By Dow Jones Business News, October 18, 2013, 11:33:00 AM EDT
By Tom Murphy
SAO PAULO--Despite financial market volatility and "bumps in the road" such as the recent U.S. budget and debt crisis,
the global economic recovery continues on track and will benefit Brazil, the president of Brazil's government-run BNDES
development bank said Friday.
"Global prospects are comparatively good," Luciano Coutinho told investors at a conference. "However, let me add a
word of warning. The pace of the recovery will be slow. Since 2011, virtually all analysts have been over-optimistic
about the global economy."
Mr. Coutinho said the recent confrontation between Democrats and Republicans in Washington over U.S. budget and debt
issues shook global confidence, although only temporarily.
"A U.S. debt default is unthinkable," he said. "It's so unthinkable that, when I talked to business leaders last week
at the annual IMF meeting, not one had a Plan B. Nobody has a Plan-B in the event of a U.S. default because such a thing
would be so catastrophic that you can hardly plan for it."
On the other hand, Mr. Coutinho argued that the U.S. debt flap will serve to delay the U.S. Federal Reserve Board's
stated intention of gradually reducing bond purchases. "The tapering off of bond purchases will not take place in the
short term," said Mr. Coutinho. "I think the Fed will wait to see the results of negotiations between Democrats and
Republicans on the budget and debt issues before the 'tapering' policy is implemented."
Mr. Coutinho said that he, and other Brazilian officials, are confident "common sense will prevail" in the U.S. budget
talks, with any residual risk of a default fading quickly. Nevertheless, he said Fed "tapering" is highly unlikely until
sometime next year.
As for the Brazilian economy, he said third-quarter figures on growth will likely show some "cooling." He predicted
quarter-on-quarter growth of near zero. "The threat of Fed tapering and a series of protest demonstrations in June
reduced confidence a bit, but only temporarily," he said.
Mr. Coutinho pointed to an upswing in investments and in lending to businesses, including BNDES lending, in recent
months to indicate a probable economic rebound for Brazil in the fourth quarter. "Growth will be led by investment," he
Mr. Coutinho projected a rise in Brazil's investment rate in 2013 to 18.9% from 18.1% last year and a further rise to
19.5% in 2014.
He said much of the rise in investments will be fueled by a series of auctions being held by the government for
projects ranging from oil development to highways, airports and ports.
"There is keen investor interest in these projects," he said. "Expectations for the auction are positive."
There have been some "bumps in the road" in the concession program, however, Mr. Coutinho admitted.
An auction of two highway concessions in September resulted in robust bids for one concession and no bids for the
Mr. Coutinho said, "It's a learning process. You can't judge the program based on one setback." He said the lack of
bids for one of the concessions was based on "some technical problems with the project."
He said Brazil's government was engaged in "a dialog with investors" on ways to improve technical and financial
aspects of tenders for the auctions. "The concession program will continue and it will show success," he said.
In comments to reporters following his presentation, Mr. Coutinho confirmed a government announcement earlier this
week indicating that the Federal Treasury will gradually reduce its own lending volume to the BNDES. The treasury has
extended loans totaling as much as $45 billion per year to the BNDES since 2009.
"The reduction in treasury lending to the BNDES will be very gradual," he said. "It's a complex process that will
balance treasury needs with BNDES needs with the need to promote investment and growth in the economy."
More broadly, Mr. Coutinho said that the BNDES will gradually increase partnerships with Brazil's capital markets in
an effort to boost private investment in development projects.
"The capital market will gradually fill the investment gap [left by the withdrawal of treasury loans to the BNDES],"
Write to Tom Murphy at firstname.lastname@example.org
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