Brazilian Bank to Return R$20 Billion to the Federal Government to Reduce Public Debt

By Xiu Ying

RIO DE JANEIRO, BRAZIL – The president of state-owned savings bank Caixa Econômica Federal, Pedro Guimarães, announced on Wednesday, June 12th, the restitution of R$3 billion (US$750 million) to the government; Minister of Economy, Paulo Guedes, said that more state-owned banks are working to honor commitments with the Union, which will use the resources to reduce public debt.

“This money comes back to bail out public debt. This action is gradually decentralizing the credit market,” the minister said at a press conference with Guimarães.

Guedes also said that by returning these resources to the government, Caixa is getting rid of a debt that is costing the bank 18 percent per year in interest.

Guimarães reinforced his plan to return additional funds this year. “We plan to return R$20 billion in total.”

Caixa’s debt to the Federal Government relates to hybrid equity and debt instruments (IHCD), through which the federal government has injected resources into the bank in the last decade.

The IHCD was the means found by the government to prevent public banks from running below the minimum capitalization level required by the Central Bank, given that institutions were lending at a swifter pace than private banks.

In total, the government contributed R$86.5 billion to public banks. Caixa’s overall debt amounts to R$ 40.2 billion. BNDES owes R$ 36.1 billion; Banco do Brasil R$ 8.1 billion, Banco da Amazônia R$ 1 billion and Banco do Nordeste R$ 1 billion.

The amount invested in the banks is part of the R$280 billion that the government expects to receive this year, which will help reduce public debt expenditure.

In an interview with Reuters in May, Guimarães had pointed to four years to complete the payment of more than R$40 billion in debts with IHCD, but that it was his personal goal to do so in two years.