Credit Allocation and the International Rules on Subsidies: Have the Anti-Crisis Measures in Brazil Gone Too Far?
15 Pages Posted: 7 May 2011
Date Written: May 6, 2011
Abstract
The different economic stimulus packages architected around the world to control and overcome the recent financial crisis contained a series of credit policies which, due to the presence of (i) favorable conditions granted to lenders, such as low interest rates, and also of (ii) export performance and/or national content requirement clauses, may be inconsistent with the current international rules on subsidies. In Brazil, the incentive measures called for a vigorous expansion of state banks’ operations in the credit markets as a means to compensate for the shortage of private credit that affected the economy during the crisis. The Program for Sustainability of Investments of the Brazilian Bank for Economic and Social Development (PSI - BNDES) was created in June 2009 and is responsible until today for more than $70 billion dollars already borrowed or yet to be given to companies for areas such international trade, innovation, and acquisition or production of capital goods. This paper investigates the consistency of PSI with the current international rules on domestic subsidies. In order to do so, it (a) describes the main aspects and rules of PSI credit lines (international trade; innovation; and capital goods) and also the (b) central concepts of the Agreement on Subsidies and Countervailing Measures of the World Trade Organization in order to then be able to (c) analyze the consistency of PSI with this agreement. In the end, the paper will briefly present alternative measures for policy makers so that domestic legislation in the field of credit policy can be issued or be brought into conformity with international rules.
Keywords: BNDES, Subsidy, Agreement on Subsidies and Countervailing Measures, WTO, industrial policy
JEL Classification: K29, K33, K39
Suggested Citation: Suggested Citation