Brazil is “big” and the BRICS Bank should take care of the poorest countries, says Lula

President Luiz Inácio Lula da Silva said on Thursday (13) that “big countries like Brazil, although they need loans, have other instruments” and don’t need financing from the New Development Bank (NDB).

For Lula, the so-called BRICS Bank must organize itself to offer infrastructure loans to “poorer countries in Latin America and the Caribbean.”

Lula says the NDB “must help the neediest and poorest countries.”

The so-called BRICS Bank can lend to countries other than the partners (the acronym refers to founders Brazil, Russia, India, China, and South Africa).

To grant this financing, however, it would be necessary that the loan request come with a guarantee from the Treasury of one of the partner countries.

For example, if Bolivia, Venezuela, or El Salvador wish to undertake an infrastructure project, they must apply with the mandatory endorsement of an NDB partner.

If this endorsement comes from Brazil, the Brazilian Treasury would be the guarantor of the operation in case of non-payment. In case of a default, the Brazilian taxpayers will be the ones to pay.

Nothing prevents this policy change from happening in the loan portfolio of the NDB, which now has Dilma Rousseff as president of the institution.

But each loan to poorer countries will have to be backed as a guarantor by at least one of the founding partners of the NDB.

The institution will only release the money with the guarantee that someone will honor the payment in the future.

Lula’s statement was made during a closed meeting at the Bank of the BRICS when he welcomed Dilma’s arrival at the head of the institution.

Sitting next to his wife, Janja, the president said the following:

“I hope this bank will be able to lend to the poorest countries in Latin America and the Caribbean.”

“Big countries like Brazil, although they need loans, have to have other instruments and do not need a bank that should help the neediest and poorest countries.”

“I am sure that these qualities, comrade Dilma Rousseff will bring and consolidate in the New Development Bank.”

“Congratulations to all of you, and congratulations, Dilma!”

“May the world benefit from this new financial aid instrument created by the BRICS.”

It is noteworthy in the president’s speech that he hints that Brazil will do without the money from the BRICS for its infrastructure projects.

The country lacks several areas, such as the energy and transportation sectors.

This type of work is one of the priorities for NDB financing, especially for its partners.

During the last few years, Brazil has had a stronger presence in the portfolio of resources approved by the NDB.

The growth occurred during the previous management of the institution, with the Brazilian Marcos Troyjo at the helm.

Troyjo took over the chair on July 7th, 2020, and his 5-year mandate would end in July 2025.

He left due to a lack of alignment with Lula’s government vision regarding the BRICS and the NDB.

The BRICS Bank is a multilateral credit institution and can make two loan operations: sovereign and non-sovereign.

A sovereign operation is one in which a country or a federative entity of that member country asks for money.

For example, the State of Bahia asks for financing, and the money comes out only if there is a guarantee from the Brazilian Treasury.

The other type of loan, non-sovereign (today about 15% of the NDB portfolio), occurs when a private company headquartered in one of the member countries asks for financing.

In this case, the bank analyzes the borrower’s records in the market, if it has a history of paying on time if it has credibility.

Based on this objective analysis, the institution’s board decides on the loan.

The risk, in this case, belongs to the NDB Bank.

What Lula proposes is that non-member countries can borrow money from the NDB.

As he puts it, “poorer countries in Latin America and the Caribbean.”

In this case, the request will have to be made through one of the institution’s partners to establish who will be the guarantor for the operation.

So far, since its foundation, the BRICS Bank has never provided financing to non-member countries.

This does not mean that it will not be able to do so.

But someone will have to guarantee that the money will be paid back.

With information from Poder360