This is how BNDES operates abroad - Under the Equator

Episode in Ecuador brings to light how BNDES finances certain operations abroad, bank puts State at risk.

The episode that led the building company Norberto Odebrecht and de Furnas to be expelled from Ecuador brings to light how BNDES (National Economic and Social Development Bank) finances certain operations abroad. Bear in mind that the work done by the first company and monitored by the second in that country were financed by BNDES.

Since the beginning of the decade, in this bank there is a line of credit for Brazilian companies that “export services”.

The transaction is based on an accounting device. The company makes a deal with the government of a given country to build an infrastructure project already connected to the financing. Based on the deal, the company goes to BNDES and makes a loan in Reais, to export engineering services formally. Therefore, the benefited country starts owing BNDES (in dollars) the operation’s corresponding amount.

In the end, the money used to finance the project is launched as “loan receivable” by Brazil.

Argentina, Chile, Ecuador, Paraguay, Uruguay, Bolivia, Peru, Venezuela, Namibia, Angola, Mozambique, and other countries have had public works financed in this way.

In addition to BNDES, Banco do Brasil also operates in similar fashion, through ProEx (financing of exports), with opacity identical to BNDES.

The triangulation involves several inaccuracies:

1. In reality they are disguised loans to foreign countries.

2. The concession of loans is the result of an interaction between the “exporting” company and the foreign country without the Brazilian State (which in reality runs the risk) having any influence on the conditions of the deal.

3. Brazilian public money is being used to finance projects abroad without any competitive process which allows the participation of other Brazilian companies that could be interested.

4. Neither the State nor the public are informed of such transactions. There is no report on the loans on the BNDES website.

5. Whether the contract is arranged through the payment of a bribe to the Chairman of the receiving country or the Project is not executed in accordance to the specifications because this is part of the “deal,” none of this concerns BNDES.

On the other hand, when a multilateral bank (the World Bank for instance) lends money to a country, it is obliged to meet all requirements destined to assure maximum competitiveness. The competition made with the loaned money is conducted according to the rules that the banks themselves determine, and not with the rules that each country defines. The idea is to maximize the efficiency of the financial application, reducing the risk for the bank.

This is all wisely disguised by BNDES. Besides assuming financial risks resulting from the precariousness of the relation between the company and the benefited country, BNDES has a blind eye on the fact that Brazil signs for two international conventions that fight against transnational bribery: the OCDE Convention (Organization for Cooperation and Economic Development) and the UNO´s (United Nation Organization)  Convention  Fight Against the Corruption.

Both tools force signatory nations to put in practice procedures to combat transnational bribing by companies.
By not conforming to the conventions and principles of stimulating competitiveness, BNDES exposes the Brazilian state to the risk of financing corruption in international business.

Claudio Weber Abramo* is the executive director for Transparência Brasil, an organization dedicated to fighting corruption in the country. www.transparencia.org.br