Brief Comments on: “Financing Development: The Case of BNDES”

by Ferraz, Leal, Marques, and Miterhof

IEA- WB Roundtable-New Thinking on Industrial Policy

May 22, 2012

Growth in Real Lending: Latin American Banks

0.00

10.00

20.00

30.00

40.00

50.00

60.00

2005 2006 2007 2008 2009

An

nu

al %

gro

wth

ra

te

Foreign

Domestic private

Government

Growth in Real Lending: Eastern European Banks

-10

0

10

20

30

40

50

60

70

2005 2006 2007 2008 2009

Ann

ual %

gro

wth

rat

e

Foreign

Domestic private

Government

Where did lending go? ∆Li,t,j = Foreigni,t,j + Governmenti,t,j + Crisis_2008i,t,j + Crisis_2009i,t,j

+Crisis_2008i,t,jForeigni,t,j + Crisis_2008i,t,jGovernmenti,t,j + Crisis_2009i,t,jForeigni,t,j + Crisis_2009i,t,jGovernmenti,t,j + Xi,t-1,j + j + ui,t,j

• “Government-owned banks in Latin America stepped up their lending, relative to other banks and to their own pre-crisis lending pace, to corporations and consumers during the crisis.”

• “This did not occur in Eastern Europe, where government-owned banks behaved no differently than domestic private banks.”

(Cull and Martinez Peria, 2012)

Why the differences between Latin America and Eastern Europe?

Speculation• Larger, more state-owned banks in Latin

America• Profitability Loan growth• Smaller government deficits

BNDES not typical?

All Brazilians Spared from Crisis?Likelihood that HH has formal loan, relative to 2003 baseline survey,

Source: Cull, Leite, Scott (2011).

Quarter 3, 2008 Quarter 4, 2008 Quarter 1, 2009 Quarter 2, 2009

-0.3

-0.25

-0.2

-0.15

-0.1

-0.05

0

0.05

0.1

UrbanRural

Branch Expansion in Rural IndiaBurgess and Pande (2005), AER

• 1:4 licensing policy, 1977-1990• Rural branch expansion explains 14-17 percentage point

decline in poverty headcount

“Whether state monies invested in the banking sector would have generated greater poverty reduction if spent elsewhere is not a question we can address….The fact that bank loan default rates were in the range of 40 percent during the 1980s, leading to the demise of the rural branch expansion program, should make us sanguine about the advisability of such a program without careful consideration of both costs and benefits.”

Brazilian Case

“As a financial institution wholly-controlled by the federal government and with stable sources of funding to carry out its mission, the BNDES, throughout its history, has managed to rise to the challenges in fostering economic and social development in the country.” (p. 5)

• At what cost?• Counter-factual?• Hypothesis testing• Benchmarking to other state-owned banks