About the Author
Juan C. Venancio is a junior at Harvard College studying Government and Economics originally from Houston, Texas. He intends to study public policy and later pursue a career in law. He recently completed a virtual internship with the Development Bank of Minas Gerais in Minas Gerais, Brazil, where he served as an economy and policy research intern alongside a team of chief economists.
Sergio Gusmão Suchodolski is the President of the Development Bank of Minas Gerais (BDMG) and of the Brazilian Development Association (ABDE). He is also a Board Member of the Latin American Association of Development Financing Institutions (ALIDE). Prior to that, Mr. Gusmão Suchodolski served as Director-General, Strategy and Partnerships at the New Development Bank, in Shanghai, China. He holds a law degree from USP and a master’s degree in law from Harvard Law School and in international trade, economics and political science from Sciences Po – Institut d’Études Politiques de Paris.
Adauto Modesto Junior is a federal career civil servant, currently serving as chief economist of the Development Bank of Minas Gerais – BDMG. Prior to this role, Adauto held several leadership positions within the Brazilian Federal Government Executive Branch, such as special advisor and deputy public policy chief analyst at the Civil Cabinet of the Presidency (2011-13 and 2015-16) and as deputy executive secretary at the Ministry of Planning (2016). Adauto holds a degree in economics from the University of São Paulo and a master’s degree in Public Policy from the Harvard Kennedy School.
Getting Things Done
The Case of the Development Bank of Minas Gerais
What do the president of a development bank, a career civil servant and a Harvard undergraduate at Harvard have in common? With a keen interest in development finance, Sergio Gusmão Suchodolski LLM ’07, Adauto Modesto Junior MPP ’15 and Juan C. Venancio ’23 are three generations of Harvard affiliates who have, at distinct stages of their professional careers, contributed to sustainable development in Brazil. They are now taking on post-pandemic economic recovery through important work at a regional development bank in Minas Gerais, Brazil, as the country faces one of the most tumultuous economic struggles in its history.
Brazil’s Economy: The Great Lockdown and The Great Reset
In the first few months of 2020, this pandemic-induced recession significantly debilitated the state of Brazil’s economy and posed unexpected challenges. Throughout this period, Brazil and the rest of the world had to quickly adapt to numerous economic changes and to new fiscal realities under the Great Lockdown. In this period, Brazil’s economy shrank by a record 5.8%, the unemployment rate rose to a record high of 14.6%, and 83.5% of the country’s labor market was placed at risk. Along with the looming danger of weakened standards of living and an ever-growing pandemic, these economic challenges posed new circumstances unprecedented in the country’s contemporary history. However, while working with the bank virtually, we soon learned that these conditions also set the stage for financial institutions to re-enter the national economy through novel and innovative methods.
One of the special challenges that the pandemic posed on financial institutions was the dire need to effectively restore financial stability and ensure the Brazilian economy’s swift recovery. For that reason, chief economists and subnational banks alike quickly realized that conventional financial methods of growth had to be upgraded in what global economists referred to as the Great Reset to fiscal planning. This Great Reset is best characterized by the need to profoundly reform global financial systems to withstand potential shocks to the economy like future pandemics as well as guarantee that economic systems become even more resilient.
In the context of Brazil, a national Great Reset could translate into more funds to invest in the country’s green infrastructure, revamp digital technology capability and even restructure social safety networks like the existing Bolsa Familia cash transfer program to better serve communities in need. Furthermore, Brazilian economists emphasize the need for this reset to uphold sustainable development goals, while meeting environmental sustainability benchmarks.
Clearly, this is no easy task for Brazil and recovery efforts right now can appear far-flung. Recuperating from this pandemic requires strategic planning and attentive input by the government. In a country where nearly 15 million people remain unemployed, economic recovery at this moment is critical. However, significant progress has been made in the southeastern state of Minas Gerais through the noteworthy efforts of a regional development bank: the Development Bank of Minas Gerais (BDMG).
Regional Development: The Development Bank of Minas Gerais
Established in the 1960s, the Development Bank of Minas Gerais has served as an important financial asset for the Brazilian state and a model subnational development bank for the country and the rest of Latin America in recent years. Through a complex portfolio of credit lines, technical assistance initiatives, project preparation, and equity investments, BDMG has reliably invested in public and private economic development projects, supported sustainable development goals, and promoted innovation throughout the region for several decades. Recently, BDMG has paved the way for green sustainability and a post-pandemic economic recovery in Minas Gerais. It has reimagined the role of subnational development banks and created a legacy beyond economic recovery for Minas Gerais, which have become lessons that can be applied to development banks in the rest of Brazil and Latin America.
Since March 2020, the Development Bank of Minas Gerais has been playing an important countercyclical role, breaking internal records by serving high volumes of public and private clients seeking credit to invest in new infrastructure and development projects across the state. Awarded the “Best Socioeconomic Impact Bank Brazil 2020”, BDMG granted nearly US$670 million to about 29,000 clients across municipalities in the state that promoted investment in sectors including, but not limited to, employment generation, clean energy, wealth equity and innovation. These financial allotments served to boost the public sector, small companies and even large enterprises.
Working from the different roles we play at the Bank – Sergio as President, Adauto as Chief Economist and Juan as an economic and research intern – we have contributed on BDMG’s successful promotion of the United Nations’ sustainable development goals (SDGs) and allocation of a significant amount of funds to projects that align with these objectives. In 2021, 45% of total financial disbursements were intended for SDG-aligned operations. Put into perspective, the bank also allocated 44% of its credit funds towards operations intended for social impact, further highlighting the robustness of its economic system, despite the impacts of the current pandemic-induced recession. However, arguably the most notable impact of BDMG in recent months was the first issuance of sustainable bonds (SDG Bonds) by a Brazilian financial institution.
In December 2020, the Development Bank of Minas Gerais, in partnership with IDB Invest, issued a SDG bond raising $50 million dollars. The issuance and the use of proceeds are fully aligned with the Bank’s SDG Framework which counts with an independent second-part opinion. It will amplify the Bank’s capacity to invest in key areas such as renewable energy, sanitation, energy conservation, water and health initiatives, ultimately becoming a pioneering force to advance global environmental agendas in Brazil.
By being active players in various programs within the bank, we quickly realized how BDMG’s recent emergence as a financial institution for progress and innovation in Brazil demonstrates the growing role that subnational development banks play in regional development. Commercial banks are often known to not fill the large financial gaps that public and private sector agents face when considering forms to invest projects, but development banks like BDMG possess independent credit lines that use local expertise to implement programs best tailored to local communities. Ultimately, along with knowledge of local terrain and infrastructure needs, regional development banks have demonstrated to be important financial institutions to have the capability to target sustainability concerns and questions about post-pandemic economic recovery, supplementing the role that the federal government and national agencies play in the country.
International Opportunities for Regional Development in Brazil
As of July 2021, several international opportunities have been made available for Brazil to further promote regional development. First, prominent developed countries like the United States, the United Kingdom, France and other European nations have demonstrated commitments to invest in developing countries’ infrastructure. Additionally, prospects for greener investments in sustainability and environmental conservation efforts in Brazil have increased, and an international coalition of development banks in Latin America has recently hosted its first steering committee meeting to establish growth benchmarks in the region, further signaling subnational banks’ growing role in years to come.
In June of 2021, U.S. President Biden and G7 partners met at an annual forum to discuss the state of the world economy, international objectives, and plans to promote development around the globe. This summit’s main outcome was the launch of the Build Back Better (B3) World plan, a multi-trillion dollar investment initiative that intends to upgrade infrastructure development in low and middle-income countries by 2035. Though this recent initiative doesn’t particularly outline the proportionation of funds per country, the authors suggest that this bold initiative highlighted the pending support that subnational development banks like BDMG could receive to support local administrative projects in the next decade.
Furthermore, green sustainability and environmental conservation appears to be a priority for many developed states like the United States, a foreign policy objective that can complement Brazilian development banks’ efforts at funding eco-friendly projects. President Biden has announced that one of his main objectives during his presidency both domestically and internationally is effectively addressing climate change and curbing global environmental degradation worldwide. As part of this Biden Plan, the United States has already re-entered the Paris Climate Agreement, added provisions to the B3 World initiative referencing the need to address climate change, and has even discussed financially supporting countries like Brazil with up to $20 billion dollars to protect the Amazon.
Another international opportunity for regional development in Brazil is the recent founding of an international Alianza de Desarollo between sustainable development banks in Latin America to standardize objectives as well as to coordinate the implementation of development agendas in the region. This alliance represents the second international initiative of regional development banks forming coalitions to promote their goals, and BDMG has assumed one of the leading roles in this recent partnership. From our computer screens in Houston and Belo Horizonte, we watched as members of the alliance planned to mobilize development banks in the region to establish new initiatives, synchronously meet 2030 Sustainable Development goals, and create a space for discussions around development in the region.
Lastly, two key global meetings over the next months will pave the way for new instruments and commitments around the implementation of global development agendas. First, the Second Edition of the Finance in Common Summit, in October, will reunite the global community of 450 public development banks around their role of mobilizing the necessary amount of resources to finance the transition to a low-carbon, sustainable and inclusive economy. Second, the COP 26 in Glasgow will drive the world’s ambition to avoid more extreme climate scenarios. Because of its strategic position in both debates, Brazil has much to benefit from their outcomes this year.
Altogether, our different but complementary experiences at this bank have broadened our perspective on the growing role of development in Latin-America. Ultimately, the opportunities that BDMG has created are pointing towards a bright future for development in Brazil. However, in order to translate this potential into concrete actions, we will need to empower institutions that are playing a decisive role on the ground, and the Development Bank of Minas Gerais can serve as a model to promote advancement in the country and in the rest of Latin America.
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