Brazil’s debt king oversaw a boom that has gone bust
PROFESSOR COUTINHO WAS ADMIRED FOR POLICIES THAT CREATED A GLOBAL POWERHOUSE
It played a key role in the creative book-keeping at the heart of the impeachment process against Brazil President Dilma Rousseff. It spearheaded the debt surge that contributed to the country’s loss of investment grade. Its biggest client has been Petrobras, the scandal-plagued state oil company.
BNDES, the huge development bank owned by the Brazilian government, seems to keep turning up in the state’s deepening crisis, as does its chief, Luciano Coutinho, whose hand has been on the spigot of the subsidised lending that drove the country’s spectacular growth in its go-go years.
With his formal suits, Cornell PhD and professorial air, Coutinho was admired for policies that turned a third world striver into a global powerhouse. Now he is under attack for those same practices. His fall-from-grace saga captures the scope of the spreading disaster with his once-lauded lending practices now suspected by some as one of the causes of Brazil’s meltdown.
“This crisis has a lot to do with the increase in state-based intervention,” said Sergio Lazzarini, a business professor in Sao Paulo and co-author of a book about the development bank. He said the lending failed to lift the investment rate from 20 per cent of GDP, half of China’s rate, data that “fly in the face of Coutinho’s original idea that expanding state support would substantially revamp investment.”
Earlier this year, as the economy headed into its worst downturn in decades, opposition lawmakers hauled Coutinho in for a six-hour grilling, the air thick with disenchantment. Tell us about letting the government put off transfers to help it mask its deficit, they demanded, about the 535 billion reais (Dh525 billion, $141 billion) your bank owes the Treasury for off-budget loans, and why the biggest campaign donors tend to get the most support.
Coutinho yielded no ground, replying, “The bank’s decisions are ruled by a rigorous and impersonal process without any political motivation.” He denied allegations that he had brokered a campaign donation by a building magnate and defended the deferred Treasury transfers as legal.
Secretive
Under Coutinho, BNDES evolved into the most aggressive lending tool of state intervention in a developing democracy. Its practices have long been secretive and now its books are being pried open as the Petrobras probe and other inquiries create pressure for transparency. Police visited the bank’s headquarters last month to demand details about loans for companies of a friend of ex-President Luiz Inacio Lula da Silva.
The Supreme Court has ordered the bank to open to government auditors its financial operations with beef maker and top campaign financier JBS SA.
Coutinho’s bid to create global Brazilian companies — known locally as “national champions” — is also under scrutiny. Twothirds of BNDES lending since 2008 has been to the biggest corporations, many owned by the state or billionaire campaign donors. In the same period, the bank received 441 billion reais in Treasury loans that helped fund its balance sheet. With the intention of fuelling job creation, the loans to BNDES exploited a loophole letting the government take on more debt without asking Congress.
The cost of Coutinho’s Treasury deal is piling up, says Armando Castelar, an economist at Fundacao Getulio Vargas in Rio de Janeiro, who estimates a bill of 40 billion reais a year in interest to taxpayers.