Brazil’s Development Bank Moves to Open Books Amid Graft Scandal

Brazil’s state development bank took a step toward transparency amid criticism of lending to countries like Cuba, big campaign donors and contractors involved in a graft scandal.

BNDES, the Rio de Janeiro-based institution that last year lent 1.5 times more than the World Bank, published data Tuesday on 320 billion reais ($102 billion) in loans from 2012 through the first quarter of 2015, and an additional $11.9 billion to finance exports of engineering services since 2007.

 The data include previously unpublished details on some of the government’s main campaign financiers including meat exporter JBS SA and contractor Odebrecht.

 BNDES came under fire during President Dilma Rousseff’s first term for swelling disbursements and crowding out private lenders unable to match its subsidized rates.

Some of the contractors that benefited from BNDES loans have been engulfed in a graft scandal in which they allegedly paid kickbacks that were funneled to executives of state-run oil company Petroleo Brasileiro SA and political parties in exchange for contracts.

 The bank’s move to open its books is “part of a big campaign to show they are actually doing something important for the country,” said Aldo Musacchio, director of the Brazil Initiative at Brandeis International Business School.

BNDES “has been hammered by the opposition and by academics about transparency. So this is their way of saying ‘look, here it is, we are transparent.’”

Court Decision

The initiative came after a Supreme Court decision obliged BNDES to disclose data to an audit court on loans to JBS. BNDES had argued it couldn’t disclose banking, financial and debt details of its clients and had been refusing to deliver the information to the accounting tribunal known as TCU.

Loans for export of engineering services to Angola and Cuba, details of which were previously classified, totaled $4.2 billion since April 2007, according to the data. Odebrecht and its Cuban subsidiary accounted for 80 percent of such lending, of a total $8.2 billion it received from BNDES during the period.

 Odebrecht, Andrade Gutierrez, OAS and Camargo Correa -- all of which have been cited by prosecutors as part of a cartel to rig Petrobras contracts -- made up 96 percent of the lending for export of engineering services abroad.

The lack of transparency became part of the presidential debate in 2014, when opposition candidate Aecio Neves pressed President Dilma Rousseff on secrecy of a $682 million loan from BNDES for engineering works on Cuba’s Mariel port.

 Loans to Cuba and Angola went through the same procedures as financing for other destinations, BNDES President Luciano Coutinho said Tuesday.

“Something that was so criticized during the campaign, the Mariel port, today shows its importance for the region and for Brazil,” Rousseff said in December after Cuba and the U.S. announced they would normalize relations.

Cartel Contracts

The four contractors have denied involvement in a cartel.In a statement on its website, Odebrecht said it is the largest construction company in Latin America and present in the most countries. BNDES doesn’t select the provider of goods and services, but rather the country taking out the loan, Odebrecht said.

The decision to classify data on lending to Cuba and Angola was made during Rousseff’s first term by the Trade, Development and Industry Ministry, as was the decision to declassify data, according to BNDES’s press department.

The bank loaned about $4 billion for exports last year, of which engineering goods and services was less than $1 billion, it said. BNDES lent three times more than the World Bank in 2011 and was the largest lender in South America in 2014, according to an OECD report from October.

 The bank has long supported strategic sectors of the economy through financing the international expansion of Brazilian companies, and holds shares and equity in firms operating abroad.

’Start Digging’

Of the $11.9 billion lent for works and services abroad over the past eight years, Angola received more than 25 percent.

That was followed by $2.4 billion in Venezuela, $2 billion in the Dominican Republic and $1.9 billion in Argentina. “My sense is they’re hoping that by just publishing the data they’re going to be in the clear, at least for a little bit,” said Brandeis’ Musacchio, who co-authored the book ‘Reinventing State Capitalism’ that focuses on BNDES.

“Once we start digging into the data and doing serious work with it, we will probably have a better idea of what’s really going on.”

bloomberg.com