To whom are the BNDES loans useful, to Lula or to Brazil?
The Brazilian president decided to revive the National Bank for Economic and Social Development to finance projects outside the country. Many wonder what is the advantage of granting loans to the Vaca Muerta pipeline when the South American giant has gas in its pre-salt wells that is much less polluting than Argentina's
Maria ZuppelloFrom São Paulo, Brazil.
Lula da Silva and Alberto Fernández (Reuters)
It has been the topic that has occupied the headlines in recent days in Argentina, but especially in Brazil, where it has unleashed a great controversy. As announced in Buenos Aires on the sidelines of the meeting of the Community of Latin American and Caribbean States (CELAC), this is the generous will of the new government of Luiz Inácio Lula da Silva to revive the National Bank for Economic Development and Social (BNDES) to finance projects outside of Brazil. The first and most discussed is the construction of the remaining 500 km of the Néstor Kirchner gas pipeline, from the region of Vaca Muerta, in Argentine Patagonia to Santa Fe. At a later stage, the gas pipeline could reach Brazil.
There is talk of financing rejected by the previous government of Jair Messias Bolsonaro, which Lula has now unlocked along with the idea, also highly criticized, of a single currency between the two countries to replace the dollar in commercial transactions. In the meeting with President Alberto Fernández, however, Lula did not specify the value of the loan or the modalities. On December 12, 2022, the Argentine Secretary of Energy, Flavia Royón, had declared that her country had already obtained financing of 689 million dollars from the BNDES.
Also known as the “treasure of Vaca Muerta”, the geological formation rich in shale gas, in English shale gas, is considered the second largest unconventional gas reserve in the world. Contrary to the new government's promises to preserve the environment, Argentine gas is highly polluting and is therefore banned in Europe. In Brazil it is not regulated, but it has been the subject of legal action in the states of Bahia and Paraná. In the latter it is prohibited since 2019.
According to a Yale University study from March 2022, “the process behind this gas, called fracking, requires a large volume of water, emits gases that cause the stove effect, such as methane, releases toxic air into the atmosphere and produces a lot of noise. Studies indicate that the production of this gas can cause the loss of plant and animal habitats, the extinction of species, damage to bird migration and soil degradation. Other work has revealed a link between where shale gas is produced and an increase in miscarriages, cancer, and asthma.”
Therefore, many are wondering What is the advantage for Brazil of an agreement to obtain this product when the country has gas in its pre-salt wells that is much less polluting than Argentina's. The problem is that this national resource is not being used due to the lack of an adequate network of internal gas pipelines that has not been renewed since 2013. Lula, however, rejected all criticism, calling it “pure ignorance” and added that “the Countries that are bigger should help those that have fewer conditions”. The fact that the issue runs the risk of becoming a headache for those who deal with the environment is demonstrated by the reaction of the minister in charge, Marina Silva, who dodged the journalists' questions stating that “she was not informed about this project”, adding that “it is a complex work that involves significant environmental risks that must be duly considered”.
BNDES headquarters in Rio de Janeiro (Reuters)
To the question Why it is better to import polluting gas from a neighboring country instead of investing in internal infrastructure and using a more ecologically sustainable gas, the Minister of Economy, Fernando Haddad, limited himself to responding that “It is a project that will supply Brazil. And this is completely different from financing infrastructure in another country. Financing a highway in an African country, a port in Central America, and financing a project that will bring gas to Brazil are completely different things. And there will be a system of guarantees.”
In fact, the great fear of Brazilian civil society is that the country will once again relive the nightmare of corruption , uncovered by Operation Lava Jato in 2014, and that one of its Pandora's boxes was revealed precisely in the BNDES by a detailed award-winning denunciation of the former Minister of Economy of Lula and the Civil House of Dilma Rousseff Antonio Palocci, in 2019. In the 14 years that the Workers' Party has been in government, the BNDES has financed loans totaling some 11.8 billion dollars for Brazilian companies to build infrastructure in other countries, mainly with those construction companies that most Later they were involved in the Lava Jato scandal, such as Odebrecht, OAS, Andrade Gutierrez and Queiroz Galvâo. The countries in which they operated, benefiting in turn from other BNDES loans with subsidized interests, therefore lower than those of private banks, are Argentina, Venezuela, Cuba, Costa Rica and, in Africa, Angola and Mozambique.
However, official BNDES data as of November 30, 2022 reveal that of the 11.8 billion dollars lent, the BNDES has only received back 9.6 billion dollars. More than 2,100 million are missing from the box, of which 1,300 million dollars only from Venezuela. Among the works financed are the expansion of the Caracas and Los Teques subways, the construction of the Estaleiro Del Alba (Astialba) for PDVSA, Venezuela's state oil company, and the construction of the Usina Siderúrgica Nacional. Few of these works have been completed. And now that Lula has resumed diplomatic relations with the Nicolás Maduro regime, it will be necessary to understand if this debt will be paid and how.
Cuba also owes the BNDES 40.8 million dollars of a total of 696 million loaned for various works, particularly for the expansion of the port of Mariel, 40 km from the capital, Havana. For this million-dollar loan, the Brazilian government accepted Cuban cigars as collateral.
Many economists criticize this return to the past of the new government, also in view of the various external conditions that predict recession in almost the entire world. “We are at a time when we need to focus on the national market, especially on small and medium-sized companies,” Luciano Bravo, General Director of “Inteligência Comercial” told the Brazilian press. “Placing money in other countries, especially those in serious financial difficulties, is a risk that should not be taken ,” he added.
In addition, according to Bravo, since the money used by the BNDES comes from the national treasury, if the new debts are not honored, it could be affected with an impact on inflation and interest rates (Selic). Although Argentina has always paid its debts, concerns are growing that new contracts may not be honored due to the country's difficult economic situation. For Paulo Uebel, former secretary of the Ministry of Economy in the Bolsonaro government, the risk is “that unfair competition with the capital market is created and the export of services to dictatorships with low levels of transparency and governance are financed.”< /p>
24 hours after Lula's announcement in Argentina, the BNDES stated in a statement that for its part “there is no demand or expectation to finance infrastructure projects abroad” and that “< b>any changes to this policy must be approved by the Federal Court of Accounts (TCU)”.
However, things may change soon, since Lula has decided to appoint the former PT minister Aloizio Mercadante as the new president of the BNDES. Mercadante was Minister of Education and the Civil House during the government of Dilma Rousseff, accused of influence peddling and obstruction of justice by Lava Jato. These charges against him were withdrawn in August 2022. In order to have him in charge of the bank, Lula was even willing to change the Law on State Companies, 13,303 of 2016, also known as the Law on the Responsibility of State Companies, approved during the presidency of Michel Temer after the impeachment of Dilma Rousseff to stop rampant corruption in public companies. A recent TCU decision resolved the problem for Lula, at least for the moment, declaring that the law does not prevent the appointment of Mercadante, who was made official in office just yesterday.