AUTOR - Pinheiro, Armando Castelar.Adapting to New Times. Rio de Janeiro: BNDES, 1999 (BNDES’News)
TÍTULO - Adapting to New Times. Pinheiro, Armando Castelar. Rio de Janeiro: BNDES, 1999 (BNDES’News)
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Adapting to New Times
Armando Castelar Pinheiro
Brazil has changed enormously during the 1990s, privatizing large state-owned companies, opening to imports, deregulating the economy, and putting an end to regulations that harmed
consumers and hindered free initiative. During the administration of President Cardoso, the
Constitution has been reformed, with amendments that eliminated public monopolies and the
distinction between firms of domestic and foreign capital. All of these reforms served to
improve competitiveness and sustain the Real Plan. Their success can be measured by a
number of indicators, including inflows of direct foreign investment, which increased from US$
617 million in 1990-91 to US$ 26 billion in 1998.
As the principal source of funding for long-term investment in Brazil, the BNDES was obliged
to adapt to these changes. In fact, as early as the 1980s, the bank’s technical staff was among
the first to point to the need for greater integration of Brazil within the world economy. An
important element in this adaptation process, that was in keeping with Congress’ decision to
eliminate the distinction between domestic and foreign companies, was the lifting of restrictions
on the financing of multinational companies already active in Brazil, or that are establishing
operations here.
The logic behind this decision is relatively simple: both Brazilian and multinational companies
contribute to the economic and social development of Brazil. The decision to support a
project must thus obey this criterion, and not the nationality of the company’s owners.
There are other benefits, however. For example, Brazil’s competitive position in attracting
foreign investment relative to other countries is strengthened to the degree that such investors
are able to rely on the support of the BNDES. It may be noted, for example, that the IFC,
which is the arm of the World Bank for funding private-sector investment, considers BNDES
support as a major factor in its own decision to finance a project. Considering that there is a
virtual battle to attract this kind of investment, it is not hard to see that without such actions by
the BNDES, many of these projects would probably have gone to other countries.
In the same way, multinational projects that are supported by the bank have the general effect
of leveraging exports or promoting import substitution. In this sense, it is curious that some of
those who criticize the BNDES for financing such investments are also critical of the
"exaggerated opening to imports". This is the case of the recent loan made to Michelin to
finance the installation of a tire factory, as well as to expand its production line in another unit.
Without this project it is likely that the proportion of domestic components used in automobile
manufacture would be lower, with the export of jobs that are being created here by Michelin.
It should be noted that such jobs are not confined to the factory, but also include those that
are generated in the construction companies and machine tool manufacturers that will be hired
by Michelin during its investment phase, as well as jobs among the company’s suppliers (raw
materials, packaging, etc.) and in its product distribution network (transport, sales, etc.)
Shouldn’t the BNDES support a project that generates employment and that leads to the
responsible substitution of imports with a high-productivity operation that uses state-of-the-art
technology?
The above arguments are not intended to suggest that the Bank should abandon its policy of
granting special support to initiatives with a broad social impact, but whose financial return
may be low. This is clearly not the case. The point is that this differentiation of treatment
should be based not on the origin of the capital, but on the effective benefit of each initiative to
society. For example, the BNDES lends on favorable terms to Non-Governmental
Organizations that offer microcredit, that is, very small loans to people in the lower-income
groups and very small businesses that are often informal in nature. The bank also offers
preferential conditions to projects in the least developed regions of the country. Many similar
cases could be mentioned, in each of which, it is the result that counts, not the nationality of the
agent that produces it.
Even critics of the policy of making loans to multinationals agree that these operations are
profitable, and that such companies represent a low credit risk. Indeed, the bank depends on
the return from such loans to be able to finance the operations mentioned above that have a
low return but a broad social impact.
Few countries have changed as much and as rapidly as Brazil has in recent years. These
changes are at times surprising, however, as was true of the recent devaluation of the Real,
when the mobilization of society against abusive price increases and in favor of stability were
fundamental in preventing the return of high inflation. In this light, it is hardly astonishing that not all individuals and institutions adapt to such changes at the same pace.