Will Dilma Rousseff’s fund for infrastructure projects be used to help the government avoid increasing debt levels?
Investors and analysts yesterday gave a lukewarm reaction to the announcement by Brazilian president Dilma Rousseff of plans to establish a fund for infrastructure projects by transferring money to private and public sector banks.
Details remain sketchy and some observers described the initiative as a confused “patchwork” that would be of limited long-term use.
Money for the fund will come either directly from the national treasury or by freeing up compulsory deposits that banks have to park at the Central Bank. If the government opted to use compulsory deposits, local paper Valor Econômico estimates that the fund could free up some R$15 billion.
David Fleischer, professor of political science at the University of Brasilia, said the fund would generate initial interest from banks, adding it was another positive sign of government willingness to cooperate more closely with the private sector. But he doubted the fund would have a large and durable impact.
Moreover, he said he was worried about the lack of transparency. If money were sourced by freeing up deposits held at the central bank, the results would not appear on the government’s balance sheet and could become another device to enable the government to avoid increasing government debt levels.
“It is part of what we call the government’s creative accounting,” he said.
He was pessimistic that the measures would have much effect. The problem is that there is no overall plan, just one-off measures, he said. “There’s no overall development plan or package or industrial policy plan. This is just patchwork.”
Rafael Cortez, political analyst at Tendências Consultoria in São Paulo, agreed the mechanism was attractive to the government because it did not impact the overall debt levels. He said the government was unlikely to be able to move ahead as quickly as it would like, as investors need time to digest the changes being made to the programme.
“The ideal in our view would be for the government to emphasize stability and minimize changes, especially at a time of great uncertainty globally,” he said. Calls to the Finance Ministry were not returned by the time Emerging Markets went to press.
Marcos Siqueira Moraes, executive manager at the Central PPP Unit of the Brazilian State of Minas Gerais, said the plan was confusing, adding that it would be much better to involve the private sector directly.
The good news is that the fund would allow the government to bypass the cumbersome and slow National Development Bank. The bad news is that it is yet another public sector-led initiative for infrastructure. Brazil has an estimated $235 billion infrastructure plan.
The country needs to increase investment to some 20% of GDP annually, a particularly tall order as investments have fallen for each of the last five quarters.
Cortez said the moves were part of a package of initiatives designed to present a more investor-friendly face from the government. He said the government had been heavily criticized by investors for interventions in the economy and business. Other measures to stimulate interest in the programme have included longer financing terms, with the government now pushing 30-year loans.
“The government is going to great lengths to get some traction on infrastructure projects ahead of elections,” Fleischer said. The first round of presidential elections will be held October 5 next year.