Brazil, worried over debt, to lend less to BNDES, states

Reuters

By Laiz Souza and Guillermo Parra-Bernal

SAO PAULO, Oct 14 (Reuters) - Brazil will inject less moneynext year into the country's development bank BNDES,its leading source of long-term corporate loans, to focus moreon infrastructure financing as concerns mount over public debt.

The National Treasury has a target of phasing out annualcapital injections into BNDES "within a few years," FinanceMinister Guido Mantega said on Monday.

In addition, both the Treasury and BNDES will put the brakeson lending to states, which might have to tap private-sector andstate-run commercial lenders other than BNDES for new financing,he said.

The decision comes after years of criticism of PresidentDilma Rousseff's efforts to use BNDES to speed up growth inLatin America's largest economy. The Treasury has funneled morethan 300 billion reais (US$138 billion) of taxpayer money intoBNDES, a situation that some analysts have said stoked a rapidincrease in government debt.

Earlier in October, Moody's Investors Service lowered theoutlook on Brazil's Baa2 sovereign debt rating to "stable" from"positive," citing the impact of years of low growth, flagginginvestment and swelling debt. Moody's and peers have stressedthat government debt trends are deteriorating: Brazil's grossdebt equals almost 60 percent of gross domestic product,compared with median ratios of 45 percent for Baa2-ratedcountries.

"The tendency is that the BNDES will be next year with afocus on activities that the private sector has more difficultyto fund, like infrastructure and heavy industry investments.That is why we are reviewing the policy of helping fund theBNDES," Mantega said at a news conference.

Mantega played down concerns over recent growth seen ingross debt, saying the most widely watched gauge of governmentindebtedness is net debt. Gross debt includes all liabilities,while net debt subtracts highly liquid assets like the country'sinternational reserves from outstanding debt.

BNDES, which is fully controlled by Brazil's federalgovernment, has been ordered by Rousseff to boost credit accessfor companies while aggressively reducing borrowing costs. Atthe same time, BNDES increased dividend payouts to thegovernment, which has in turn replenished their capital withTreasury debt instead of cash.

BNDES' lending policy towards states is also under review,Mantega said. The Rio de Janeiro-based lender, which in recentyears has been an active lender to regional governments inBrazil, will phase out that type of loan, he noted.

"States that want to contract new loans will have to tapprivate-sector or state-run lenders other than the BNDES for newmoney," Mantega said. "They can't knock on the BNDES' door formore loans."

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