New BNDES leadership not expected to roll back reforms

The board of Brazilian development bank BNDES confirmed the government’s appointments for directors, but they are not expected to push the lender in a new direction. 

"We still don't have a sign of how BNDES will define its infrastructure financing strategy. We believe that due to the extensive pipeline of projects, in all sectors, and the advance of the capital market in the last 10 years, [capital markets] will certainly play a preponderant role, together with private banks," Bruno Pahl, infrastructure and project finance head at Fitch Ratings, told BNamericas.

The board also confirmed Aloizio Mercadante as president.

Mercadante's appointment initially caused some concerns, given his background as a former Workers’ Party senator and minister who promotes a stronger role for the state in the economy.

During the Workers’ Party government between 2003 and 2016, BNDES was criticized for granting loans to countries according to their closeness to the government rather than technical criteria. Large companies with government connections were also alleged to benefit.

And its subsidized interest loans incurred costs to the treasury and impeded the development of the local capital market.

But subsidized rates have been abolished and stronger internal controls implemented, making a full return to previous practices unlikely, although President Luiz Inácio Lula da Silva said the government will finance projects abroad, such as a Vaca Muerta gas pipeline between Argentina and south Brazil. 

"BNDES financing goes through several areas of control and if it does not prove economically viable, it is not approved by the bank's various departments," Paulo Rabello de Castro, BNDES head between June 2017 and April 2018, told BNamericas in a recent interview.

According to Pahl, the possible pipeline deal would not represent competition with project finance players as it "may not be financed as project finance, and BNDES could only finance construction, which would not necessarily occupy space in the capital market."

Fiscal challenges also limit the bank's agency.

“BNDES has room to increase financing in the coming years, but with its own resources. However, this increase does not tend to be so aggressive, the national treasury doesn’t have resources for the bank because of fiscal restrictions,” a former BNDES board member, who left the post last year, told BNamericas, requesting anonymity.