Brazil in arrears with multilateral banks; 65% of default refer to New Development Bank (NDB)

RIO DE JANEIRO, BRAZIL – Brazil was granted US$13.3 billion in new funding by multilateral banks and international development agencies in 2020. Concurrently, the country is being charged for delaying the capital contribution of US$446 million, equivalent to 3.3% of that amount, which it committed to make in six institutions.

The value of new credits approved for Brazil with sovereign guarantee reached US$9.15 billion in 2020, an increase of 215% over the previous year, according to data from the institutions’ websites. In turn, in operations without sovereign guarantee, made in general by the private sector, the amount approved was US$4.15 billion, or 36.5% more than in 2019.

Defaults threaten to undermine Brazil’s influence, voting power, and greater access to loans for private companies and public agencies at institutions. It also poses a reputational risk, both for Brazil and institutions, before rating agencies and international investors, analysts assess.

Brazilian commitments to pay multilateral development banks in quotas depend on the schedule of payments established when Brazil joined the corresponding rounds of capital subscription of these institutions.

But delays are accumulating. The Ministry of Economy attributes the situation to “insufficient allocation to meet commitments.” In other words, Congress does not approve the amounts required for the country to honor this type of foreign payment.

Ministry data show that 65% of arrears refer to the New Development Bank (NDB), the BRICs Bank, totaling US$291.6 million. The situation continues to be embarrassing for an institution directed by a Brazilian, Marcos Troyjo, and in which the country holds 20% of the equity shares.

For its part, the BRICs Bank raised its financing approval for the country to US$3.6 billion last year. This rebalanced the situation among the partners, since Brazil had previously received small lines of credit.

As Valor reported in January, Brazil lost a share of less than 3% of its voting power. The NDB needs to include in its regular information to rating agencies the delayed payment by Brazil.

The Andean Development Corporation, known as CAF, is charging Brazil US$66.9 million. While it waits, the institution approved a US$1.57 billion loan for the country, part with sovereign guarantee (US$626 million) and another (US$950 million) without this guarantee.

In the Financial Fund for the Development of the La Plata Basin (Fonplata), Brazil and Argentina each hold 33% of shares. The difference is that Brazil, in two years, has accumulated payment delays of US$54.8 million, while Argentina and the other partners are up to date.

If Brazil continues to owe for a third year, it could affect the fund’s rating. Last year, Fonplata approved US$78.8 million in credits for projects in the country. But Brazil’s tardiness tends to reduce the fund’s ability to lend more and cheaper to small and medium-sized city governments in the region, says an analyst.

Brazil is also in default at the Inter-American Investment Corporation (IDB Invest) of the Inter-American Development Bank (IDB), which is focused on financing for the private sector. The debt totaled US$32.1 million by December 2020. At the same time, IDB Invest approved new credits worth US$1.61 billion for the country, its major client.

In the World Bank’s Inter-American Development Association (IADB), focused on projects against poverty, the Brazilian backlog is in reais and reaches R$83.220 million. The situation could be more serious if the non-payment were directly with the World Bank and IFC. Last year, the IFC, focused on the private sector, approved new financing worth US$1.58 billion for the country.

Brazil has failed to pay the low amount of US$998,000 to the Caribbean Development Bank (CDB), which raises reputational risks.

Unable to keep up with its commitments to multilateral banks, the Brazilian government decided not to participate in the capital increase of the African Development Bank (ADB), which rose from US$93 billion to US$208 billion in 10 years.

Brazil’s share today is symbolic, 0.3% of the capital. Brazil is not a client of the bank, which is focused on African development. The benefit of being part of the ADB is that Brazilian companies can participate in bids for projects financed by the institution. This does not change, according to sources.

The Ministry of Economy advises that, for 2021, the due dates for capital contribution have not yet occurred, and thus there are no pending commitments this year, as well as no delays in the payment of loans in the sovereign guaranteed segment. These loans are guaranteed by the federal government, “which has honored the payments when necessary.”

It seems certain that the 2021 Budget forecast for capital injections committed to multilateral banks will continue to be insufficient to clear the arrears. The government could honor the payments with budget supplementations, but this would imply the cancellation of other expenses, which is increasingly difficult to do, according to an analyst.

Source: Valor