brazilian banking system / capital markets - for financial crisis and reform in em (sobol)
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Brazil’s Capital Markets - A work in progress
Much of the credit for Brazil’s phenomenal economic and capital market growth in the last
decade is due to Fernando Henrique Cardoso’s Plano Real and the country’s subsequent
drive towards macroeconomic stability. Through taming inflation, managing the stability of
the real, and sheltering the country from the harsher crosswinds of international capital
flows, aggregate government debt - the debt that dominates the country’s overall fixed
income market - has been dropping steadily through the past decade. At the same time,
the Brazilian Bolsa de Valores, Mercadorias & Futuros de São Paulo (BM&F Bovespa),
Brazil’s stock exchange, has made remarkable strides towards becoming a world-class
equity market.1 Given Brazil’s high financial intermediation rates, raising equity has
become a more attractive option given baseline interest rates can deter many firms from
entering the debt market.
But this source of strength for the Bovespa is still one of weakness for the economy at
large. These successful equity listings, which have included some of the largest global
private placements of the past several years, reinforce the difficulty of financing with debt,
and one of Brazil’s greatest financial challenges rests in the ability to strengthen local
capital markets (particularly debt markets) by bringing down the cost of financial
intermediation while keeping inflation in check. It is a dilemma and there are no
straightforward solutions, but Brazil’s steady march towards global financial integration and
world-class capital markets may soon have to face off with a rate environment reality that
constrains growth and gives the government leverage to distort the lending market. It is
fortunate for Brazil that it faces these challenges with sound regulation, deep markets, and
a respect for greater transparency and oversight as a driver of growth rather than an
inhibitor.
! Stranko 1
1 Economist, April 14, 2007
Equities Markets
Securities Market Size and Scope
By a large margin, the BM&F Bovespa is Latin America’s largest securities market, and
was the tenth-largest in the world measured by total market capitalization at the end of
2010. Unlike in other countries in the region with relatively shallow equity markets, the
Bovespa is a crucial source of financing for local companies. Even during the turbulence of
the financial crisis, the Bovespa has hosted more than 20 initial public offerings since the
beginning of 2009 while equity issuances have dried up across the developed world. The
IPOs launched during the crisis, however, did tend to be of smaller size than those of
previous years totaling US$6.32bn in 2010, which is down from US$13.06bn in 2009 and
$4.57bn in 2008.2
Others48%
Bradesco5%
Itau Unibanco6%
Ambev7%
Vale (CVRD)10%
Petrobras12%
Bovespa Listed Companies, by % Market Cap - Chart 1
Petrobras Vale (CVRD) Ambev Itau UnibancoBradesco Banco do Brasil Santander TelefonicaItau OGX Petroleum Others
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2 Economist Intelligence Unit, Brazil: Country Finance
Source: Bovespa
Chart 2 below shows the strong growth the Bovespa has posted over the past several
years, particularly in contrast with its Latin American peers. From 2001, when the exchange
was smaller than its Argentine counterpart--comprising around 30% of the regional total
market cap--it has grown steadily to represent 60% of market cap in the region. While
much of this share gain happened in the wake of post-2001 crisis Argentina, and
stagnation in the Mexican exchange, Charts 3 and 4 on the following page show how
regional and global overall market cap has grown rapidly over the same period. It is also
notable that this growth has occurred in the context of broad capital market growth in
Emerging Markets, both in the larger markets like China and India and through most of
Latin America.
0%
15%
30%
45%
60%
75%
90%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Percentage of Total Latin American Stock Market Capitalization - Chart 2
Argentina Brazil Mexico
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Source: World Bank
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0
1750
3500
5250
7000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Stock Market Capitalization, in USD billion, BRICS Comparison - Chart 3
Brazil China India Russian Federation South Africa
0
750
1500
2250
3000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Stock Market Capitalization, in USD billion, LatAm Comparison - Chart 4
Latin America & Caribbean (all income levels) Argentina Brazil Mexico
Source: World Bank
Source: World Bank
Trading and equity volume
One of the striking features of the Bovespa is that the two largest companies traded on the
exchange, Petrobras and Vale, are respectively state-controlled or semi-state owned. That
said, even though the top ten companies make up nearly 50% of overall market cap, there
is a wide range of other equities in diverse industries - including retailers, utilities, telecom,
and consumer goods - and that comprise the remaining 48% of the index. As a contrast, in
Mexico the analogous Indice de Valores y Cotizaciones (IVC) is dominated by one
individual, Carlos Slim, whose companies represent more than 40% of the overall market
cap. Chart 5 above illustrates the relatively robust performance of the Bovespa (along with
the Merval and the Mexican IVC) compared to the S&P 500, showing the resilience of
these markets during and after the financial crisis.
! Stranko 5
Comparison of Ibovespa Index to S&P 500, Merval and Mex ExchangeChart 5
Source: Yahoo! Finance
The Ibovespa index has been
an active mover over the past
several years, with a major dip
in index value occurring during
the onset of the credit crunch
in mid-2008. One of the most
striking consequences of the
credit crunch on Brazilian
equities was its effect on
trading volume. As seen above
in the bottom part of the
tracked Ibovespa value, volumes took a nosedive after strong, historically high volumes in
2007. They have since recovered to pre-2007 levels and have doubled over the period
2009-2011. Also, after strong outflows at the beginning of the financial crisis in 2008
shocked Brazilian markets, foreign portfolio investment in Brazil has recovered and now
accounts for a significant part of the market. From those record outflows totaling R$25bn
(US$12bn) recorded in 2008, confidence in Brazilian markets returned by 2009, posting net
inflows of R$21bn (US$13bn) in that year and R$6bn (US$4bn) in 2010. Gross inflows and
! Stranko 6
16%
55%
30%0.77%
35.69%
63.54%
Government BondsPrivate Bonds - Banking SectorPrivate Bonds - Non-financial Corporates
Share of Foreign Debt Holdings by Sector - Chart 7
Share of Debt Issuances by Sector - Chart 8
Ibovespa Index Movement and Trading Volume Chart 6
Source: Yahoo! FinanceSource: Yahoo! Finance
Source: Economist Intelligence Unit
outflows together total nearly R$1 trillion (US$600bn) and represent about 30% of all
investment in the local market.
Another consequence of the financial crisis in Europe and the United States is a Brazilian
equity “decoupling”, with Brazilian firms looking beyond traditional markets for additional
sources of funding. Traditionally, Brazilian corporates looking to list abroad looked to the
New York Stock Exchange or the London Stock Exchange, and indeed some of Brazil’s
biggest names have secondary listings on the NYSE, including: Vale, Petrobras, Itaú,
Bradesco, Telefonica do Brasil, and AmBev. Recently, however, Brazilian equity issuers
and the Bovespa have been looking towards new frontiers for pools of capital and possible
secondary-listing/cross-listing agreements. To that end, the Bovespa in the past year has
been in talks with both the Mexican Stock Exchange and the Shanghai Stock Exchange
with a view towards closer collaboration.3
The Equity Listing Process
Listing regulations are longstanding and well-established in Brazil. A long-standing
resolution, passed in its initial form in 1968, requires Brazilian companies to register with
the Banco Central do Brasil ahead of any public equity offerings. The Central Bank, in turn,
required would-be issuers to produce extensive documentation that covered off the
company’s financial health, income statements, proof of underwriting agreements, and
drafts of the material the company would use to market shares. It further stipulates that all
of this information had to be provided to interested investors on their request, and that
management must actively update the public on any agreements that would change the
value of the securities during the run-up to the IPO. The Bovespa also imposes further
auditing requirements in order for companies to list their shares there, including press
notification of preferred stock dealings and shareholder meetings. Listing costs are nominal
! Stranko 7
3 Bolsa de Valores, Mercadorias & Futuros de São Paulo - Bovespa
and range between 1/40 to 1/2 of one percent of the trade value, and the charges are tax
deductible.4
Market Segmentation
The Bovespa is characterized by a unique segmentation of its equities into classifications
based on the type of stock issued and an issuer’s overall level of disclosure. These market
classifications all sit within the Bovespa and are known as the Mercado Novo, Nivel 1,
Nivel 2, and Bovespa Mais, in addition to traditional market traded and OTC listings.
Whereby Nivel 1 and Nivel 2 represent the more traditional market mechanisms in the
Bovespa, Mercado Novo and Bovespa Mais have emerged as innovative tools to establish
international governance best practices and attract smaller issuers to the market
respectively.5 By segmenting listing standards, the Bovespa has been able to capture wider
swathes of the equity market, and the Mercado Novo rules in particular have been effective
in spurring on domestic listings. The boxes on the following page explain some of the
market characteristics and requirements of each listing category.
Foreign Investor Rules
Rules on foreigners that can operate in the Brazilian market are strict, and explicitly
designate the types of investors welcome in Brazilian equities, including:
• Commercial and investment banks
• Savings and loan associations
• Insurance companies and pension funds with US$5m plus in assets;
• Non-profit organizations (trusts or endowments, among others) with US$5m plus in
assets; or global fund managers that work with high net worth individuals 6
! Stranko 8
4 Going Public 2010, a legal guide, Trench, Rossi e Wantanabe Advogados, Baker & McKenzie International
5 Economist Intelligence Unit: Country Finance
6 Commissão de Valores Mobiliários
! Stranko 9
Bovespa MaisBovespa Mais was created in 2005 to attract small and mid-sized companies to market. It was designed after broad consultation with small-cap companies, domestic and international investors and law firms with the view of creating an over-the-counter market for smaller companies that will need access to broader capital markets as they grow. Investors, in turn, receive higher returns for the more limited liquidity characteristic of OTC markets.
The Bovespa Mais market allows qualifying issues to build up a sort of “credit history”, while giving them broader exposure to investors and strategic partners that can help them along the growth curve and obtain additional resources in the market. Bovespa Mais requires nearly the same stringent listing procedures as the Novo Mercado, with obvious exceptions and limitations due to the smaller size of these market participants. Part of the rationale for these rules is the expectation that companies will be able to gradually move towards listing in the Novo Mercado.
Nivel (Level) 1 and Nivel 2The Bovespa has established conduct standards and best practices for companies, shareholders and managers that are key to the market designation as a Nivel 1 (Level 1) or Nivel 2 (Level 2) listing.
The Bovespa has established conduct standards and best practices for companies, shareholders and managers that are key to the market designation as a Nivel 1 (Level 1) or Nivel 2 (Level 2) listing.
Level 1 and 2 Requirements
• Maintenance of a free-float of at least 25% of the capital;• Public offerings have to use mechanisms to favor capital
dispersion;• Improvement in quarterly reports, including the disclosure
of consolidated financial statements and special audit revision;
• Monthly disclosure of trades involving equities issued by the company on the part of the controlling shareholders;• Disclosure of an annual calendar of corporate events.
Level 2 Requirements
• Establishment of a two-year unified mandate for the entire Board of Directors, which must have five members at least, of which at least 20% (twenty percent) shall be Independent Members;
• Disclosure of annual balance sheet according to standards of the US GAAP or IFRS;• In case majority shareholders sell their stake, same conditions granted to them must be extended to common
shareholders, while preferred shareholders must get, at least, 80% of the value/conditions;• Voting rights granted to preferred shares in circumstances such as incorporation, spin-off and merger and approval of
contracts between the company and other firms of the same holding group, when deliberated at general meeting.• Obligation to hold a tender offer by the economic value criteria, in case of delisting or de-registration process;• Admission to the Market Arbitration Panel for resolution of corporate disputes.
Novo MercadoThe Novo Mercado was created in 2000 to attract Brazilian companies back to domestic listings by creating corporate governance requirements matching international best practice. A company desiring to list on the Novo Mercado must meet basic Bovespa requirements plus certain additional demands, such as:
• public share offerings have to use mechanisms to favor capital dispersion and broader retail access
• the maintenance of a minimum free float, equivalent to 25% of the capital
• the same conditions provided to majority shareholders in the disposal of the Company’s Control will have to be extended to all shareholders
• establishment of a two-year unified mandate for the entire Board of Directors, which must have five members at least, of which at least 20% have to be independent members
• the disclosure of annual balance sheet, according to standards of the US GAAP or IFRS
• improvements in quarterly reports, including quarterly consolidated financial statements and special audit revision
• an obligation to hold a tender offer in case of delisting or cancellation of registration as publicly-held company
• compliance with disclosure rules in trades involving securities issued by the company in the name of controlling shareholders
• regular General Shareholders Meetings and ingrained corporate bylaws that can enforce these requirements from within
5 Chart information from Bovespa Listing Rules
Finally, International investors may not buy stakes in non-publicly-traded companies. This,
barring several exceptions, effectively shifts all equity activity to the stock market and to
transactions that can be recorded and monitored.
Bond Markets
Overview
Although the Brazilian corporate bond market is expanding rapidly, the overall market in
Brazil is dominated by government debt. Of the total debt issued that has yet to mature,
government bonds account for 64% of
the total market. The rest are by
a large margin financial
institutions (35%) and the rest of
the corporate market accounts
for less than one percent.
Private sector issuance
For a Brazilian company to
issue a bond, it must meet certain
requirements set by the Central Bank of Brazil. The two main requirements are that the
balance of all outstanding bonds must not be higher than the net worth of the issuer and
that total liabilities have to remain below 1.5x the net worth of the issuer. Once this is
assured, the issuer has to register with the CVM (Comissão de Valores Mobiliários--Brazil’s
SEC) for approval of the underwriter, dealer and overall issuer. Once this is completed, this
must then be announced in a printed public forum like a newspaper. International investors
have focused on Brazil’s financial sector, holding 54.7% of the outstanding US$175.4bn
debt to foreign holders at the end of 2010. Non-financial private sector firms and
government bonds accounted for the rest of the smaller foreign holdings.
! Stranko 10
19
Brazil’s improved economic foundations and public debt management
It is axiomatic that the absence of sound foundations limits the scope of public debt management and improvements in the debt structure for which it is responsible. Hardly a theoretical argument, the Brazilian experience demonstrates the close connection. Thus, since the mid 1990s, its improved debt management coincided with successive institutional and macroeconomic advances. This combination, i.e., sounder foundations and qualified debt management, was the backdrop against which Brazil’s public credit practices achieved greater credibility and scored high ratings.
A review of the recent evolution of public debt structure and its relation to advances in macroeconomic policies illustrates this lesson, which is further explored in Part I, Chapter 2 and Part III, Chapter 1.5 Graphs 1 and 2 show the evolution in the profile and stock of Brazil’s Federal Public Debt (FPD)6 since December 1994.
Graph 1. Federal Public Debt profile by index
Source: National Treasury
Graph 2. Federal Public Debt profile by index - GDP %
Source: National Treasury
Composition of Brazilian Debt as pct of GDP - Chart 9
Source: Tesouro Nacional do Brasil (Treasury)
Still, the numbers show a broad appetite
for Brazilian corporate bonds,
particularly among foreign
investors. Private sector concerns
around government-lending
crowding out, particularly in the
context of the country’s major
infrastructure needs ahead of the
2014 World Cup and 2016 Summer
Olympics, have begun to reach a
point where the government is responding
with less-conventional financing solutions. As a response to these concerns, and billed as a
way for the government to spur private long-term investment, the Brazilian Ministry of
Finance decided late last year to shelter certain bonds from a 15% withholding tax.7 The
exemption, which applies to corporate bonds with maturities of at least four years and fixed
or index-linked rates, only applies to bonds issued to finance government-approved
infrastructure projects. So while giving private actors a financial incentive to lend long-term,
the Brazilian government is subjecting projects approved under the scheme to government
approval--a double-edged sword for developers and lenders.
Government issuance
The government has a long history of issuing sovereign debt, and throughout the 1970s
and 1980s was an emerging markets pioneer in taking on too much debt to finance
unsustainable spending.8 After a series of debt crises, several failed debt-management
plans, and the successful Real Plan of 1994, Brazil’s sovereign debt rating has been
steadily improving--reaching investment-grade (BBB-) in 2008.9 Net public debt is low (37%
! Stranko 11
7 FT Article, December 16, 2010
8 Dívida Pública: A experiência brasileira, World Bank and Brazilian National Treasury
9 Brazil Sovereign Rating, Fitch Ratings
22 Public debt: the Brazilian experience
Such economic gains ensured an environment conducive to good debt management. Under a carefully developed strategy disseminated through annual borrowing plans, the National Treasury consistently improved the structure of public debt by greatly reducing exchange-rate liability and gradually increasing the share of fixed-rate and inflation-linked debt.10
These improvements are also part of the Treasury’s proactive debt management strategy, which includes swap and-buyback operations that help improve the debt profile and reduce the economy’s vulnerability to shocks.
The combination of sound macroeconomic foundations linked to efficient Federal public debt management scored significant gains, as shown by the risk indicators (see Graph 6) and the sound (BBB-) investment grade established by Standard & Poor’s, on April 30, 2008, which also noted that pragmatic fiscal policies and debt management11 had allowed Brazil to earn that rating for the first time in its history.
8 For more information on the Fiscal Responsibility Law, see the chapters on budget and audits (Part II, Chapter 4 and Chapter 5).9 This is an important indicator, for it shows that foreign currency funds deposited in the Central Bank would be sufficient to pay the country’s external, public and private debt. To illustrate the relevance of the present level, the external debt (public and private)-to-international reserves (1952-2008)-ratio started at 1.3 and reached 20 during the crisis of the early 1980s and then dropped gradually to as low as 0.96 in December 2008 - the lowest value in the series. For details, see the Statistical Annex at the end of the book.10 According to studies, these securities are ideal to make up most of the outstanding debt, with due regard for cost and risk criteria. For details,see Part II, Chapter 3.11 See Standard & Poor’s report “Brazil’s long-term foreign currency rating raised to investment grade BBB- Outlook Stable,” April 30 2008.
Book organization and summary
The book is organized into three parts: Part I – Understanding the Brazilian Public Debt; Part II – Managing the Brazilian Public Debt; and Part III – The Public Debt Market in Brazil.
Graph 6. Spread performance – Brazil and emerging countries
Source: Bloomberg
Changes in Debt Spreads - Brazil vs. Major EMs - Chart 10
Source: Tesouro Nacional do Brasil (Treasury)
of GDP) and has been declining steadily throughout the decade. Brazil has also been
successful in issuing liquid, local-currency public debt (nearly 90% of the public total is
denominated in reais). On top of this, Brazil maintains a strong reserves position, which
has served its anti-inflation goals, and diversified its debt profile between fixed, inflation-
linked, and floating rate profiles. In addition, the average maturity of public debt is nearly
six years, longer than most similarly-rated sovereigns.
Some of the lingering concerns with the Brazilian sovereign debt market include continuing
budget deficits after debt repayments despite strong primary surpluses, which at the end of
September 2011 (on a 12-month rolling basis) was equal to 2.6% of GDP. Also
transparency concerns plague Brazilian public finances, particularly in relation to
government contributions to the BNDES. The BNDES balance sheet can be considered as
an off-book balance sheet for the government to underwrite infrastructure projects. Also,
interest payments eat up more 15% of Brazil’s already-high tax take. Spreads, however,
have been narrowing continually, even in the context of the financial crisis (as seen in
Chart 10 above) and this has driven down borrowing costs in relation to other major
emerging-market sovereign issuers.
Foreign Investor Rules
In the bond market, Brazilian law that prohibits local institutional investors from investing in
foreign corporate bonds limit the participation of foreign-owned firms in local bond markets.
Institutional investors that are not resident in Brazil can, however, invest in Brazilian-
marketed corporate debt without limitation. Also, foreign companies that operate in Brazil
can raise funds via private placements, which are less restricted by law. In addition, this
route can also prove more economical, as it does not incur the burdens of disclosure
regulation including prospectus publication and bank intermediation.10
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10 Economist Intelligence Unit
Additional topics in capital markets operation and regulation
Government involvement in long-term financing
Given the paucity of affordable, long-term financing available to Brazilian corporates, the
country’s principal lender for major infrastructure projects is the Brazilian National
Development Bank (BNDES). As in my first essay’s discussion of high financial
intermediation rates and their effect on Brazil’s lending market, the bank has played an
increasingly controversial role in determining the success or failure of major projects. In
2009 and 2010, the bank was one of the largest lenders in the Western Hemisphere, and
although it operates at an arm’s length from the government, the BNDES’s oversight
remains with the Brazilian Minister for Development, Industry and Foreign Trade.
Financial Transactions Tax
One of the more controversial measures that Brazil has taken to limit the amount of foreign
speculation in the local market is a financial transactions tax. This tax, locally called the
IOF for imposto sobre operações financeiras, applies only to foreign exchange
transactions. This tax is variable depending on the nature of the capital flow, and the
govenrment has been particularly aggressive on fixed income portfolio investments
(bonds), raising the rate steadily from the initial 2% to a current high of 8%. Other rates
include a 6% rate on investments in ADRs issued by Brazilian companies on stock
exchanges abroad--the rate, however, drops to 2% when investors repatriate their ADRs to
purchase Bovespa/Brazilian-issued shares.11
Much of this goes back to the root problem of strong real appreciation, and the higher
financial intermediation rate which makes portfolio investment in Brazil particularly
attractive. Particularly in turbulent world markets, with developed country base interest
rates at record lows, Brazil’s double digit SELIC rate makes it an attractive target for those
looking for a high rate safe haven or a destination of carry trade investments.
! Stranko 13
11 Brazil to Tax ADRs of Brazilian Companies, Mantega says, Bloomberg, November 18, 2009
Derivatives regulation
One of the most notable contrasts between Brazilian financial regulation and Anglo-
American regulation is the country’s long-standing resistance to derivatives transactions.
The effects of this were borne out during the global financial crisis, when contagion and
capital flight failed to wreck Brazil’s financial markets the way they would have in crises
past. In fact, there are striking similarities to Brazil’s derivatives (and other) regulation in the
new U.S. Dodd-Frank financial oversight bill. Brazil has long required that derivatives
transactions be registered and cleared through systems that the Brazilian SEC equivalent
has vetted and approved. The rationale behind doing so is making OTC trading less
opaque, and while there is not full marketization of derivatives, the laws make transactions
much more transparent.12
As an additional protective measure, public companies must give sensitivity analyses
which give details on the potential effects of 25 and 50% losses on derivatives contracts.
On the risk management side, all originators need to make sure borrowers meet
institutional risk criteria and cannot rely on credit ratings alone to make judgments on credit
quality. The strict derivatives regulation mainly aims to stem speculation rather than
eliminate the function of derivatives transactions in the Brazilian financial system. 13
Guido Mantega, Brazil’s Finance Minister, has been particularly active in promoting the
IOF. The IOF, as previously mentioned, is applied to a number of transactions including
equity sales, and Mantega earlier this year instituted an IOF charge ranging from 1% to
25% on dollar-based position sales in Brazil. In the same legislation, the government raised
the IOF for Brazilian short-term corporate borrowing abroad in order to promote local
lending and discourage currency mismatches in short-term lending agreements that could
put pressure on the real. In fact, much of the new regulation aims at stemming futures
markets in currency and halting speculative pressure on the Brazilian real. At the same
! Stranko 14
12 Learning from Emerging Markets - A Brazilian Perspective, Allen and Overy Insights
13 Brazil Country Commerce: Economist Intelligence Unit
time, with a view towards not distorting markets too much, Mantega has made it clear that
the tax would not be levied on legitimate hedges without speculative intent.14
And despite these tough regulations, Brazil remains the sixth-largest market in the world for
derivatives transactions. The demand for derivates contracts and structured products
stems mainly from the relatively high level of capital controls and taxation that have
resulted from government attempts to control inflation and real appreciation. Foreign
entities, companies or investors, looking to repatriate funds thus have a need to take out
options and futures contracts to guarantee rate stability.
Summary and Conclusion
In brief, Brazil has made significant progress in sheltering its capital markets from the
speculative and destabilizing effects that wrecked the economy repeatedly in the 1980s
and 1990s. Through effective legislation and institutionalized central bank independence
that have established strong requirements for capital markets transactions and corporate
governance, the state has been able to gather the large amounts of information necessary
to regulate even the most complex of transactions. Also through strong regulation of
derivatives before they presented macro-level problems to the economy as in the United
States, Brazil has emerged as a pioneer in this type of oversight. Finally, through the smart
application of variable financial transactions taxes, the country has managed to cool down
speculative investment from abroad while cooling off its hot currency.
At the same time, the financialization of the economy and growth in the equity market
belies the serious constraints imposed by continued high costs of lending and the parallel
market that has been created by the government through BNDES-linked long-term lending.
For the private sector to be the truly efficient allocator of capital, the benchmark SELIC and
the TJLP (long-term BNDES lending rate that is nearly half that of the market SELIC rate)
! Stranko 15
14 Year in review Brazilian Real Estate Finance and Securitization 2011, Uqbar Financial Knowledge Company
need to converge. High base rates drive up lending rates across the economy, including in
the corporate bond market. Given the sophisticated profile of Brazilian investors and the
growing need of local companies for more long-term financing, the relative sluggishness of
corporate bond market development remains a major hurdle to further Brazilian financial
development.
! Stranko 16
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