New presidents of public banks have the mindset of private bankers.

From Rede Brasil Atual - Economy Minister Paulo Guedes today (7) swore in the new presidents of public banks in Jair Bolsonaro's government. The stars of the show, Banco do Brasil, Caixa Econômica Federal and the National Bank for Economic and Social Development (BNDES), however, were heavily criticized. Originating from the private banking market, Guedes stated that the new leaders will have to "make things work properly" and eliminate "perverse" associations that he considers to have occurred in recent years.

Responsible for defending Brazil from the effects of the 2008 global crisis, providing the domestic market with credit denied by private banks, the credit policies of federal institutions were classified by Guedes as "distorted," for supposedly helping companies that had good relations with previous governments. "When credit is nationalized, there is less left for the rest of Brazil. Then, the interest rates are absurd," he stated.

Maria Rita Serrano, the employee representative on Caixa's Board of Directors, refutes Guedes's argument. According to her, the minister is defending the mentality of private banks. "The fact is that public banks were major investors in credit, both to legal entities and individuals," says the bank employee, coordinator of the Committee in Defense of Public Companies.

Employees' association challenges Bolsonaro regarding the 'black box' of BNDES.
"They lowered interest rates, offered more credit, and forced private banks to lower theirs as well. This countercyclical policy, which peaked in 2008, minimized Brazil's entry into the global crisis," says Rita, reinforcing: "Guedes is criticizing this policy from the perspective of the same private financial system that was responsible for the global crisis."

According to data from the Central Bank, since the 2008 crisis, credit in public banks has grown above average, reaching R$ 1,67 trillion in December 2017, out of a total of R$ 3,09 trillion.

In one decade, the share of public banks in lending increased from 36% to 56%, while that of national private banks fell from 43% to 31%, and that of foreign banks from 21% to 13%.

Banco do Brasil is the absolute leader in agribusiness lending, with a 60% market share. Caixa's mortgage lending represents 69% of the market.

"It's obvious that only public banks play this relevant, fundamental role of mediating this market issue, of looking after citizens, investment in the country, development, and not just the consumer as well as private banks," assesses Rita Serrano.

According to her, Guedes wants the prices in this market – the cost of money and fees – under the control of private banks, without competition from the State through public institutions. "Private banks have always been able to make large investments in the country, in housing, agriculture. They never did because they weren't interested, since their only objective is profit. In other words, with the weakening of public institutions, the market, private capital, gets rid of troublesome competitors. The Brazilian population and the country's economy thus lose an important instrument of public policy."

The middle class will be one of those negatively affected. According to the new president of Caixa Econômica Federal, Pedro Guimarães, they will have to pay more for their own home. "Either they seek (credit) from Santander, Bradesco, or Itaú. At Caixa Econômica Federal, they will certainly pay higher interest rates than under the Minha Casa Minha Vida program, and those interest rates will be market-based. Caixa will respect, above all, the market. The law of supply and demand."

Who are the new presidents?

Before taking office, President Jair Bolsonaro celebrated, via his personal Twitter account, the opening of what he calls the "black box" of institutions like the BNDES (Brazilian Development Bank). Paulo Guedes reinforced the message, stating that "damaging" operations carried out in the past through these banks had caused harm to the population.

However, Joaquim Levy, who assumed the presidency of BNDES, was the Minister of Finance – to which the bank is subordinate – during Dilma Rousseff's second term, from January to December 2015, responsible for the fiscal adjustment policy aimed at containing public spending. He was also Secretary of the National Treasury between 2003 and 2006, during Luiz Inácio Lula da Silva's first term, and Deputy Secretary of Economic Policy at the Ministry of Finance in 2000, during Fernando Henrique Cardoso's government.

According to Agência Brasil, Levy is a naval engineer by training, with a doctorate in Economics from the University of Chicago (United States), where Paulo Guedes also studied. From 2010 to 2014, Levy was a director at Bradesco. To assume the presidency of BNDES, he left his position as Financial Director of the World Bank.

Rubem Novaes assumed the presidency of Banco do Brasil similarly by making criticisms and stating that institutions have a responsibility to reverse the situation the country has experienced in recent years.

Also from the University of Chicago, he worked throughout the government transition period alongside Bolsonaro's economic team. During that time, Novaes, who was only appointed to the position on November 22nd, began conversations with members of the current BB structure. The new president of BB was a director at BNDES, a professor at the Getúlio Vargas Foundation, and president of the Brazilian Micro and Small Business Support Service (Sebrae).

During his inauguration, the new president of Caixa, Pedro Guimarães, announced that the institution will sell stakes in areas such as insurance and lotteries, strengthen real estate financing through the capital market, and invest in microcredit at lower interest rates.

Guimarães – who, according to CartaCapital magazine, is the son-in-law of contractor Leo Pinheiro, a whistleblower in Operation Lava Jato who revealed the story of the triplex apartment in Guarujá (SP) and was a key figure in the arrest of former president Luiz Inácio Lula da Silva – said that he will review Caixa's sponsorship and communication policies, as directed by the government, and that he will personally travel to the states to listen to clients and visit underprivileged communities where the bank operates.

Economist Pedro Guimarães worked with Paulo Guedes when he was still a partner at BTG Pactual bank. In Bolsonaro's transition team, he is one of those responsible for compiling a list of state-owned companies to be sold. He was even considered for the position of head of the new privatization secretariat, linked to the Ministry of Economy.

Dismantling Caixa will lead Brazil to social chaos.
Decapitalization of public banks
Caixa has approximately R$ 40 billion in debt with no set maturity date, which, according to Guimarães, will be settled within four years through the sale of stakes in credit card, insurance, and lottery companies. The sale, he said, "is already beginning now."

Economist Gustavo Cavarzan, from Dieese, explains that this debt represents resources that the federal government contributed to Caixa so that the public bank could continue lending and complying with the Basel agreement. "It's a type of resource that, in theory, Caixa wouldn't have a deadline to repay to the Treasury, but now it's possible that it will be used as an excuse to open up the capital of subsidiaries," such as the sale of Lottery, Insurance, Cards, and Asset operations in Caixa's case.

BB is expected to take BB DTVM public, which operates in asset management and administration of investment funds for the bank's clients, and sell its stakes in companies such as Neoenergia, Banco Patagonia (Argentina), and Banco Votorantim.

BNDES began negotiating the return of these funds to the Treasury during the Temer administration, with approximately R$ 300 billion already paid out.

According to Rita Serrano, the repayment procedures need to be better clarified. She questions whether, with the return of investments to the government, banks will be undercapitalized for granting credit, which could affect their sustainability. She also points out that they already pass on dividends to the government, providing services in important social programs. "If the government were to create its own structure for these services, it would be much more expensive than using the current structure of these banks."