Brazil faces a delicate duality: at the same time that the government resumes financing from BNDES (National Bank for Economic and Social Development) for works abroad, the country is still trying to recover billions of reais in debts left by Cuba and Venezuela, which defaulted on operations carried out in the past.
President Lula (PT) who facilitates new BNDES loans for , allowing the resumption of Brazilian construction companies in large infrastructure projects abroad. The measure reignites the debate about the risks of this financing model.
BNDES lends resources to take services from Brazilian private companies abroad. After carrying out the works, when the contracting country does not honor payment, the bank activates insurance and the loss is covered by the Export Guarantee Fund, a Union tool created to cover this type of risk. In practice, it is the Brazilian taxpayer who bears the brunt.
In the case of Venezuela, the debt already covered by the fund totals more than US$1.2 billion. Among the works financed in the country are the Caracas and Los Teques subways, in addition to the Siderúrgica Nacional. Cuba already has US$676 million in arrears with Brazil, with the Port of Mariel being the main infrastructure project contracted. For this work, the BNDES required as guarantee the revenue generated by the Cuban cigar industry — an initiative that later classified it as fragile.
Government negotiates, but no payment forecast
In response to CNN Brazilthe Ministry of Finance informed that there is no plan for payments to be regularized. The ministry stated that the government continues to collect credits through bilateral negotiations and coordination in international forums, and that outstanding amounts are subject to interest.
For experts, however, it is unlikely that countries will comply with the obligation. “It is not good to do work in countries that do not have the capacity to pay these credits back”, said Tony Volpon, columnist for CNN Moneyquestioning whether the use of BNDES financing capacity in other countries would be the most appropriate.
New law brings changes to avoid new defaults
The new law sanctioned by the federal government adopts a series of changes to reduce the risks of new defaults. The rule improves transparency and obliges BNDES to keep information about loans public. Furthermore, it is prohibited to carry out new operations with countries that are already in default.
At the height of Brazilian construction companies’ activities abroad, they held almost 2.5% of the global engineering services market, but lost space after the interruption of financing by BNDES in the wake of Operation Lava Jato. Even so, the debt of Cuba and Venezuela continues to weigh on Brazil, adding up to tens of billions of reais in defaults.
