A senior Brazilian government official has acknowledged the
need for fiscal restraint but he said this
largely depended on the markets capacity to spur long
Luciano Coutinho, president of the Brazilian national
economic and social development bank (BNDES), said in
Washington yesterday: Now is time for us to crowd
in the private sector, which has to help in financing
long term investment in Brazil. This is the
Coutinhos statement comes after repeated calls from
IMF and World Bank officials for Brazil to rein in public
spending and fiscal stimulus.
Brazils fiscal performance has been very
good, Coutinho said in an exclusive interview with
Emerging Markets. We were able to overcome the
crisis [global recession] at a very low cost.
Now that we are growing, of course we need some fiscal
restraint, a long term fiscal policy. But that has to be
exercised in a way that is consistent with social demand,
better public services, and so on. Part of this approach
would be to crowd in private investment.
Coutinho, who enjoys the full confidence of presidential
election favourite Dilma Rousseff and is tipped to become her
finance minister, said that it would not be wise to
frustrate investment and economic growth in
We are cooperating with private sector banks and
capital market entities in order to create more stimulus from
the fiscal and the tax/regulatory side, in order to promote the
expansion of private (sector) banking in capital markets to
long term financing.
The BNDES and the private sector have to coordinate,
so that the BNDES could moderate its role and crowd
in the private sector. This has to be synchronized,
otherwise capital costs could rise too much and punish
investment decisions which is not desirable.
The BNDESs funding received a boost of more than $100
billion from the Treasury in the past two years. We hope
[we will not need any extra injection from the Treasury], but
it will depend on the ability of the market to evolve,
Coutinho said. If needed, I will ask the Treasury [to do
so], we cannot interrupt the cycle of investment in Brazil.
The cost of funding the BNDES is declining, because
interest rates will fall in Brazil. The reduction of the spread
between the long term interest rate [6%] and the short term
interest rate [10.75%] will make the subsidy vanish, he
Coutinho also spelt out his vision for a more efficient
public service, as part of his fiscal restraint policy.
This means [...] higher productivity: quality and
improved management in the public sector, to generate more
public savings, on the one hand, and on the other hand, to
improve the supply of public services that are needed for the
development of the country.
Brazil has a big opportunity to show fiscal improvement,
coupled with improved efficiency in the public sector.