Recently created government fund for secured infrastructure projects in Brazil

The other day a foreign investor who was looking into potential infrastructure projects in Brazil asked me whether the Brazilian Government makes use of Sovereign Guarantees, Bank Guarantees and/or SBLC’s to attract and secure foreign investors (ment).

At least for infrastructure, I believe the most suitable instrument would be the Brazilian Law 12.712/2012, Art. 32, which establishes the Infrastructure Guarantee Fund (or FGIE, Fundo Garantidor de Infraetsrutura).

This fund is managed by the Brazilian Guarantee Agency (or ABGF, Agência Brasileira Gestora de Fundos Garantidores e Garantias S.A.) and is operated through guidelines which regulate the direct guarantee awards (Regulamento de Operações para Outorga de Garantia Direta Pelo Fundo Garantidor de Infraestrutura), meant to offer risk coverage for noncompliance of pecuniary obligations assumed by the public partner in Public-Private Partnerships.

As of its latest report made publicly available (December 31st, 2017), this fund comprised the value of R$ 568.560.446,00 in total net assets (approx. USD 156.043.574,93 today; not very large due to its recent establishment), and applicable to specific concession operations including the following:

I – Major infrastructure projects included in the Growth Acceleration Program (or PAC, Programa de Aceleração do Crescimento) or strategic programs defined by the Executive Branch;

II – Projects resulting from Public-Private Partnerships in the form of Law 11.079/2004.

However, the exact answer to this question depends heavily on the sort of infrastructure project, value and nature of partnership sought in the country, amongst other specifics.

Accelerating Energy Efficiency: Policy Briefs for the 2018 High Level Political Forum

The High Level Political Forum on Sustainable Development meets annually in July, under the United Nations Economic and Social Council (ECOSOC), where countries present their Voluntary National Reviews (VRNs) of the Sustainable Development Goals (SDGs). The HLPF also carries out thematic reviews of progress on the SDGs including cross-cutting issues. To facilitate an in-depth review of progress, the HLPF annually discusses a particular set of SDGs and their interlinkages. In 2018, the in-depth review will be carried out over SDGs 6, 7, 11, 12 and 15, as well as 17, which is reviewed annually.

As a Major Group Consultative Member for the ECOSOC Civil Society Network, my cooperative efforts are particularly focused on the private-public dialogue over policy briefs contained within the new publication “Accelerating SDG 7 achievement: Policy briefs in support of the first SDG 7 review at the UN High-Level Political Forum 2018”. The document was launched by the SDG7 Technical Advisory Group, in partnership with UN DESA (United Nations Department of Economic and Social Affairs) and includes 27 policy briefs relating to accelerating SDG 7 achievement.

Policy Brief #6 Energy Technology Innovation: Digitalization of Grid Services. Increasing the speed of digitalized technology development could lead to a first-mover advantage for pioneering countries or companies.

  • The need for resilient infrastructure, increasing stress on resources, and decentralized supply) and enabled by the interaction of various disciplines such as data and information networks. As the rate of interlinkages increases and improvements in data and information networks accelerate, we can expect rapid advances in the innovations that exploit the interactions of these technologies.
  • Technology such as sensors, robotics and advanced analytics, which together form advanced interconnected systems capable of quickly analyzing large amounts of data, are developing potentially transformative solutions, across various sectors, for improving energy efficiency and managing more variable renewable energy. This development is driven by continuous improvements, and the cost-performance curve of core digital technology building blocks: computing power, data storage, and bandwidth utilization.

Policy Brief #14 Interlinkages Between Energy and Sustainable Cities: Smart Grid and Smart Buildings. Cities are adopting more energy efficient policies and practices in the transport, buildings, industry, and commercial sectors.

  • The number of energy efficient building codes adopted by countries, and by-law at city levels, has increased in the last five years.
  • Smart grids are enabling major energy efficiency and resilience gains. Using ICTs, the grid is able to manage energy demand and use most efficient energy source on the system.

The formal session to review SDG7 will take place on 10 July from 11:00 to 13:00, during the HLPF 2018 and Side Events sponsored by Member States, UN system and other intergovernmental organizations, Major Groups and other accredited stakeholders will be held in the margins of the event. More information on the HLPF 2018 can be found here.

2018 Economic Outlook Brazil: Structural Reforms

This is the second chapter of the series of posts on the “2018 Economic Outlook Brazil” that is based on the Presidential Message delivered to the Brazilian National Congress in February, 2018 by President Temer. The official document, in its entirety, advises on the key national policies divided into five central pillars: Economy, Infrastructure, Social, Foreign Affairs and Public Administration.

Read below the policy highlights on Structural Reforms. The other posts are Regulated Markets and Foreign Policy.

1. Economic Outlook

The year 2017 presented the end of the longest economic recession ever recorded in the Brazilian history. The Gross Domestic Product (GDP) is increasing, inflation has slowed and unemployment and interest rates dropped. The year ended with an inflation rate of 2.95% p.y. (Extended National Consumer Price Index, or IPCA for Portuguese) and with the basic interest rate of 7% p.y. (Selic – Sistema Especial de Liquidação e de Custódia), the lowest since 2002.

Desempenho PIB 2017

2. Cash Withdraws From Severance Funds

Cash withdraw measures adopted in 2017, from public funds, contributed to the reduction of household debt and the expansion of consumption. The Federal Government facilitated access to the FGTS accounts (Guarantee Fund for Length of Service) of 26 million beneficiaries, which injected R$ 44 billion in the economy, along with the anticipation of R$ 2,2 billion in withdraws from 1,6 million retiring beneficiaries of the PIS/Pasep accounts (Social Integration Program and Heritage Formation Program for Public Servers).

3. Fiscal Reform

The Constitutional Amendment No. 95 of December 15, 2016 was responsible for creating the new Fiscal Regime, which limited public spending growth, modified the fiscal policy and, along with other proposals related to public accounts, reduced the uncertainties regarding fiscal policy conduct in the country.

4. Regime for the Fiscal Recovery of States

The Complementary Law No. 159 of May 19, 2017 established the Fiscal Recovery Regime (Regime de Recuperação Fiscal – RRF), seeking to enable the recovery and solvency of states suffering from serious financial crises. In general terms, when adopting the RRF, both State and Union recognize the financial imbalance of the State and specify the adjustment measures, with respective impacts and deadlines, as well as the sources of funding that will be used in the period of the recovery plan.

5. Modernization of Labor Laws

The labor market also presented significant changes and signs of mild recovery. The modernization of the labor laws, a reform approved in July 2017, resulted in the Law No. 13.467/2017, which updated the Consolidated Labor Laws (CLT) framework. The new structure reduces uncertainties and allows greater autonomy for workers and employers to enter into agreements. With the newly adopted legal framework, the government expects to reduce informality in employment and increase job posts and wages.

6. Social Security Reform

In 2017, Social Security registered a record deficit of R$ 268.7 billion. The National Congress is currently debating over its Social Security Reform as an essential component of the reform package for economic recovery, aimed at balancing the public social pension accounts.

The demographic dynamics of the country is imposing significant challenges on policy-making, and in the case of social security, the impacts are direct. Brazil is experiencing an increase in life expectancy, and consequently, in the amount and duration of payments of the security benefits. Added to this is the decrease of reproduction rates, which alters the proportion of active individuals in the job market. This is a relevant fact because the Brazilian social security system is based on simple allocation, being that active workers pay the benefits for those who have withdrawn from the labor market. In 1980, there were 13 adults for each elderly person. Today, there are nine adults for each elderly person. The demographic bonus for federal and state public servers is in an even more critical condition: 1,2 and 1,4 active worker for each beneficiary, respectively.

7. Long Term Rate for Public Financing

The new Long Term Rate (Taxa de Longo Prazo – TLP), established by Law No. 13.483 of September 21, 2017 replaced its former equivalent, as the basis for compensation on the main sources of long-term financing in Brazil. The new TLP will remunerate these financings when applied by the official credit operators contracted from January 2018 onwards. The new rate is composed by the variation of the National Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo – IPCA) and by a monthly prefixed interest rate that is based on the earnings of the National Treasury Notes – Series (NTN-B) for a five-year period. This term reflects the average time for the BNDES (National Bank for Economic and Social Development) loans that use such rate as a basis for compensation.

Source: Presidential Message to Congress 2018 (adapted translation)

GDP growth projected at 2,2% for 2018 in Brazil, reports Central Bank

The Economic Policy Division for the Brazilian’s Central Bank has released its quarterly inflation report[i], projecting a 2,2% GDP growth for 2018. This is certainly good news, specially coming from a two-year recession and 0,7% in 2017.

The executive summary states that the set of reported indicators of economic activity is consistent with a gradual recovery of economic activity. GDP grew for the second consecutive quarter in the second quarter of 2017, which, together with high-frequency sectoral indicators, led to upward revisions in the projections for this year’s GDP growth. Also, highlighting the positive performance of the services sector, which benefited from continued recovery in retail sales, and significant expansion of household consumption, after nine quartterly drops (there is evidence that the withdraws from FGTS accounts – worker’s social security deposits – contributed to the increase in consumption).

Unempolyment rate has also receded in the quarter ending in July, with net creation of 80 thousand formal Jobs, in comparison with net destruction of 258,4 thousand Jobs in the same period of 2016. Furthermore, the evolution of the country’s external transactions remained favorable in the quarter ending in July, when the current account posted a historically low deficit, especially due to the trade surplus recorded in the period.

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[i] An executive summary version of the Inflation Report – September/2017 is available in English, at the official Central Bank’s page.