outlines the Bank’s position against such crimes. One of the conditions to obtain BNDES financing requires the borrower to sign a declaration that (s)he is not involved in any of these practices. Signing a false declaration also subjects the beneficiary to the penalties mentioned above. The clause has been effective not only as a means to denying financing to clients that have a record of committing such violations, but also to penalizing those that commit them under the valid contract.

The Belo Monte dam under construction. New evidence has come forward alleging that the consortium selected to build the dam made a large contribution to the ruling Workers’ Party in order to win the Belo Monte contract. Photo: International Rivers

Mongabay: A study by a group of NGOs concluded that, despite major funding from BNDES, the Belo Monte dam has “an elevated risk of generating low dividends or of even becoming a liability” due to high construction costs and low generating capacity. Anther study suggests that the dam could lose R$28 billion (US$7 billion) over its lifetime. How does the bank respond to these external analyses?

BNDES: Much like the other large-scale infrastructure projects receiving financing from the BNDES, the financing operation for the Belo Monte hydroelectric power plant was structured as project financing, based on the predictability of revenue guaranteed by means of long-term contracts for energy signed with Norte Energia S.A., a special purpose company (SPC) that holds the concession to build and operate the plant.

With this, financing was granted, structured and based on requirements to maintain a coverage ratio in tune with the company’s capacity to repay the project loan.

Weighing up the amount invested in the Belo Monte project against the installed capacity to generate energy can be understood as reasonable, in light of the history of costs to implement several hydroelectric plants throughout Brazil.

Mongabay: The Belo Monte project continues to be controversial, especially concerning its impacts on local inhabitants. As the main funder of the project, how has BNDES helped protect against such abuses at Belo Monte? What safeguards does the bank have in place to make sure its loans do no harm to indigenous groups?

BNDES: The BNDES, as determined expressly in its operational policies, can only approve and disburse resources to a Project that has the environmental licenses from the competent federal or state agencies and that is up-to-date with the environmental requirements as established by law. Complying with environmental norms, reiterating, is a requirement for the BNDES to disburse financing throughout the implementation of the project.

In the case of the Belo Monte plant, the same criteria was applied, as usual: approval of the long-term financing operation took into account the undertaking’s good standing, proven by the License for Installation issued by IBAMA — the Brazilian Institute for the Environment and Renewable Natural Resources.

IBAMA is the institution responsible for inspecting the environmental licensing process for undertakings of this nature.

Throughout the licenses issuing process and to meet the established requirements to mitigate and compensate any socio-environmental impacts, IBAMA consults with FUNAI — the National Indigenous Foundation, an official agency of the Brazilian government, whose mission is to protect and foster the rights of indigenous people in Brazil.

In addition to this, while the plant is being implemented, each disbursement of the BNDES’s resources requires proof that the environmental licenses are in order.

Included in the investment financed by the BNDES to implement the Belo Monte plant are the expenses of a socio-environmental nature, close to R$4 billion (US$1.1 billion), as already mentioned on a previous answer.

It is important to affirm that, besides demanding that the undertaking meet environmental requirements, the BNDES physically inspects and accompanies financial investment of the resources applied in order to obtain licensing from IBAMA, which also includes actions aimed at benefitting indigenous people.

A Kaiapo medicine man in the Amazon. New hydroelectric projects there, which are typically funded by BNDES, have had a history of disrupting traditional indigenous cultures, according to critics, either with the dam, reservoir and transmission lines themselves, or with the deforestation, roads, logging, mining, population growth and urbanization that often follows. Photo: Rhett A. Butler

Mongabay: Some critics say that BNDES, since it is funded by taxpayers, should allow more transparency, and offer channels by which environmental groups, social movements, and the public can offer input and criticism regarding the projects which the bank funds. In recent years, BNDES put some mechanisms in place to improve public participation. What were those mechanisms, and does the bank have plans to further improve participation and transparency?

BNDES: The BNDES holds meetings on a regular basis with a group of organizations from civil society. Their focus is broad, but they are all related to the Bank’s work, dealing with issues such as the environment, labor law, indigenous populations, transparency etc.

At these meetings, these groups put forth their issues, which are then debated openly. This allows for direct contact with the executives of the financial institution, including members of the Board of Directors and the President of the BNDES himself. These meetings serve to help the Bank, for example, progressively improve its transparency practices. The BNDES is a pioneer in making data available on all of its credit operations via the Internet, which can be accessed by any citizen.

The Amazon Fund is another example. It has a Guidance Committee (COFA), whose job it is to establish guidelines and monitor results. COFA, aimed at expanding the participation of Brazilian society in the Amazon Fund, was created and comprises a three-prong committee, including: the federal government, state governments and civil society. Each part has the right to one vote in decisions. Each member has the right to one vote within the respective part.

It is also important to highlight that this interaction is ongoing, and the BNDES uses its contact with these social organizations as a valuable tool to improve its procedures.

However, it is also imperative to acknowledge that the BNDES is one of the most transparent financial development institutions in the world due to the practices it already has in place.

Mongabay: BNDES recently did away with a line of credit known as the Bolsa Empresário, which had given loans to controversial Brazilians including Eike Batista. What was the bank reason for eliminating this program?

BNDES: The BNDES has never had or offered a program called Entrepreneurial Assistance (Bolsa Empresário), nor has there ever been a program of this nature. The BNDES operates in compliance with its operational policies, which establish priorities for support and define financing conditions (interest rates and loan terms) according to these priorities.

One indicator that reaffirms the impartiality, technicality and diversification of the BNDES’ support in Brazil’s corporate system is the fact that, among the country’s largest 100 companies, some 91 received support from the Bank. Among the top 500, a total of 406 received support from the BNDES, and of the 1,000 largest companies, the BNDES provided support to 783, that is, almost 80 percent.

The micro, small and medium-sized companies, which are one of the Bank’s priorities, has accounted for close to 80 percent of the BNDES’ operations over the last few years.

It is also important to reiterate that the BNDES’ default rate is the lowest in the financial system, reaching 0.01 percent in 2014 (most recent balance sheet published), which is equal to that recorded in 2013. Since 2006, the Bank posted earnings of R$76 billion (US$21 billion).

Lastly, we affirm that the BNDES suffered no losses in the loans approved for companies owned by Eike Batista, because, when it was necessary, the Bank called in its banking guarantees as established in the loan contract.

Family workers preparing Brazil nuts at their mini-factory within the Iriri River Extractive Reserve in the heart of the Amazon. The BNDES’ Social Fund supports family farmers and agrarian reform settlers, recyclable-waste pickers, and other small businesses. The BNDES supported Amazon Fund has likewise invested in environmentally sustainable, social and production inclusion, earmarking R$296 million (US$81 million) for pirarucu fish farming, rubber tapping, Brazil nuts, and much more. Over 65,000 individuals have benefitted from these sustainable activities. Photo: Natalia Guerrero

Mongabay: BNDES was set up with the intention of developing the country for the benefit of all its citizens. What sort of programs has it put in place to benefit large segments of the Brazilian population, especially the poor and indigenous groups? Does it have plans to add to such programs?

BNDES: Regarding social and production inclusion, the BNDES has products and programs that provide support to micro, small and medium-sized companies (MSMEs), as well as family farmers, and traditional and indigenous communities.

In 2015, support for micro, small and medium-sized companies and individuals accounted for 96 percent of the financing operations conducted, which represents 27 percent of the year’s disbursements.

Support for family farm projects is another highlight in democratizing access to credit. In partnership with other development banks, cooperative banks, credit societies and other institutions, the BNDES has begun working in projects aimed at combating rural poverty and fostering social and production inclusion of family farmers, medium-sized rural producers and agrarian reform settlers.

Within the BNDES’ efforts in social and production inclusion, one highlight is the BNDES’ Social Fund, which uses non-reimbursable resources to support groups of Family farmers and agrarian reform settlers, recyclable-waste pickers, self-manageable undertakings and to expand cooperative credit.

Lastly, the Amazon Fund has achieved important results for environmentally sustainable, social and production inclusion, having earmarked R$296 million (US$81 million) for this effort. Within the production chains receiving support, highlights include pirarucu fish farming, rubber tapping, Brazil nuts, organic guaraná, açaí berries, honey, milled cassava flour as well as production and commercialization of arts and crafts.

According to indicators for the Fund, which began operations in 2009, there are more than 65,000 individuals that have benefitted from the sustainable activities receiving support. Another significant contribution within these projects is the mobilization of traditional populations to monitor and report on deforestation and other illegal activities. It is worth reiterating that the Amazon Fund earmarked R$ 122 million (US$ 48 million) for projects that help these people (see questions 5).

Brazilian President Dilma Rousseff with Bolivian President Evo Morales. A BNDES funded IIRSA highway construction project in Bolivia’s TIPNIS national park and indigenous area met with a great deal of opposition and was canceled as a result. Photo by Dilma Rousseff on flickr

Mongabay: The Bank has made loans to Brazilian construction companies building Latin American dams and other major infrastructure as part of IIRSA (Integration of the Regional Infrastructure of South America). How do those international projects fit BNDES’ vision, and how do they directly benefit Brazilians?

BNDES: The BNDES, together with other financial institutions, has operated as a financier for infrastructure works that are part of the IIRSA initiative. The projects are not only part of a strategy aimed at improving regional infrastructure, but they also play an important role, in particular, in Brazil’s economy. This is because financing exports is a federal policy and part of Brazil’s development strategy. In several countries, both developed and developing, it is common for export credit agencies to provide financing to export companies and offer guarantees for the operations. Offering credit at costs compatible to those offered by similar institutions allows Brazilian companies to work within a very competitive market, which moves close to US$500 billion per year.

The BNDES’ policies restrict its financing solely to exports of Brazilian goods and services. Disbursements are made only in Brazil, in our currency (reais), and only when the actual export has taken place and is duly proven. Exports financed by the BNDES have an extremely positive impact on our production segments, benefitting, especially, smaller companies. Between 2007 and 2013, local production associated to exports financed by the BNDES involved a production chain with 3,500 companies, of which 2,700 are MSMEs.

Mongabay: BNDES in its Values Statement says it is committed to operating “with responsibility, correctness, integrity, honesty and a sense of justice.” With Lava Jato corruption investigation charges now potentially pending against some large Brazilian construction companies to whom BNDES has made past loans, is the Bank reconsidering the way it evaluates potential loans to private companies? Is the Bank planning to tighten lending guidelines? How?

BNDES: The BNDES’ operations are conducted and based on the values you mentioned in your question. Over its more than 60 year history, the Bank has developed solid governance that bases its analysis on technical and impersonal criteria, through the use of collegiate bodies. These practices result in an extremely low default rate, the lowest in the Brazilian financial system, be it public or private. Our practices for granting Bank credit are constantly being improved, and the Bank is taking into account the recent episodes.

All of the BNDES’ contracts, including those that involve companies under investigation in the Lava Jato operation and signed after reports were made, have clauses that allow us to suspend financial releases and/or apply severe penalties, such as an advanced call on the loan (when the company is required to repay the debt to the Bank in one lump sum). Besides this, due to the strength of its Anticorruption Policy, the Bank’s contracts have clauses specifically aimed at these issues.

It is a mistake, therefore, to try to associate the BNDES with illicit acts just because it provides financing to companies under federal police investigation. Recently, the BNDES itself underwent a series of investigations, including a congressional inquiry (CPI), which spent more than a semester verifying supposed irregularities in the institution’s practices. During the CPI, the BNDES provided all the information requested and several of its executives went to the House of Representatives and underwent questions, answering all inquiries made by parliamentary members. The Bank has also diligently supplied all information that has been requested by the competent authorities. Not one of these investigations resulted in an accusation against the Bank, nor was there any indication whatsoever that our executives or employees were involved in any wrongdoing.

Critics contend that massive corruption has been endemic in Brazil since the time of the military dictatorship, and has been systematized as a way of doing business, with large firms receiving inflated government contracts, and in turn making massive campaign contributions to the ruling political parties that offered them the contracts. Outrage against corruption brought millions of protesters into the streets this Spring. BNDES has remained above the fray and been accused of no wrongdoing, but the bank has made major loans to companies whose management have been indicted. Political and economic chaos continue to cloud Brazil’s future, though there is little doubt BNDES will continue to play a key role in the nation’s development. Photo: Agência Brasil

This article was first published by Mongabay on 6 April 2016. You can read the original here.

Stay in touch