World Cup Brazil 2014

The investments for the World Cup 2014 will be made with public money.

In 2002, when Rio de Janeiro was chosen as host of the Pan American Games 2007, the estimated budget to prepare the city was R$ 409 million; in June 2007,  right before the opening of the Games, the actual cost was estimated in R$ 3.7 billion (see report here – the report was based on data provided by the National Accounting Office).

That means that the actual costs were nearly ten times higher than previously estimated. Lack of organization caused delays, which in turned resulted in several contracts without a bidding process. There were several suspicions of corruption.

Much because of this, in December of 2007, shortly after learning that Brazil would host the WC 2014, the Minister of Sports declared that there would not be public money to build the stadiums.

The implict idea was: stadium owners would have to look for private partners who, in exchange for the rights of usage of the stadium after the Cup, would bring money in to build or renovate the venues.

The problem, however, is that there are not private parties interested in investing in stadiums. The most notable case is Morumbi, which will probably be excluded from the Cup, because Sao Paulo FC can’t find investors.

Who comes to the rescue? The Bank for Social and Economic Development (Banco de Desenvolvimento Economica e Social), BNDES.

BNDES is a bank owned by the Federal Government. But it is not like Banco do Brasil, another giant State bank. BNDES doesn’t have street agencies, nor does it offer common bank services (such as current accounts, mutual funds, etc) to individuals.

All BNDES does is lending money to selected corporations, at low interest rates. BNDES charges the Long Term Interest Rate (TJLP – Taxa de Juros de Longo Prazo), defined by the Federal Government; currently, the TJLP is 6% per annum – see official values of TJLP. The Treasury borrows from the market paying a (target) interested rate called Selic; the Selic is always higher than the TJLP; today, the Selic is 10.75% per annum –  see official values of Selic. And if someone needs a loan from a bank, the interest rates in Brazil are the highest in the World.

This means that every time that BNDES loans money to someone, the bank is giving a subsidy to the borrower.

And where BNDES gets money to give away?

First, some of it comes from the return of previous loans (as explained above, this return is lower than any other option in the market). Next, by force of law, a part of taxes paid in Brazil goes towards Funds managed by BNDES – and we are talking of billions of dollars here.  And last, when even more money is needed, the Treasury transfers money to BNDES – this year alone, the Government transfered nearly US$ 100 billion to BNDES.

No wonder that BNDES have got so much money to loan. There were R$ 3.6 billion for public stadiums and R$ 1 billion for hotels (new hotels and renovation of old ones); private stadiums can’t get loans, but the contractors can (they received tens of billions in 2009); investments in technology, of course, will have their share from BNDES.

The investments for the World Cup 2014 will be made with public money.

This entry was posted on Monday, July 26th, 2010 at 5:04 pm and is filed under business, infrastructure, stadium.