Brazil Needs to Wean Itself From State Bank Loans, Levy Says
Brazil’s next government needs to develop the local debt market to help companies finance investment and reduce dependence on the state development bank, said Rio de Janeiro State Finance Secretary Joaquim Levy.BNDES, as the Rio de Janeiro-based lender is known, lent a record $72 billion in 2009, bank President Luciano Coutinho said last month. The lender, which was founded in 1952 and provides financing in Brazil and overseas, sets its rates based on the country’s 6 percent TJLP, or long-term rate, while the central bank’s 8.75 percent target overnight rate is the benchmark for other loans in the economy.
“There is only so much that BNDES can do,” Levy said in an April 1 interview at Bloomberg’s headquarters in New York. “If you are serious about more investments, if you are serious about corporations growing, you know that you cannot do this only with on balance-sheet loans from banks.”
Levy, a former International Monetary Fund economist who served in the Finance Ministry of both current President Luiz Inacio Lula da Silva and his predecessor Fernando Henrique Cardoso, said the subsidized borrowing rates drive up demand in Latin America’s biggest economy.
Rate-futures traders expect the central bank to raise the overnight rate target at least half a percentage point at its April 28 policy meeting to stem inflation after it reached a nine-month high of 4.8 percent, according to Bloomberg data.
‘Face the Bull’
“One cannot stand that we have a subsidized interest rate and then you have a market rate because you cannot control aggregate demand adequately,” said Levy, 49. “You have a policy mix that just creates the need to hike interest rates to keep prices stable.”
While the central bank’s benchmark interest rate is at a record low, it compares with near zero rates in the U.S., 1 percent in the euro-zone and 0.1 percent in Japan. The key lending rate in Mexico, Latin America’s second-biggest economy, is 4.5 percent while Chile’s is 0.5 percent. Brazil’s inflation- adjusted interest rate, at 3.9 percent, is the highest among eight Latin American economies tracked by Bloomberg.
Brazilian interest rates have tumbled since the government reined in spending and created a new currency, the real, in 1994 to tame hyperinflation.
“We’ve been in this game for 10 years, 15 years now,” Levy said. “After 15 years of price stability, you have to face the bull in the eyes and have a credible policy for the convergence and for keeping prices low.”
Levy said the “main challenge” for Lula’s successor will be to bring down borrowing costs across the economy. Elections are scheduled for October. Dilma Rousseff, who served as Lula’s cabinet chief until last week, and Jose Serra, who stepped down as Sao Paulo Governor to run for president, top polls.
“The main challenge for the new government will be to have the right fiscal conditions and the right structural reforms so that you can achieve a convergence of interest rates,” said Levy. “The future is fixed income — not only government, but also private-sector fixed income.”
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To contact the reporter on this story: Fabiola Moura in New York at fdemoura@bloomberg.net
