Ministry announces measures to expand credit and investments

The Ministry of Finance announced this Thursday (20) structural credit and guarantee measures for public-private partnerships (PPPs) of subnational entities. The measures, detailed by the Secretaries of the Treasury, Rogério Ceron, and of Economic Reforms, Marcos Pinto, are divided into three axes: bank credit market, capital market and insurance market.

The central idea of ​​the measures is to facilitate access and reduce interest rates in the credit market; protect investors in the capital market; better functioning of the institutions that support the banking and capital markets; and improve the collateral utilization process.

Partnerships

In his presentation, Treasury Secretary Rogério Ceron detailed the measures being adopted to promote PPPs. In terms of Finance, the secretary highlighted four measures that will be adopted immediately.

Two of them are guarantees given by the Union for financing. One of the guarantees will focus on contributions; and the other, the financing of continued payments. The third measure is to make accounting for PPP expenses more flexible; and, finally, the publication of a decree on incentivized debentures (private bonds with differentiated income tax rates that finance investments).

contributions

With regard to the first measure cited by the secretary (guarantee by the Union to finance contributions), Ceron explained that, by making these credit operations feasible during the construction phase, the government intends to reduce risks for private partners, in addition to reducing leverage needs. finance from the private sector.

With the decrease in the “perception of risks”, the government says it expects to make PPP projects more attractive at subnational entities. Cost reduction for these entities is also expected, and the use of more efficient financing instruments.

“With the backing of the Union, the risk of default on the operation is practically zero, and therefore the cost of the operation is extremely competitive, because the lowest cost that the state and municipality can obtain is when they have the backing of the Union on the operation” , justified Ceron.

continued consideration

In the secretary’s assessment, the most “important and structural” measure is the Union’s guarantee for financing the project’s continued payments. “The PPP legislation is almost 20 years old. (The rules) have advanced a lot, but they still have the potential to be leveraged mainly in states and municipalities. The great difficulty for these projects to be viable, providing security for the private sector to make the investment, are the guarantees”.

“We will then offer (the Union’s) endorsement with guarantees for the financial institutions that carry out these operations”, he added. “And if the entity does not pay the credit operation with the financial one, the Treasury will then honor the obligation, and trigger the counter guarantee, something that the Treasury is quite used to doing. This revolutionizes the market, from the point of view of financial security, guarantee and attraction, because many foreigners do not enter these projects due to the risk of default and because they do not know the states and municipalities”, he added.

Accounting for PPP expenses

The Treasury ordinance defines that, for the purposes of accounting for PPP expenses – within the limit of 5% of net current revenue –, expenses related to services already provided that only replace pre-existing expenses will not be included in the calculation, since these do not were created through a PPP contract; nor expenses with contributions for carrying out works and acquiring reversible assets, as these are not of a continuous nature.

“We are making it clear that only additional expenses are included in this percentage, and not full expenses; and that the contributions made during the construction phase do not enter into the percentage of this limit”, said the secretary.

incentive debentures

Ceron explains that incentivized debentures are training instruments made by PPP concessionaires or concessions aimed at raising funds to make investments viable.

With the decree to be published, the government will add new sectors subject to this type of financing (in addition to the sectors of roads, railways and electricity). In this case, education; health; public security and prison system; urban parks and conservation units; cultural and sports equipment; and social housing and urban regeneration.

In the case of social and environmental infrastructure projects, differentiated rates of income tax are foreseen, both for individuals (0%) and for legal entities (15%).

Framework of Guarantees

It was up to the Secretary of Economic Reforms, Marcos Pinto, to detail the credit promotion measures. Among them, the new Framework of Guarantees, which will be based on a bill already being discussed in the National Congress. “We see a lot of merit in this project”, he said referring to PL nº 4.188/2021.

“However, some issues have stopped its progress. One is a discussion of household assets and their interaction with collateral. We think this discussion is meaningless. That is why we want to propose to Congress that it suppress this section to facilitate the procedure. The idea is to focus on the essentials, which is the improvement of the guarantee institutions that we already have, in order to allow these guarantees to be more solid, lowering credit risks for banks and borrowing costs for borrowers”, he added.

The proposal also includes the possibility of allowing the use of open supplementary pension funds and capitalization bonds as guarantees in credit operations.

Debureaucratization of credit

Marcos Pinto explained that in addition to simplifying the procedure for issuing debentures – by allowing their approval to be authorized by the board or directors, instead of a general meeting – the government also intends to “simplify or waive” the presentation of some documents necessary for obtaining of loans.

“Many of the required documents can be replaced by consultation with Cadin”, justified the Secretary of Economic Reforms.

Access to fiscal data will be facilitated, in order to improve information asymmetry problems – something that, according to Marcos Pinto, is one of the main problems of Brazilian credit. The idea is to create ways of sharing information that the government already has, to check whether the information provided to the banks is correct.

“Banks don’t have the necessary information about borrowers, and it’s natural for that to be the case. We have the positive registration system, but it does not have the level of information that we would like, because it is relatively new. Obviously, this will never be done without the consent of the data subject, who are citizens”.

New banks and digital currency

According to the secretary, the government is submitting a bill to Congress that will facilitate the authorization process for financial institutions in Brazil, eliminating bureaucratic requirements created in the 1960s.

“Today there is a lot of room to reduce this level of bureaucracy and, with that, speed up the authorization process for financial institutions. The consequence of this is more competition in the banking sector, which is still very concentrated. By allowing more financial institutions to enter this market, we will attack one of the main elements of the bank spread (difference between the rate at which the bank raises money and the rate charged to the customer), which is the banks’ margin. Competition is the best medicine for us to reduce the banking spread in Brazil”, he argued.

Also with regard to the financial system, the secretary said that there is a lack of a legal framework for the issuance of the “sovereign digital currency” by the Central Bank, a problem that could be solved by giving the monetary authority competence to launch the Real Digital.

coping with crises

The government intends to adopt a banking resolution regime to improve the conditions for facing possible crises in the financial system. According to Marcos Pinto, the idea is to ask for urgency in the processing of PL 281/2019, which will need to be adapted to provide better conditions for modernizing the system that deals with the intervention and liquidation of financial institutions.

Marcos Pinto sees, to this extent, “central importance” within the scope of the national financial system, since this concern should not only occur in times of crisis.

“We need a legal regime that is ready to face crises when they arise and that adequately deals with how to intervene, stabilize and liquidate a financial institution in crisis. This has very positive consequences for credit today, even if we are not going through a moment of crisis”, he argued.

insurance cooperatives

In the assessment of the secretary, Brazil has “low density and capillarity of the domestic insurance market”. He assesses that there is great potential in this sector, which is why he defends the reduction of entry barriers for companies in the sector and the expansion of the offer for consumer profiles in smaller scale segments.

In this regard, the government will present a project aimed at allowing insurance cooperatives to operate in other lines of insurance, in addition to those already permitted. The measure intends to expand the offer of insurance for different consumer profiles; and stimulate the competitiveness and development of this market.

For Marcos Pinto, a legal improvement will be necessary to reinforce the protection of the insured. In the secretary’s evaluation, “with the population feeling confident, it will invest more in insurance”.