ead.ime.eb.bread.ime.eb.br/pluginfile.php/24507/mod_folder/content/0/… · Web viewCristina Ribeiro Lemos. RedeSist, ... in a world void of any systemic effects if we can only

The experience of the BNDES in supporting innovation and sustainable development and itsperspectives in the XXI century

Abstract

When examining the role of the state development banks, some authors conclude that theysubsidize projects that could be funded with other sources of capital, with no positive consistenteffect, and can even “disturb the process of economic growth”. Others have emphasized theimportance and possibilities of active public policies performed by these development banks asthe main pragmatic and strategic use of the “visible hand” of the state. A third group adds that infinancing long-term development strategies and other essential projects, these banks areaccumulating relevant capabilities and tools, which could even help to reform the financial system.This article addresses this discussion focusing on the role and the experience accumulated by theBrazilian Development Bank (BNDES), examining the alternating emphases given to theimportance and extension of government intervention in the two first decades of the 21st century.It focus on the capacity of the bank to act as one of the main government instruments ofpromoting innovation, inclusive and sustainable development, as well as implementingcountercyclical policies aimed at reducing and neutralizing anti-social effects of macro-economiccycles and financial crises in the same period.

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Learning, production and innovation systems; the role of the State, policies and financing; nationaldevelopment banks; countercyclical policies; inclusive and sustainable development; BNDES.

1. Introduction

The debate on the role of the State, and more specifically the state-owned development banks(DBs) is rather cyclical, alternating neoliberal and developmentalist visions, accordingly with thedominant positions these visions acquire both in the academic and the policy-making sphere indifferent periods of time. Various authors - and also a number of private and also multilateralorganizations - have criticized the government intervention and have also established the limits forthis intervention. Others have forcefully argued that the active role of the State, “governing themarket”, is “an obligatory passage point” in the transition from underdevelopment todevelopment.1

In the turn of the millennium this debate was rekindled by positions such as that registered by theWorld Bank in a book published in 2001, Finance for Growth, that asserted that “state ownershipof banks tends to stunt financial sector development, thereby contributing to slower growth(World Bank, 2001, p. 123). Other organizations and authors have adopted diametrically differentpositions, while others have preferred to keep a more balanced position. The Inter-AmericanDevelopment Bank, for instance, in its 2005 report, Unlocking Credit, registered that,

The experience of the BNDES in supporting innovation and sustainable development and its perspectives in the XXI century


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Helena M. M. Lastres1


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Cristiane Garcez2


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Cristina Ribeiro Lemos3


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Walsey de Assis Magalhães4

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When examining the role of the state development banks, some authors conclude that they subsidize projects that could be funded by private sources and can even “disturb the process of growth”. Others emphasize the strategic role of these banks as the main pragmatic use of the “visible hand” of the State. A third group adds that in financing long-term development strategies and other essential projects, these banks are acquiring relevant capabilities, which could help to reform the financial system. This article addresses this discussion, focusing on the experience


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accumulated by the Brazilian Development Bank (BNDES), examining the alternating emphases given to government intervention in the two first decades of the 21st century. It centers on the capacity of BNDES to act as the main government promoter of innovation, inclusive and sustainable development and to implement countercyclical policies aimed at reducing and neutralizing anti-social effects of macro-economic cycles and financial crises.

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1 RedeSist, Federal University of Rio de Janeiro (UFRJ), Brazil.


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Production and innovation systems; role of the State; national development banks; countercyclical policies; inclusive and sustainable development; BNDES.


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1. Introduction

The debate on the role of the State, and more specifically the state-owned development banks (DBs) is rather cyclical, alternating neoliberal and developmentalist visions, accordingly with the dominant positions that these visions acquire in the academic and the policy-making spheres, in different periods of time. Various authors - and also a number of private and also multilateral organizations - have criticized the government intervention and have also established the limits for


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this intervention. Others have forcefully argued that the active role of the State is a necessary


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element in the transition from underdevelopment to development.5

In the turn of the millennium this debate was rekindled by positions such as that registered by the World Bank in a book published in 2001, Finance for Growth, that asserted that “state ownership of banks tends to stunt financial sector development, thereby contributing to slower growth” (World Bank, 2001, p. 123). Other organizations and authors have adopted diametrically different positions, while others have preferred to keep a more neutral stand. The Inter-American Development Bank, for instance, in its 2005 report, Unlocking Credit, registered that, although finding evidence “in support of the idea that state-owned banks do not allocate credit optimally, it also shows that the results demonstrating that state ownership inhibits financial development and growth are less robust than previously thought” (IDB, 2005, p. 156).2 BNDES, Brazil.


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As specifically argued by Torres, 2009, the economic literature on public banks has major limitations, particularly with regard to development banks, despite their size and importance for


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their countries.6 One main critical argument on the weakness of this debate is that the analysts and experts rarely distinguish commercial public banks from those responsible for financing long-term development projects, nor those with a universal performance of those focused on specific issues, such as agriculture, housing, small businesses etc. As a result they are all treated as if they were indistinct institutions. Another problem of these analyses is the usual confusion about the potential role of the DBs and the actual space and conditions they have to operate and to perform their functions.

This re-assessment of the role of the State was accompanied by changes in the understanding of development and its policies, which were also intensified at the turn of the century, becoming one


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of the main objects of discussion of various lines of thought.7 The new concepts of development include a wide range of variables related to standards of living and the civil rights that guarantee freedom. In fact, freedom and the granting of a decent standard of living, socio-environmental sustainability, territorialization and a systemic vision became not only key elements, but also instruments for new development approaches and policies.

In this article, we assess the experience of the main institution responsible for long-term financing of the Brazilian government’s development policies, the Brazilian Development Bank (BNDES). Two factors make this case quite relevant to the topic. First of all, the then National Economic Development Bank was created in the mid-twentieth century, without the “S” for “social" in its name, which was inserted in the late 1980s with the purpose of ensuring the objective of pursing 3 RedeSist, Brazil.


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the promotion beyond and together with economic development. A second factor that makes the Brazilian Development Bank an emblematic case is its size and its potential reach. It is one of the largest development banks in the world, with operations exclusively focused on financing Brazilian companies and other public and private organizations.

One of the reasons the BNDES is so sizeable is the fact that it addresses several activities, which in many countries are divided among different institutions with specific roles, such as financing companies of any size and in any sector, exports, innovation, socio-environmental development and public investments in the subnational level. Hence the importance of understanding the progress achieved and the experiences already tried, as well as the vital learning process set in motion by the main financier of national policies in Brazil.


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This article is divided in four sections besides this introduction. The following section presents the Brazilian Development Bank and its operations, in the last decade, during which it is argued it played a leading role in dealing with the crisis that started in 2007/2008, while also increasing its efforts fostering systemic production and innovation capacities and focusing on social and environmental sustainability and territorial cohesion. It briefly addresses the main challenges confronted by the Bank, after the impeachment of President Dilma Rousseff, in 2016, and the changes in the federal government as a whole, as well as in BNDES. In the third section, we discuss the support of development programs, as one of the State main objectives, highlighting the role of the DBs in instrumentalizing the implementation of this objective. While the last concluding section summarizes BNDES’ role to the Brazilian development, stressing the need to elaborate 4 BNDES, Brazil.


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new and adequate frameworks, capable of capturing their actual performance and functions, and to further investigate the lessons to be learned, as well as the relationship among finance, innovation, and development policies.

2. The BNDES and its role and performance in the period 2007-2017

The Brazilian Development Bank (BNDES), created in 1952, is a federally-owned bank for financing Brazil’s public and private long-term investments. Throughout its history, the Bank has gradually improved its performance and organization. Created to finance large-scale infrastructure basic


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industrial projects, investments funded by the Bank were mainly directed to the South and


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Southeast regions, where most investments were made in the industrialization period.8

Initially, the BNDE invested heavily in infrastructure. However, in the 1960s, the cattle-raising and agricultural sector, as well as small and medium-sized Brazilian companies already had access to financing lines. At that time, the BNDE started operations into agreement with a network of accredited financial agents distributed all over Brazil. The Bank played a fundamental role in implementing the import substitution policies during the 1970s, which resulted in Brazil achieving one of the most complete industrial sectors in Latin America. Investments in industrial segments included information technology and microelectronics. In 1974, three subsidiaries were established to operate in the capitals market, aimed at expanding the types of capitalization for Brazilian companies. They merged in 1982 and became a new subsidiary named BNDESPAR.5 See Prebisch, 1949; Furtado, 1958, 1983 and 1998; Amsden, 2003; Wade, 1990; Ferrer, 1997; Tavares et al., 2010;


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Integrating social concerns with the development policy was made evident in the beginning of the 1980s, when the Bank changed its name to The Brazilian Economic and Social Development Bank (BNDES). The change made to the name of the Bank contributed to enlarge and refine its performance and, accordingly, its accumulation of experience and knowledge. Also during the 1980s, the Bank stimulated Brazilian companies to compete with imported products in the domestic and international markets. In the 1990s, the BNDES was responsible for the administrative, financial and technical support of the Brazilian Privatization Program. In this period the environmental issue also gained importance and the Bank began its support to the cultural sector, through investments in movie production and the preservation of Brazilian historical and artistic heritage.

Evans, 2010; Scerri & Lastres, 2013.


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In the strategic plan for 2000/2005, the BNDES announced its new mission: “To foster sustainable and competitive development of the Brazilian economy by generating employment and reducing social and regional inequalities". Social and urban development became one of the priorities in the Bank's investment agenda. Since then this support has had different focuses, until it consolidated into efforts for production and social inclusion, as of 2003.

As for the environmental aspect, in 1976 the BNDES included the environmental variable in its procedures when analyzing and granting credit, consolidating its concerns for the projects it finances. In 1989, an environmental division was created at the BNDES, charged with the task of coordinating the internalization of the environmental variable into the Bank's operational

6 See also Ferraz, Além & Madeira, 2013 and Luna-Martínez & Vicente, 2012.


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procedures and stimulating development efforts. In 2008, given the increasing recognition of the importance of sustainability, a new area was created.

As of 2005, innovation has become a strategic issue in BNDES activities. In subsequent years, and especially since 2007, the issue gained momentum, with renewed support from the BNDES’ senior management and emphasis on corporate strategic planning.

By then, the Bank consolidated its role in the support of the most relevant development projects, offering several financial support mechanisms to Brazilian companies of all sizes (including TNCs´ subsidiaries), as well as public administration entities, enabling investments in all economic sectors. As the main financier of the government’s development strategy, it continued to play a


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major role in the support of infrastructure, innovation, industry, agriculture, trade and services, education and health, sanitation and mobility projects. The institution’s major aims continued to target large-scale structuring development projects, but micro and small enterprises (MSEs), including family farming, are also financed.

The accumulated knowledge on how Brazilian development unfolded – resulting from its wide range of operations in implementing federal development policies – also qualified the Brazilian Development Bank as a key institution when contributing to plan these policies. Internationally, the BNDES figures as one of the world's leading development banks. As shown in Table 1, in 2013, its total assets reached US $ 363.4 billion and its portfolio, US$ 263.5 billion, which qualified it as one of the world’s three largest public development financial institutions.7 See Freeman, 1987; Freeman & Perez, 1988; Reinert, 1999; Tavares, 2001; Santos, 2001. It seems relevant to stress


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Table 1: BNDES and Other Development Banks – 2013


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Source: Além & Madeira, 2015

Internationally, the BNDES is recognized for its effective role in promoting the country's development and also for its contributions to mitigate the negative effects of crises on the economy and society. In fact, the role of BNDES in implementing counter-cyclical measures, in response to different national and international crises, during its 65 years of existence, was

that authors, as Amartya Sen, have forcefully highlighted that “even though an expansion of GNP, should enhance the


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highlighted in different international appraisals.9 The aim of achieving this objective was recognized at the most important element in explaining the sharp increase of the BNDES’ total disbursement in the period 2006-14, as shown in Figure 1.

Figure 1: The BNDES’ Annual Disbursements: 2006-2014 (R$ X US$)


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living conditions of people …. there are many other variables that also influence the living conditions, and the concept


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Source: BNDES, 2016b; Lastres et al., 2016b.

BNDES´ role and performance in the 2007-2015 period: regional development, innovation and sustainability


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As pointed out above, one of the major features of the BNDES in the 2007-2015 period referred to the implementation of counter-cyclical measures, mainly by providing loans when private financial institutions withheld their credit, in response to the deflagration of international financial crisis in the beginning of the period. Figure 1 showed the sharp growth in BNDES’ total disbursement, especially after 2008, and also after 2011, the year of the European crisis, when its participation in the total amount of credit dispensed in Brazil grew accordingly, accounting, in 2011, for almost 21% of this total, which corresponded to more than 10% of that year GDP.

Together with Brazil’s four other official State-owned banks, BNDES played a key and fast role in the countercyclical policy adopted in the country to reduce the internal negative effects of the international crisis. Their joint effort accounted for almost all the credit increase at the peak of the of development cannot ignore the role of these other variables” (1988, p.13).


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2008 crisis, when private banks refrained from granting credit (Figure 2). In consequence Brazil


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continued to grow and to employ, while the all over the world an intense slowdown and losses were reported by workers and other individuals, organizations and countries.10

Figure 2: Brazil State and Private Banks Credit Growth

(Sep 2008-Sep 2009 Index Sep 2008 = 100)

8 For details of the historical role of BNDES in the support of the Brazilian industrialization and development, see


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109.0

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Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09

State-owned banks

Private banks


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The emphasis on the support of development as whole also became stronger as from 2007 to 2015, when also a more systemic view was adopted, to provide support to low-income local innovation and production systems (LIPS) and to other projects focusing on inclusive development. In this period, a new model was adopted to face the challenge of inclusive, cohesive and sustainable development. Both the Committee on Production Systems, Innovation, Local, Regional and Environmental Development (CAR-IMA) and the Secretariat for Production and Innovation Tavares et al. 2010; Torres and Costa, 2012; Castro, 2015.


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Systems and Local and Regional Development (SAR) were created in the Presidency Office of BNDES. The Secretariat was in charge of coordinating and organizing the monthly meetings of the CAR-IMA.

The committee assembled the President and top executives of BNDES at monthly meetings. One of its major aims was to stimulate the adoption of a systemic approach in the Bank as well as to foster coordination between the divisions. It also brought about the proposal for joint efforts in strategic across-the-board issues chosen as priorities, namely, support to develop LIPSs, regional and territorial development, innovation and the environment. Priority to foster and intensify competence building on sustainable production and innovation, with a vision of the future, was


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reinforced, favoring the inclusion of actors and territories not previously contemplated in these processes, as well as more equitable and regional distribution of these activities.11

Among other relevant tasks performed by the CAR-IMA, under the orientation of the then president of BNDES were: (i) the invitation to the head of the Federal Departments and their agencies to present their development goals and strategies; and (ii) the organization of frequent workshops with specialists on production and innovation and socio-environmental development at national, regional, territorial levels.12

With this guidance, an operation policy for the surrounding and neighboring areas of structuring projects was conceived, aiming at not only reducing the negative impacts generated by large


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infrastructure and industrial projects and other undertakings in specific territories, but also seizing opportunities to increase production. The proposal aimed to boosting the implementation of a mutually-agreed-upon agenda for integrated sustainable development for the territory, which would guide investments required on several fronts: territorial and environmental planning; urban, environmental and cultural infrastructure; modernization of public administration; education and training involving local and regional knowledge systems; and economic development. One of the main objectives was to mobilize and consolidate LIPSs, which could benefit from the opportunities generated by the investment, aiming at stimulating local production and innovation capacities and at adding value and quality to locally-produced goods and services.9 See, for instance, Além and Madeira, 2015; Luna-Martínez & Vicente, 2012.


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It is also worth mentioning the case of a large research project - supported by the BNDES and coordinated by SAR - assessing the policies for Local Innovation and Production Systems (LIPSs) operating in different regions of Brazil. The research project, which began in 2008 and ended in 2011, involved research teams from universities in 22 states of the Brazilian Federation, totaling more than 200 specialists in the subject. The analysis examined the advantages and the challenges of using the LIPSs approach in promoting regional and territorial development and in mitigating social and other imbalances. In the reports resulting from the study - made available at the BNDES and RedeSist sites13 and in two books14 - suggestions were presented for improving development policies implemented by the Bank and other partners that supported LIPSs and local development in Brazil.


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The understanding that development, via a sustainable path and with vast and contextualized knowledge, is the most appropriate way to strengthen the country was consolidated in the Bank’s strategies. As a consequence, new operational norms and policy instruments were incorporated into the Bank's management. They stimulated more integrated and systemic efforts in operational divisions, the development of new financing modalities, and better coordination of the efforts with partners, working both at a national and regional level and within the state and municipal spheres. Emphasis was also given to promoting interaction, internally as well as between enterprises and other stakeholders, to strengthen training processes and local and sub-regional production and innovation performance.

10 For details see Torres, 2009; Torres & Costa, 2012; Torres, Macahyba & Zeidan, 2014; Ferraz, Kupfer & Marques,


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In 2011, when the federal government decided to reinforce efforts to eradicate extreme poverty in Brazil – most of it concentrated in rural areas – extended support for agricultural activities became


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essential. In keeping with this objective, a new area was created aiming at more specific and direct coordination with the government’s guidelines and more flexibility in its efforts.15

The BNDES’ support for renewable energy has also grown significantly. Traditionally, the Bank used to finance the implementation of hydroelectric plants in the country, responsible for approximately 80% of Brazil’s energy grid. In the 2010s, support for other sources of renewable energy came to the fore, especially financing to implement wind and solar parks in the Northeast and South regions of the country, with investments that totalled more than R$ 10 billion, in 2014, which also targeted solving regional inequalities and poverty.

2014.


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The effects of all these changes quantitatively and qualitatively affected the bank operational performance. It is worth noting that, the BNDES’ disbursements in 2014 totaled US$ 70 billion, of which some 32% was allocated to small firms. Disbursements to projects related to environmental sustainability, social development and innovation grew at rates higher than the total disbursements between 2010 and 2014 – some 99% against 12% – increasing its participation in the Bank’s disbursements from 18% to 32% (Figure 3).

Figure 3: BNDES support to projects related to environmental sustainability, social development and innovation – 2010/14 (R$ billions)


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The BNDES’ disbursements to micro, small and medium-sized companies (MSMEs) showed an even more positive performance, mostly because of the access to yet another line of Bank support, which is the BNDES Card - a financing instrument for MSMEs focusing on purchases of


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any inputs for production that are registered (in January 2016, some 270,000 products and 70,000 suppliers were registered). Swift and easy-to-use, since it was created in 2003, the instrument helped significantly increase financing to this type of company in all regions of the country, as can be seen in Figure 4.

Apart from purchasing inputs, with the BNDES Card, holders can hire technological services16 in registered technological institutions to help MSMEs to use and incorporate know-how. Aimed at increasing company capacity to innovate and to improve their products and production processes, the latest support experience referred to the BNDES Technological Support programs. Created to finance companies in acquiring solutions developed through technological institutions, the

11 For details see: Lastres, et al., 2016b and 2014; Lemos et al., 2015; Andrade et al., 2014; Garcez et al., 2010.


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program required suppliers to register and list their technological solutions, available for potential clients to use.

In a large country, such as Brazil, one essential aspect for the success of these support modalities is the proximity between users and suppliers of goods and services, including technological products, throughout the country. With this, one concern related to the need to increase the number of institutions registered as suppliers in the many regions.

Figure 4: The performance of the BNDES Card - 2003/2014


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Also standing apart were the instruments that were part of the Bank’s strategy to support innovation, Figure 5 presents the progress of the BNDES’ disbursements in support for innovation, 12 Ibidem.


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highlighting the partnership taken with Finep, the Brazilian Innovation Agency, as of 2011. In addition to the previously-mentioned significant increase in amounts disbursed – an average annual growth of 59% between 2009 and 2014 – it is clear that the partnership significantly leveraged these disbursements, accounting for more than 30% of the amount the Bank earmarked for innovation.

Figure 5: Progress of the BNDES' disbursements to support innovation – 2009/14


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Source: BNDES, 2016b; Lastres, 2016b.

With regard to the regional distribution of the Bank’s disbursements, which was traditionally aimed at the most developed regions with higher investment, a major effort has been made to reach the less developed areas throughout the country. Several efforts were designed to mitigate the inter and intra-regional inequalities, aiming not only to intensify efforts in the regions and states that received less support; but also to better distribute investments within each state; reach territories and actors usually not included in the BNDES’ agenda; and act in a coordinated and


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organic fashion in promoting sustainable production and innovation activities. Partnerships and complementary efforts were established to expand the scope, opportunities and possibilities for support to development initiatives, both with other federal agencies, as well as with state and municipal governments, development banks, local development agencies and private foundations and institutes.

Concerning the challenges related to regional development with socio-environmental sustainability, worthy of mention is the structure to manage the Amazon Fund. Among the projects focusing on the sustainable use of the forest financed by the fund were: the national

14 Apolinário & Silva, 2010; Campos, et al., 2010.


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forest inventory and the social mapping in the Amazon, the forest assistance program to the use of soil in countries of the Amazon Biome and the deforestation program17.

The Bank operations aimed at urban and rural social and production inclusion were also intensified, not only by offering resources through agricultural and cattle-raising programs run by the federal government, with support for family farming, agrarian reform settlements and production cooperatives, but also offering micro-credit for production and support for low-income collective undertakings with non-reimbursable resources. One highlight related to the initiative to use the Social Fund18 to provide financial support to projects run by local low-income production and innovation systems in regions in need – through partnerships with the Brazilian states governments. This form of operation, besides guaranteeing more reach for the BNDES, also


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encouraged the multiplying effect of the Bank’s disbursements, as it stimulated states to invest


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non-reimbursable resources into production projects to generate jobs and income, coordinating those involved in the solidarity economic sector.19

It is also worth mentioning the special focus given to using existing instruments in the more socially fragile regions, which is the case for Brazil’s semi-arid region, located in the Northeast, which covers nine of the country’s states and has intermittently dry seasons. Aimed at helping the efforts made by the Ministry of Social Development and Combat against Hunger20, the BNDES, since 2012, has provided support to implement 25,000 water capturing and storage stations for production (concrete plate cisterns, underground dams, water trenches etc.) and structuring community seed banks. Investments in these social technologies aim at improving the standards

15 The Agricultural and Social Inclusion operations focused on urban and rural socio-production inclusion, aiming at


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of living for the population in the region, which, from 2013 to 2015, underwent the most severe drought in the last 50 years, thinning some herds and destroying plantations.

BNDES: accumulated learning and main challenges faced in the period of 2016/2017

The BNDES’ efforts, aimed at meeting the objectives for regional development, innovation and sustainability, produced not only the results described above, but also a significant cumulative learning process. As these topics cut across different activities, they required specific solutions to be included in the operational process as a whole. This effort aimed at meeting the challenge to stimulate and support innovation in Brazilian companies, both large and small, and resulted in the


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launch of several programs and instruments. The process was similar in the case of the priority given to sustainability, understood in the broad sense as economic, social and environmental.

With the federal government changes and the impeachment of President Dilma Rousseff in May 2016, a new orientation was given to BNDES.21 In his last year (2015/16) in the direction of the BNDES, Luciano Coutinho, the longest serving president in the 64 years of the bank, reiterated the need to think about the new policies for development in the long term. He alerted that levels of unemployment were rising and reaching service segments and warned of the need to prevent the effects of the crisis from disrupting virtuous employment and income circles, especially in the less developed regions of the country. He pointed out the increasing difficulties of the economic and financial international scenario and that the Brazilian political tension, in addition to hindering the mitigating the inter and intra-regional imbalances, intensifying efforts in the regions and states that normally received


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adoption of measures necessary for the resumption of growth, directly and negatively influenced the financial market. Therefore, his emphasis on the importance of the Bank in contributing to the resumption of development, reaffirming the need to plan for the long-term development.

He also pointed out that inflationary pressures and reduced investment were associated with higher interest rates, pondering about how to escape from the vicious circle of falling GDP, falling tax revenues, raising taxes and raising prices. He added that after the deepening of the crisis in 2011, the world financial system no longer offered long-term credit, in view of the demand for massive interventions to avoid bankruptcies in the financial system, with central banks working with negative interest and 10-year interest rates below inflation. And that another aggravating factor was the new regulations of the Third Basel Accord, requiring a more rigorous provision in less support; decentralizing investments within each state; and reaching territories, activities and actors usually not


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case of mismatch. On the other hand, he noted the excessive liquidity of the capital market and the quest focused on short-term investments and other parameters related to the “financial logics”.

In this context, it was reiterated that a great deal of discernment is required to avoid looking only at the short term. And argued that in Brazil, even with “adjustment policies”: the fundamentals had not been destroyed, there still remained relevant production capacity, availability of energy and of means of transport and there were investment needs in many sectors. He emphasized the role of the BNDES in this aid process in moderating the adjustments that cause vicious circles and in strengthening alternatives for investments in social and environmental sustainable areas.


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After June 2016, with the change of the Brazilian government, the BNDES has had two presidents and has been experiencing changes in its structure, priorities and decision-making processes. Also, since June 2017, a new strategic planning process has been underway, while the Bank aims to adapt to the changes in the national regulatory frameworks, especially those in national finances, led by the federal government and the Central Bank, which directly affect its operations.

Among these changes, we highlight the end of the Long-Term Interest Rate (LTIR), a lower rate used to finance with BNDES´ priority projects, and the entry into force in January 2018 of a new rate. As Brazilian interest rates are among the highest in the world, BNDES LTIR has been used not only as an incentive for projects of higher economic and social impact, but most importantly, as a defensive mechanism of investment. This has allowed the financing, in national currency, of included in the BNDES’ agenda. For further details see Lastres et al., 2016b.


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projects of Brazilian companies of diverse sizes, in an effective and countercyclical way. It should be noted that in developed countries and several others, financial support with differentiated rates and less vulnerability to market oscillations are often used and on a much larger scale than in Brazil. 22 Since its inception in the 1990s, the LTIR has been one of BNDES' main tools for its operations in the promotion of long-term development. Therefore, it is expected that the end of LTIR will pose new challenges and transformations in BNDES´ role and its operations.

3. The role of the State and of the development banks


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In discussing the role of government, Hirschman, 1991, pointed out a trend of gradual convergence in the thought of the “traditional right” and the “traditional left” and summarized the group of arguments against any active strategy of the State in three categories:

Perversity - any attempt at improving the economic or social order will have the opposite effect of that intended.

Futility - any attempt at changing the social or economic order is doomed to fail.

Jeopardy - any attempt at changing the social or economic order will carry with it high costs and risks, capable to jeopardize what has previously been achieved.

16 Among the registered technological services, there were: compliance assessment, normalization, technical and


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Recalling and elaborating this reflection, Reinert, 1999, is one of the authors who highlighted the opportunities of the turn of the century “to re-examine the role of the State in economic development under less ideological pressure than, not only since the start of the Cold War, but since the Ghost of Communism entered the stage 150 years ago” (1999, p. 270). However, he alerted that “we are seriously hampered by the fact that at the core of mainstream economics - as a result of the standard assumptions of neoclassical theory - there still lies a “natural harmony ”, in a world void of any systemic effects if we can only “get the prices right” and “provide a level playing field” (Ibidem). This author also argued that the fundamental problem of neoclassical theory - and of the thinking behind the policies of important multilateral international banks and


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organizations, as namely the World Bank - is that they are based on the implicit assumption that all economic activities are “alike”.23

As argued by various voices all over the world: the trend of recommending government to keep out and for trusting markets to bring prosperity is a complete misreading of the political economy.24 Moreover, in the last half of the 20th century, different experiences showed that this sort of recommendation does not stem from a deep understanding of the drivers of growth and development. As particularly noted by Mazzucato and Perez, 2014, “worse still, it ignores the role of the State as the driver of the real growth miracles of the past few decades: Japan, South Korea, Singapore, China and others in Asia, and Germany and Denmark in Europe” (p. 14). In a similar line, Peter Evans summarizes his arguments on this issue by sharply stating that: “History and metrological regulation; product quality assessment; specialized technical services in energy efficiency and


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development theory support the proposition ‘no developmental state, no development’” (2010, p. 37).

As remarked by Humbert, 2003, the neoliberal promotion of globalization, in the transition of the millennium, was a clear call for dismantling all barriers so that the nation-state territorial production apparatus of any country could become open to any actors of the global system. Along similar lines, Chesnais and Sauviat, 2003, criticized the “short-sighted apology of a market-dominated conception” of development and warned that the pressures are not only financial. They were also ideological, under the repeated slogan that “everything the state did or still does the private sector, whether domestic or foreign, can do better”. In a convergent line, Mazzucato, 2016, summarized that: “the State is often being cast as the problem, whether it is investing in new


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technology or improving market function. A key aspect of the challenge is therefore to rebalance our understanding of how economies really work. Only once that is done can we begin to formulate the kinds of policies that work, rather than reproduce stereotypes and images which serve only ideological ends” (p. 20). Moreover, as these and other authors have argued, the critical question is not about the size of government and the intensity of its intervention, but about whom government is for.25

In his revisionist history, Reinert, 2007, shows how rich countries developed, through a combination of government intervention, protectionism and strategic investment, rather than through free trade. In unison with other authors, he emphasizes that economic transformation

environmental impact; technological support; acquiring technological know-how; feasibility studies and request for


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historically has resulted from State policies aiming at maintaining macroeconomic stability, providing infrastructure and utilities, implementing selective industrial policies and stimulating competitive pressures on firms. And yet when their leaders lecture poor countries on the right path to riches they do so ignoring the fact that their economies were founded on protectionism, long before they could afford the luxury of free trade.

As for instance specifically noted by Block, 2007, despite “the dominant role of market fundamentalist ideas”, the United States Federal government has dramatically expanded its capacity to finance and support efforts of the private sector to commercialize new technologies. However, these efforts were made “invisible to mainstream public debate”:

intellectual property patents; research and development and innovation in products, processes, design, ergonomics,


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“The consequence is that while this ‘hidden developmental state’ has had a major impact on the structure of the U.S. national innovation system … developmental policies have lived in the shadows because acknowledging the state’s central role in promoting technological change is inconsistent with the market fundamentalist claim that private sector firms should simply be left alone to respond autonomously and spontaneously to the signal of the marketplace” (Block, 2007, p. 2).

This author also stress that their studies unveil “the deep disconnect between what the United States does at home and the economic policies that it has sought to impose on the rest of the world”, adding that “the constant message of the Washington Consensus has been that other

prototype production and product mocks.


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nations must pull the government back from playing an active role in the economy. But as we have seen, the real Washington has become ever more deeply immersed in its own business economy through its technology policies” (Ibidem, p. 30). One of his conclusions is that the “hidden


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developmental state” in the US suggests that “developing nations have more room for active industrial policies than has generally been assumed” (Block, 2007, p. 30).26

Advocating the need to create an academic sub-discipline on History of Economic Policy, Reinert, 1999, claimed that “the industrial powers of Europe and North America seem to be unified in a common misconception about their own past, about the role of the State in bringing them out of poverty” (p. 272). He concluded his examination of the historical role of government and of public institutions, enterprises and other organizations, in both developed and underdeveloped countries, by reaffirming that “the presence of a ‘development State’ … is determinant” (Ibidem, p. 300).


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Also contrary to the opposition between State intervention and market evolution, the “eclipse of the State” and “no alternative” theses of the 1980s, Freeman, 1987 and 2003, also called attention to the need of: (i) further understanding the features of the new accumulation pattern, the local and national development conditions and the new forms of governance at world level; as well as of (ii) designing new and proper policies and regulation regimes. One of his main points in the discussion about the role of the State, was the recognition of the importance of counterbalancing the new forms of inequalities produced by the diffusion of information and communication technologies (ICTs) and the acceleration of globalization. For it was recognized that novel and more complex divides and disparities were generated – not only n the capacity of developing,

deforestation by using non-reimbursable financial support in initiatives and undertakings capable of promoting and


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producing, using and profiting from the new technologies, systems and contents – but also among individuals, firms and organizations, regions, countries and blocks.

It is important to note that in this debate Carlota Perez, 2009, has underlined the crucial role of “the two complementary agents of innovation and growth”: financial and production capital. When discussing the main features and consequences of the changes of techno-economic paradigm, she also highlighted that such changes are very disturbing of the economic and social structures and have accompanied the growth of new wealth with strong polarizing trends in the income distribution. Perez, 2009, emphasized that: “These and other imbalances and tensions, including major financial bubbles and collapses, require an equally deep transformation of the


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whole institutional framework” (p. 20). In her paper with Mariana Mazzucato, they further elaborate this line of argument reinforcing that these employment shifts and polarization of income - brought by technological revolutions and intense financialization that have historically accompanied the diffusion of major technology bubbles – are well depicted in the long term data gathered by Piketty and Saez (2010) on US income distribution (Mazzucato and Perez, 2014).

Of course the configuration of the accumulation regime results from and reflects political and institutional changes that have characterized the evolution of the most developed organizations and countries in the second half of the XX century. These oriented not only the upsurge and diffusion of the ICT paradigm and the acceleration of globalization, but also a mounting movement

guaranteeing environmental, economic and social sustainability. See www.amazonfund.gov.br


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towards privatization, liberalization, deregulation of markets and financial systems and erosion of the sovereignty of the State worldwide. Obviously these are not natural, neutral and uncontrollable movements. Particularly when discussing new policy initiatives to guide the rhythm and direction of these transformations, we cannot ignore the trend towards the consolidation of an accumulation regime oriented by a financial logic and, above all, the consequences that have already been identified.27

In Brazil, the progression of financialization - with its short termism, rentier logics and primacy of recessionary austerity policies - has reinforced “regressive industrialization” processes, increased imports of goods and technologies and of remittances abroad, leading to stagnation; instability,


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inequality and precarization of work and living conditions.28 What is even worse, and as brought to


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light by Fabio Erber29, the “neoliberal institutionalist convention” - adopted in Brazil, since the 1990s and that still prevails - has generated negative serious effects on development, strengthening “malignant macroeconomic regimes”30 capable to make null, not only actions and public and private policies, but any and every national development strategy (Erber, 2011; Lastres et al., 2016a). The spread of the financial logics has indeed contributed to the erosion of economic and political space of governments. Similar consequences and trends can also be observed in both underdeveloped and developed countries.31

The role of the Brazilian National Development Bank (BNDES)


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When specifically examining the situation of the BNDES and other DBs, some analysts insist in pointing out that they do not (i) have produced any consistent effect on firm-level performance and investment, except for a reduction in financial expenditures due to the corresponding subsidies accompanying loans; and that they neither (ii) systematically lend to underperforming


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firms, continuing to subsidize firms that could fund their projects with other sources of capital. 32 Other authors diametrically disagree, pointing to a number of relevant roles and activities performed only by DBs, most of them focusing on the need to guarantee the long-term development of countries and regions. Some of them also stress that this discussion is particularly relevant in an era of recurrent financial crises, in which companies and the public and private


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sectors have become increasingly financialized and have adopted increasingly short-termist visions and postures.33

As noted by different authors, DBs can play a fundamental role at various development stages, both during financial and economic crises and at the moments of stability.34 In the early 2010s, as turbulence in financial markets continued, different authors provided a revision of the historical importance of the DBs in the economic growth of many countries. In a working paper of the Global Survey of Development Banks, Luna-Martinez and Vicente, 2012, argued that: “in the short or medium terms, there are strong reasons for governments to continue modernizing their DBs and


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giving them tools to become more effective and successful in fulfilling their policy mandates” (p. 25).

Also confirming that, during the 2008 crisis, DBs had outstanding performances in different countries, positively contributing to alleviate its destructive impact, Ferraz, Além & Madeira, 2013, also argue that the importance of the performance of DBs is not justified only in times of crisis: “their existence in a permanent basis is crucial, given the dynamism of the development process. Their ‘missions’ and goals change over time, reflecting different stages of development of the countries” (p. 9).35 These authors show that Germany’s KfW, Brazil’s BNDES and the China Development Bank, in 2012, had outstanding loans representing, respectively, 15.5%, 11.3%, and

family farming undertakings and agrarian reform settlements. The aim was to strengthen the production structures


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12.4% of their countries’ GDP. They also stress that, once a crisis hits, it is too late for governments to create institutional capacity and underline that this capacity must already exist, with experienced professional staff and the financial capacity. After presenting a theoretical discussion on role of these DBs, the authors also highlight the recommendation by the LSE Growth Commission (2013) to the British government to set up a bank to fund infrastructure:

“There are good theoretical reasons for the creation of such a bank: it can help to overcome key market failures in capital markets in a direct and constructive way. In particular, it can help to reduce policy risk and, through partnerships, to structure finance in a way that mitigates and shares risk efficiently. This will require a whole


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range of financial instruments including equity and structured guarantees” (LSE Growth Commission, 2013, p. 25).

Ferraz, Além and Madeira, 2013, finish their contribution by reiterating that the importance of DBs goes far beyond the objective of solving “market failures” stressing that there can be no private financing system willing to offer the necessary credit to support the development goals of a country or region. And this problem continues to exist even though “there are well developed national and international financial systems”. The authors stress that the support of DBs is justified because they generate positive impacts across the economy and in which “prevail social returns over private returns”. And also note that, despite the importance of financial performance for


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maintaining the activities, the DBs should not have the financial income as a measure of its results, adding that their assessment require sophisticated expertise.

In similar lines, Mazzucato and Penna, 2015, after analyzing the role of KfW and BNDES, show how Germany and Brazil were able to smooth the effect of speculative financial markets and economic crises by placing DBs at the center of their investment process, at the same time as contributing to a transition to a more sustainable and inclusive type of economic development. When calling attention to the need to create community development banks, filling the gap in banking and financial services, Mazzucato and Penna, 2015, review contributions as those by Minsky, and his alerts that the increasing “dichotomy between enterprise and speculation draws attention to the


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financial structure as an essential element in the capital development process”. And emphasize that the key point in this discussion, as put forward by Mary O’Sullivan, 2004, is that capital development investments - such as innovation and infrastructure - require finance, but the type of finance received affects the types of investments made.

The financial system trend of achieving speculative short-term profits to the detriment of risky and uncertain financing of long-term projects, and of the real economy also becoming increasingly speculative and financialized is re-affirmed and contrasted with the policy agenda of achieving inclusive and sustainable development. Hence their argument that, while the traditional “market failure” framework can explain some of the investments, “it is harder for this framework to explain


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the extensive and deep investments that such banks are providing in high-risk areas along the entire innovation chain” (Mazzucato and Penna, 2015, p. 2). Noting that DBs are the ones currently making key investments in new technologies and sectors, these authors stress the importance of mobilizing areas and catalyzing investments.

Here is important to recall the argument that DBs have indeed a vital role in taking the lead in formulating and implementing new development policies capable of overcoming the international crisis triggered in the more developed countries by the end of the first decade of the millennium, as well as expanding the armor against possible future crises. The proposal that the United Nations create a new global fund to articulate the required new forms of sustainable and dynamic


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development with global and national development banks was put forward for instance by Ignacy Sachs. Stressing that the concepts of development and innovation need to be broader and able to contemplate the real goals of the different territories and with a vision for the future, Sachs, 2012, highlights the significant planning and operational capacities accumulated by BNDES and other DBs of countries and regions less committed to the present production and financial paradigm.

In examining the history and role of the BNDES in supporting development Torres and Costa, 2012, discuss the alternative phases of neoliberal or developmental orientation that marked its performance. These authors reported that since the end of the military regime, in 22 years (between 1985 and 2007), the BNDES had 19 presidents. Most of them were notorious scholars of

beekeeping, arts and crafts and apparel.


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divergent economic lines of thought, some neoliberals, others developmentalists. They add that the academic literature produced during that period reflected this debate, by analyzing the political-ideological and technical-bureaucratic determinants of the BNDES' performance and, therefore, cannot be characterized by an impartial “scientific vision”. The authors also point to the 1990s as the framework for the implementation of the model, classified as neoliberal, whose main characteristics were the redefinition and reduction of the role of the State and the expansion of the functions of private enterprise, arguing that, throughout this phase, the BNDES gradually lost its previous functionality and performance as a development finance institution for macroeconomic policies. The authors also note that this period lasted until the beginning of the


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XXI century, when the developmental orientation marked a new phase in the BNDES’ performance from 2004 to 2016.

The above analysis summarizes progress registered in the BNDES’ performance in the last decade. Especially as an important agent contributing with the Brazilian countercyclical macroeconomic policies and in fostering inclusive, cohesive and sustainable development. Of course, besides the need to be deepened and consolidated these initiatives, they were confronted by various obstacles that challenged their implementation, particularly the conditions attached to public funding, such as the fiscal responsibility law, the compliance with the Basel Agreement rules, etc.36


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It is worth noting that the financial regulations of the Basel II Accord have been criticized for their possible procyclicality. The accord requires that banks increase their capital ratios when they face greater risks. Unfortunately, this may require them to lend less during a recession or a credit crunch, which could aggravate the downturn.37 Moreover, the Third Basel Accord stress testing and market liquidity risk. It was agreed upon by the members of the Basel Committee on Banking Supervision in 2010–1138 and was scheduled to be introduced from 2013 until 2015. However, changes from April 2013 extended implementation until March 2018 and again extended to March 2019. The third installment of the Basel Accords was developed as a response to the deficiencies in financial regulation revealed by the financial crisis of 2007–08. Basel III aimed at strengthening bank capital requirements by increasing bank liquidity and decreasing bank leverage.20 The MDS, of the federal government, was responsible for operating the Family Assistance program (Bolsa Família),


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The BNDES’ experience was fundamental in carrying out the most important investments for the country to industrialize and expand its development possibilities.

4. Conclusion

The aim of this paper was to reflect on the role of the BNDES’ over the last decade in providing support to innovation and production systems fostering inclusive and sustainable development in Brazil; besides playing a key role in implementing strategic macro-economic and countercyclical policies, mostly aiming at reducing the financial vulnerability of the country and especially the

considered the largest income transfer program in the world, which lifted more than 36 million people out of extreme


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destructive effects of the international crisis. The support structures and policies experimented throughout this period also tried to adapt the Bank’s traditional operational models to meet recognized theoretical developments achieved in the last few decades, pinpointing the primordial role of contextual and systemic aspects in innovation and development. As, for instance noted by Mazzucato and Penna, 2015:

“In Brazil, the importance of the collective dimension in production and innovation has been reflected in economic policy making. In particular, policies to promote technological and industrial development have recognized that the agglomeration of firms and the benefits generated by their collective interactions can contribute to sustainable competitive


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advantage. The concept of … local innovation and production systems - LIPSs … (in Portuguese Arranjos Produtivos Locais), or APLs, plays an important role in national development policy and STI policy” (p.28).39

It is also worth noting that these objectives are coherent with the essentials points elaborated by Michel Aglietta in his argument that:

“State responsibility for maintaining the rate of technical progress is the way to influence long-term growth. But the steady-state growth is also important. It implies political responsibility for anti-cyclical measures, which monetarism had denied. ... structural policies

poverty in the country in a timeframe of 12 years.


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designed to improve the quality and flexibility of jobs cannot function independently of macro-economic policies designed to stimulate growth” (2015, p. 1028).

The paper has also attempted to summarize the reach and results of the main initiatives offering support for development, focusing on innovation, inclusion, territorial and social cohesion and sustainability. Not only were new financing lines and instruments created to achieve these goals, but partnerships and joint efforts were also carried out, integrating visions and skills while expanding the reach to meet the different needs of different regions in the country. As seen above, the BNDES took great effort to modernize and improve its operations, aiming, especially, to reach actors that are often out of its reach, and sometimes beyond reach of the entire financial


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system. As a result the bank has indeed accumulated extremely important capabilities strengthening its role.

However, since the mid-2016, with the changes in the presidency of Brazil federal government, the role of BNDES was questioned, revised and transformed. Despite the different political orientations and the recognition that this role can always be improved, various specialists40 call attention to the importance of DBs’ roles in implementing and helping to coordinate government policies, mobilizing other agents in the direction of a common development path. Moreover, it is recognized that DBs have access to a wide range of extremely relevant information, as well as have traditionally accumulated, extensive experience and capabilities.


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Also and as specifically stressed by Mazzucato and Penna, 2015: (i) DBs are well positioned to coordinate stakeholders and to establish relationships and networks with a vast array of actors, from government officials to corporate actors to consumers; and (ii) their portfolio of funding tools enables them to match adequate finance to the project. These authors also conclude that their institutional macro-micro structure makes the DBs “the most appropriate type of public agency to tackle grand challenges”.41 Moreover, they argue that in tackling these initiatives, DBs are developing novel financial tools and accumulating capabilities that could be instrumental “to reform the financial system from within, addressing issues of short-termism and financialization” (p.1). Mazzucato and Penna, 2015, add that the need to further evaluate the role of DBs “outside the market failure framework”, investigating the various tools they use and the lessons to be


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learned; investigate the relationship among finance, innovation, and development policies; and elaborate alternative frameworks with new indicators, capable of capturing DBs’ strategic functions and of evaluating their actual performance.42

It is also worth underling one main argument put forward by Torres and Costa, 2012 - in their discussion on the historical role of the BNDES in the financing of Brazil’s economic development - that the current pattern of long-term financing is expected to change in the coming years, requiring various changes in policies, instruments and the in the performance of BNDES. 43 Their conclusion is that such a perspective is likely to change the course of related academic debate, “which today is far too ideologically polarized”. In a convergent line, Mazzucato, 2011, has

21 See BNDES, 2016a.


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forcefully argued that “unless we challenge the numerous ‘myths’ of economic development, and abandon conventional views of the State’s role in it, we cannot hope to address the structural challenges of the twenty-first century or produce the technological and organizational change we need for long-term sustainable and equitable growth”.

In this vein, we finish this reflection firstly by reaffirming the fundamental role BNDES has always played in the promotion of the Brazilian development, since its creation in 1952, and despite the different phases and policies orientations experimented by the country. Secondly by recalling the remarks and alerts put forward by the well known Brazilian economist Celso Furtado (also a former Director of BNDES) on the possible future of the peripheral countries facing the


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transformations in the global economy that were already foreseen in the 1980s, especially the increase of globalization and financialization:

“The struggle against the ambiguities of the monetarist doctrine demands a critique of the practice of peripheral development in the transnationalization phase. What is at stake is more than a problem of ideological demystification. … We have to ask ourselves whether the peoples of the periphery will play a central role in the construction of their own history, or whether they will remain as spectators while the process of transnationalization defines the place that each one should occupy in the immense gear that promises to be the globalized economy of the future. … The new doctrinaire orthodoxy, by claiming to reduce everything to

22 For details see Afonso, 2017.


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formal rationality, obliterates the awareness of this option. If we want to revive it, we must begin by restoring the idea of development to its political-value content" (Furtado, 1982, p. 43-44).

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LASTRES, H. M. M.; LEMOS, C. R.; SILVA, M. M.; MAGALHÃES, W. A. Innovation and Production Systems for Inclusive and Sustainable Development: experience of the Brazilian Development Bank. Mimeo. Indialics, 2016b. www.redesist ie.ufrj.br.

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that would initially produce for the home market and ultimately compete in overseas markets. These start-ups could


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be structured as partially state-owned enterprises that raise capital from both public and private venture capital funds


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and international development banks. With appropriate technical and financial support from global aid agencies,


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complementary initiatives across the Global South could generate hundreds of thousands of new jobs and generate


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much needed foreign exchange” (Block, 2007, p. 32).


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27 Lastres, 2016a; Lastres, Cassiolato and Maciel, 2003; Humbert, 2003; Chesnais & Sauviat, 2003.


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28 Cassiolato, Szapiro & Lastres, 2015.


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