Brazil’s ‘Iron Lady’ Shares Penthouse as State Lender Downsizesby and
Head of Brazil’s development bank leads way in austerity push
‘Crises are good for shaking things up,’ Bastos says
The penthouse in the Rio de Janeiro headquarters of Brazil’s state lending giant was once occupied by its president and his assistants, and featured a room reserved for the head-of-state when visiting from Brasilia.
That office was one of the first things that the bank’s new cost-costing overseer Maria Silvia Bastos overhauled when she arrived in June following Dilma Rousseff’s removal during impeachment proceedings. Bastos, 59, tore down walls and made space for the company’s board. She and her roommates moved in last month.
She also dumped eight stories of rental space and saved 490 million reais ($144 million) by scrapping a second building that would’ve accommodated the bank’s burgeoning ranks of bureaucrats.
"Change generates stress, but I hope it’s for the better," said Bastos, who works on a laptop overlooking the city center that was renovated with the bank’s financing for the Rio Olympics. "Unfortunately, nations often only move in crises, and crises are good for shaking things up."
Bastos, who was dubbed the "Iron Lady" by the local media when she ran steelmaker Cia. Siderurgica Nacional from 1999 to 2002, is a leading practitioner of austerity in a country facing a severe fiscal crisis with a near-record budget deficit. President Michel Temer’s radical plan to freeze public spending for up to 20 years is currently working its way through Congress.
Bastos has been trimming the state-lending behemoth that propped up many of the country’s industrial giants with subsidized loans under her predecessor Luciano Coutinho. The money helped those borrowers expand at home and even abroad. One of her first moves was to shutter the bank’s international offices.
She has shifted the focus to privatizations, infrastructure concessions and private equity-style investments aimed at turning around struggling yet viable companies, or financing those that can’t get credit elsewhere. Bastos said BNDES has created a credit line for buying assets from companies facing bankruptcy.
"There needs to be structural change, and we can be a support to ease that transition, to mitigate a painful process of structural adjustment," she said Nov. 25 in an interview at the bank’s headquarters.
Under her predecessor, BNDES evolved into the most aggressive lending tool of state intervention in a developing democracy. Its practices had long been secretive and its books were pried open as a corruption probe into state oil giant Petrobras and other inquiries created pressure for transparency.
Police visited the bank’s headquarters last year for details about loans to companies of a friend of ex-President Luiz Inacio Lula da Silva, and the Supreme Court ordered the bank to open to government auditors its financial operations with beef maker and top campaign contributor JBS SA. Neither the bank nor any of its executives have been charged with any crimes.
Coutinho’s quest to create global Brazilian companies -- known locally as "national champions" -- faced scrutiny by its critics. Two-thirds of BNDES lending since 2008 was to Brazil’s biggest corporations, many owned by the state or billionaire campaign donors. In the same period, the bank received 441 billion reais in Treasury loans that helped fund its balance sheet. With the intention of fueling job creation, the loans to BNDES exploited a loophole letting the government take on more debt without asking Congress. Coutinho was not immediately available to comment on this article.
Bastos has said she’ll begin paying down that bill starting this year with a transfer of 100 billion reais to the Treasury. She has also showed that she isn’t afraid to stand up to the national champions -- BNDES vetoed a plan by JBS that would create a new company that would list in New York and be based in London with administrative headquarters in the low-tax jurisdiction of Ireland. JBS’s shares plunged 12 percent in a day. The company says the restructuring was not for tax purposes.
"Maybe the market wasn’t aware of the bank’s voting right,” said Bastos, adding that the beef company can submit an alternative proposal. She said the decision was best for company shareholders.
The bank itself is downsizing dramatically from the days of Coutinho, who quadrupled lending in his nine-year tenure that ended in May. Bastos has said lending this year will shrink to about half of the 187 billion reais -- less than the World Bank -- a shift from 2014 when its disbursements were double the multinational’s.
Part of Bastos’s strategy is for one of the nation’s biggest institutional equity investors to become more of an activist. With over 70 billion reais worth of shares in some 300 companies, BNDES’s investment arm has not just the ability to be vocal on company boards, but also the duty, according to Eliane Lustosa, the bank director overseeing capital markets, who also took part in the interview. The bank is also planning to hire a private asset manager to become a market maker for local tax-exempt bonds.
BNDESPar has appointed 15 independent board members to the companies where it was “most urgent,” and more are in store, Bastos said. That includes JBS and fellow meatpacker Marfrig. In the past, the lender had bank employees or retirees serve on company boards.
“If we wanted to interfere, we’d be going in, but we’re getting out and installing people who have no relationship with the bank,” Lustosa said.
Bastos says the bank has independence to act, citing as an example its veto of the JBS restructuring. When asked whether Finance Minister Henrique Meirelles had a role in the decision, she said that he was not consulted. Meirelles was the chairman of the holding company of JBS before he became minister earlier this year. Meirelles wasn’t involved in designing the JBS restructuring and confirmed that he wasn’t consulted before the BNDES vote, according to an e-mailed statement from the finance ministry.
At her new office overlooking Rio’s downtown, she sat at her desk while her directors chatted a few steps away in an area once divided by walls to offer privacy. Bastos had them sledge-hammered.
“I’m going to tell you something: I don’t work with restrictions," Bastos said. "When the president of the Republic invited me to do the job, the only thing I asked him was whether I’d have independence to form my team. His response was yes, and that’s why I accepted. We’re professional managers.”