National development banks in Latin America such as Brazil's BNDES and Mexico's Nafinsa are playing an important role in keeping funds flowing in the region, but there is a danger of them being over-stretched. Writer Jane Monahan
Brazil's giant national development bank (NDB), Banco Nacional de Desenvolvimento Econômico e Social (BNDES), lent 92.2bn reais ($40bn) in fiscal 2008, equivalent to about 14% of total investment in Brazil and more than the financial support of all the multilateral development banks (MDBs) combined in Latin America that year. Moreover, the Brazilian government has said it will inject a further 100bn reais in BNDES in fiscal 2009/10, raising the NDB's lending capacity further.
Despite this, BNDES president Luciano Coutinho says that with the drying of international capital markets and other forms of long-term finance, he is "becoming more and more pessimistic. The result [of the financial crisis] is that BNDES has become overburdened. And [we are finding that] either we support long-term investment by offering credit, or [private] investment wouldn't take place. It is as simple as that." BNDES, for example, has recently tried to crowd in private sector lending, making sure that Petrobras, Brazil's state oil company, has at least one-third of its financing needs secured for a large-scale investment programme, which includes the deepest deep-sea water drilling for oil in the world, off Brazil's east coast.
Exposure levels
In Mexico, Alejandro Werner, the country's deputy finance minister, says that total bank exposure to the private sector in Mexico is equivalent to about 5% of gross domestic product (GDP). However, he says, it is an indication of how big the loan portfolio is of Mexico's biggest NDB, Nacional Financiera (Nafinsa), that its private sector exposure is equivalent to 1% of GDP. Nafinsa's basic mandate of lending to small and medium-sized enterprises (SMEs) is also being stretched, as a result of the crisis, to supporting entire industrial sectors facing financial difficulties. Hector Rangel, director-general of Nafinsa, says that the bank is "helping provide liquidity to the car industry, to the entire chain, from manufacturers of car parts to sales companies to car distributors".
Merger ahead
Plans are also under way (and a law is before Congress) to merge Nafinsa with Mexico's Banco de Comercio Exterior, the country's export credit bank. Keeping them separate, when more and more companies sell both in Mexico and abroad makes little sense, concur Mr Werner and Mr Rangel. As development banks, they also have to be regulated as a normal bank and as a government entity, so the merger will also result in savings in administrative costs. Mexico will still have four national development entities after the merger, including Sociedad Hipotecaria Federal, the national mortgage bank, which received sizeable credits from Washington, DC-based MDBs last year ($2.8bn from the Inter-American Development Bank [IADB] and $1.5bn from the World Bank).
The IADB also approved a $20m credit last year for Peru's state-run Corporación Financiera de Desarollo, the country's national development bank, for lending by microfinance institutions for low-income housing. Separately, Brazil's BNDES and Corporación de Fomento de la Producción, Chile's development institution, recently signed an agreement to increase technical co-operation, to fortify microbusinesses and SMEs and boost investments between the two countries.
LATAM alternative
Against this background, unlike the flurry of activity of MDBs and Latin American NDBs during the crisis, one regional development bank that has been conspicuous for its lack of participation is the Bank of the South, the brainchild of Venezuelan president, Hugo Chavez, who has touted it as an alternative to international financial institutions such as the International Monetary Fund (IMF) and the World Bank, which he claims are tools of the US.
However, negotiations to capitalise the Bank of the South, which began in December 2007, only concluded on May 8 this year when finance ministers from the seven south American member countries (Argentina, Brazil, Bolivia, Ecuador, Paraguay, Uruguay and Venezuela) agreed in Buenos Aires that the bank should have a start-up capital of $7bn. "It seems they are always getting organised," a former IADB official said, referring to the bank's slow progress. Nevertheless, Nicolas Maduro, Venezuela's foreign minister, in a statement in Buenos Aires, recently affirmed that the Bank of the South will start lending operations in "the second quarter of this year".
The bank, which aims to offer its south American member countries loans with fewer strings attached than those given by the World Bank, the IMF and the IADB, will fund regional development and integration projects, ranging from road building to anti-poverty programmes and energy integration plans, notably a transcontinental natural gas pipeline.
Alba Bank, another development bank, forms part of Mr Chavez's vision to unite Latin American countries in "a confederation of republics", sharing energy and trade alliances. It has start-up capital of $1bn, a focus on central America and the Caribbean, and members that include Cuba, Dominica, Honduras, Nicaragua and Venezuela (Antigua and Barbuda and El Salvador have also expressed interest in joining). Projects under the Alba initiative range from major proposals such as Petrocaribe, at the centre of Mr Chavez's Caribbean and central American diplomacy, whereby Venezuela's state-oil company, PDVSA, supplies 16 countries in the area with oil and petroleum products under preferential terms; and a Bank of Alba $10m loan to Nicaragua supporting microbusinesses.
