Brazil partners with AIIB; expects US$350 million from new Asian bank

RIO DE JANEIRO, BRAZIL – The membership agreement was signed by President Jair Bolsonaro on Friday, September 17. Brazil contributed US$1 million to the bank’s capital, and in return expects loans of up to US$350 million.

“Brazil has strengthened its partnership network and diversified financing sources for the national private sector,” says the Ministry of Economy’s Secretary of International Economic Affairs Erivaldo Gomes.

“This is the lowest cost in history for Brazil’s participation in a multilateral development bank: with about R$5 (US$1) million, we will have access to almost R$2 billion in credit.”

“It is the best possible return,” says Sérgio Gusmão Suchodolski, president of the Development Bank of Minas Gerais (BDMG) and president of the Brazilian Development Association, which comprises 31 sector institutions in Brazil.

The first operation with the AIIB should be approved this year, in the amount of US$100 million with BDMG, the development bank of Minas Gerais state. The funds will be used in various sectors of the Minas Gerais economy, namely for economic recovery, Suchodolski said.

Based in Beijing, the bank today has US$100 billion in capital and some 100 partners. China founded the AIIB in 2015 as an alternative to the World Bank to finance economic and social development. This occurred at a time when Beijing had better relations with several countries.

Australia and the UK joined the institution despite opposition voiced by the U.S., which has always perceived the AIIB as an instrument of Chinese domination. India, the second main partner (3% of the capital), has a number of trade conflicts and territorial disputes with the Chinese that have recently escalated.

In 2015, Brazil’s then-President Dilma Rousseff pledged that Brazil would step in with US$3.2 billion in capital. However, under Michel Temer’s government, the country greatly reduced its plan to only US$5 million. This is equivalent to 50 shares, the minimum possible, and because the Chinese insisted on adding the country to its partners list.

The agreement was finally ratified on Friday, after great efforts by state legislatures in Congress, prompted by the Brazilian Development Association. There is US$5 million of subscribed capital, of which US$1 million is paid-in capital and US$4 million is callable capital.

“The AIIB is now truly operating in Brazil, opening a new financing window,” BDMG’s president said, noting that US$350 million is expected to be raised per year. The possibility of raising cheap credit would evidently have been vastly greater had Brazil kept its original commitment to a larger quota in the institution.

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