Bankers Running Brazil?

The announcement of Brazilian development bank BNDES head Luciano Coutinho to chair the board of Petrobras is the second of a state bank head to move over to the struggling state-run oil company in as many months. Worryingly, it shows that President Dilma Rousseff’s second term will be a game of two-steps-forward-one-back as the government moves the country back towards economic orthodoxy.

The selection of Aldemir Bendine to move over to CEO of Petrobras from Banco do Brazil (BB) was poorly received by observers at the beginning of February. Bendine was seen by market participants as another pliant bureaucrat who would put Dilma’s policy goals above company performance. However, under Bendine, BB has operated in line with private sector peers, with loans growing over the past two years around 10%.

By contrast, other state banks such as BNDES under Coutinho have been policy arms of the government, giving out easy credit and picking winners. BNDES tripled its lending since Coutinho took the helm of the development bank in 2007. Additionally, the bank does not lend out to any corporates looking for funding for growth, but has focused on “national champions,” whether it’s state-run firms like Petrobras or Embraer, or the now-discredited empire of Eike Batista (who called BNDES “the best bank in the world.”). 

These loans to favored companies were made at below-market rates. In fact the TJLP - Taxa de Juros de Longo Prazo, the rate at which BNDES marks its loans - was lowered as the Brazilian Central Bank lowered interest rates, to keep BNDES loans below what the market could bear.

As Petrobras looks to right the ship in the wake of a multi-billion dollar corruption scandal that has already claimed its first corporate victim, whether the CEO or chairman of the board gains the upper hand in managing the oil company could determine whether the next four years will really be Dilma 2.0, or just more of the same.

-          Mike Derham, Partner, Novam Portam  

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