UPDATE 1-Brazil to scrap support for development bank in 2015

viernes 19 de diciembre de 2014 20:21 GYT
 

(Recasts to detail decision on BNDES support; adds background from paragraph 4)

By Luciana Otoni and Guillermo Parra-Bernal

BRASILIA/SAO PAULO Dec 19 (Reuters) - Brazil pledged on Friday to suspend financial support for state development bank BNDES next year, marking a major policy shift that will help trim billions of reais in subsidies that have weighed down public finances.

The decision was announced by Paulo Rogerio Caffarelli, the finance minister's No. 2 official, at the end of a policymaking meeting in Brasilia. To make up for the loss of support from the National Treasury, Caffarelli said BNDES should use proceeds from interest income and tap capital markets for new funding.

Since 2009, the Treasury has transferred over 570 billion reais ($214 billion) of taxpayer money into BNDES to fund factories, farms and services firms.

Economists partly blame President Dilma Rousseff's financial support of BNDES for an increase in public debt and inflation, and the reduced effectiveness of monetary policy in recent years.

In another major policy decision, the country's main economic policymaking body, known as CMN, raised for the first time in almost two years the interest rate at which BNDES pegs its loans. The CMN increased the so-called TJLP rate to 5.5 percent from a record low 5 percent.

The suspension of transfers to BNDES and the TJLP increase are the latest policy changes Rousseff has announced since winning re-election in October. The 67-year-old president pledged more budget austerity to regain investor confidence ahead of her second, four-year term, which starts in January.

Both steps will help incoming Finance Minister Joaquim Levy cut rampant spending, wrestle with a decline in tax collections and improve the reliability of public finances in Latin America's largest economy. Rousseff's expansionist policies helped drive debt to 63 percent of gross domestic product from 53 percent in 2011, her first year in office.   Continuación...