MP creates guarantee and Eximbank agency

After some pressure from the private sector against the creation of a state-owned insurance company and an agreement with the National Confederation of National General Insurance Companies (CNSeg), the Government shall be creating, with the enactment of a Provisional Measure, the Brazilian Guarantee Agency (Agência Brasileira de Garantias – ABG) and, at the same time, establish the long-promised Brazilian Eximbank.

The insurance companies also defend the idea that the proposal shall be forwarded through a Bill of Law, but the Government is now in a hurry, and this means that a Provisional Measure (MP) is indeed the most likely option to be chosen.

ABG shall manage the guarantees that shall provide backing for the financing of the large infrastructure developments, such as the High Speed Train (HST), or bullet train, a s also the work within the second phase of the Growth Acceleration Program (Programa de Aceleração do Crescimento – PAC), for the Olympics and the World Cup.

The Ministry of Finance and also the directors of CNSeg have, at a meeting held yesterday, agreed on the last points of the agreement signed last week, as the Estado newspaper had anticipated.

The ABG shall have a scope that is less than that of the Brazilian Insurance Company (Empresa Brasileira de Seguros – EBS), a state company that the Government got as far as announcing, but which came up against strong resistance from the private sector. The insurance companies feared that EBS, which was soon ironically given the moniker of Segurobrás, could be a threat to free competition, with the increased presence of the state in the insurance sector.

Parallel Projects. On announcing the agreement, the Assistant Secretary of Economic Policy of the Brazilian Ministry of Finance, Dyogo Oliveira, said that ABG and also Exim-Brasil – which is the Brazilian version of Eximbank, which shall be a subsidiary of the National Bank for Economic and Social Development (BNDES) and shall support exporters – are parallel projects but which, having a lot in common, should be sent within the same proposal. We feel that the issue of foreign trade is urgent and would justify the enactment of a Provisional Measure (MP), but I am not able to define at this point (if this shall be done through a Provisional Measure or a Bill of Law, said Mr Oliveira. In his opinion, this decision is a political one and shall be taken by President Lula himself.

However, the Estado newspaper has found out that the tendency is for the President to forward these matters by means of a Provisional Measure.

Even though this is also a state company, ABG may not carry out activities in all branches of insurance as was the original plan of the EBS for its creation. Mr Oliveira explained that the agency shall have the mission of administering the Government guarantee funds and offer guarantees for the so-called social insurance areas, such as housing, sanitation, student credit and encouragement of micro and small businesses.

According to the terms of the project, there shall be the creation of a guarantee fund for infrastructure for large work. This new fund shall bring together three guarantee funds that already existed, aimed at the shipbuilding industry, the public private partnership and also the electrical sector. This new fund is already born with the authorization to have capital of up to R$ 11 billion.

New Fund. There shall also be the creation of the Guarantee Fund for Foreign Trade (Fundo Garantidor de Comércio Exterior – FGCE), with an initial funding of R$ 2 billion of funds from the Budget.

Mr Oliveira also explained that the Government has decided not to transfer the Export Guarantee Fund to the Agency. According to Mr Oliveira, the reason is that the nature of this fund would mean that the funds transferred to the agency would then be recorded as a primary expense, and this would have an effect on the accounts of the public sector.

Mr Oliveira has also informed that the guaranteeing funds may operate in either of two different ways: directly, taking on the full risk when there is no interest from the market, and indirectly, complementing the risk in a consortium with the private sector.

The Director of CNSeg, Alexandre Malucelli, has heaped praise on the final project and also on the process of dialogue with the Government, with this initiative being considered as a true public-private partnership (PPP). However, he defended the idea that the proposal for the creation of this agency should be sent to the Congress through a Bill of Law.

To remember

In May, the Government, amid much fanfare, a package for encouragement of exports. One month went by before the Brazilian Inland Revenue could pass the main measure: the promise of returning half the tax credits obtained by the exporters, within 30 days.

Now, four months after the announcement, the mounting pressure from exporters and also the worrying performance of Brazilian foreign accounts should be used as justification for the enactment of a Provisional Measure which shall trigger off two more measures: the creation of the Brazilian Eximbank, or Exim-Brasil, and the insurance agency.

However, the encouragement of exports by micro and small businesses, so that these operations may stay out of the calculations for inclusion in the Simples system, still depends on the approval of a complementary law by the Brazilian Congress.