Development Banks & Economic Policy

• The article focuses on development banks as a tool for economic policy to promote sustainable structural change, particularly in peripheral countries.

State-Owned Financial Institutions (SFIs)

• SFIs have become more important for countercyclical actions since the 2007/2008 financial crisis.
• SFIs, specifically development banks (DBs), are vital for development in peripheral countries.
• SFIs can correct market failures
• SFIs can act countercyclically
• SFIs can be instruments of public policy.
• SFIs can promote peripheral countries' catching up as part of the State toolkit, aligning with fiscal, monetary, foreign exchange, and industrial policies.
• Credit policy through development banks can manage aggregate demand.

Private Financial Sector Limitations

• The private financial sector struggles to meet credit demand in specific economic segments and geographic areas.
• Market imperfections, like asymmetric information, make SFIs essential for resource allocation efficiency and modern monetary development.
• SFIs play a countercyclical role by providing liquidity during financial turmoil, ensuring credit supply meets demand.

Importance of SFIs

• SFI's macroeconomic performance and capacity to mitigate systemic risk justify their existence, highlighted by the 2007/2008 crisis.
• There is a lack of discussion on credit as a macroeconomic toolkit in economic policy literature.
• SFIs, including DBs, can control aggregate demand with monetary and fiscal policies.
• Increasing banking concentration makes regulating private financial institutions difficult, giving SFIs the role of public policy arm through targeted credit policies.

Arguments for directing credit policy through SFIs

• Broadens understanding of their role beyond countercyclical function.
• SFIs can be part of a permanent toolkit for managing aggregate demand
• DBs performance as a public policy arm is essential to promoting the structural change to help peripheral economies catch up.
• SFIs, especially development banks, can finance long-term investments and act countercyclically, ensuring productive investment is not held hostage to private financial sector liquidity preference.
• Government planning, institutions, and strategies (fiscal, monetary, foreign exchange, and industrial) along with credit policy-must ensure the catching up process's longevity and sustainability.
• SFIs are public policy arms, but their effectiveness requires conventional macroeconomic policies to promote growth.
• DBs credit policies should contribute to peripheral economies' economic development by enabling structural change in countries with high productive heterogeneity.
• The article analyzes how DBs sustained aggregate demand and leveraged Brazil's economic growth post-World War II and it assumes an efficient financial system is essential to support development, secure investment, and ensure structural changes.

Brazilian Development Bank (BNDES)

• The article demonstrates how the BNDES actions contributed to the country's economic development in different macroeconomic contexts and under changing domestic policy spaces for pro-development programs.
• The BNDES's performance was more successful when coordinated with other economic policies, considering its articulation with monetary, fiscal, exchange rate, and industrial policies.

Role of Credit in Economic Growth

• Financial services inject liquidity, sustain transactions, and fund investment and economic growth.
• The development process needs a mature financial system capable of funding production.
• Keynes argued banks are responsible for economic transition and financial institutions, not savings, determine investment levels but instability can limit sustainable growth.
• Capitalist system evolution allowed industrializing economies to finance productive growth and expansion along with financial system evolution
• Efficient financial system limited peripheral countries' development capacity

Degree of Consolidation of Financial Systems

• Consolidation of financial systems in peripheral countries, specifically long-term credit, faces macroeconomic, legal, and structural obstacles, leading to diverse institutional configurations.
• The configuration depends on economic development, financial systems' evolution, legal configuration, and macroeconomic policy tradition.
• The importance of funding was actively addressed after the reconstruction of national economies post-World War II, leading to SFIs and DBs in countries with industrialization programs, acting as a public policy arm and aiding industrialization.
• From a Keynesian view, markets alone can't guarantee full employment, making State intervention necessary to coordinate expectations.
• Scarcity is not caused by a lack of resources, but by poverty.
• Excess demand for liquidity generates unemployment, inequality, and shortages, creating instability because of decision making
• Keynes stated that in uncertainty, the financial market with a high liquidity preference prioritizes the short-term, curbing funding for productive investment, resulting in underemployment.
• The State must calculate the marginal efficiency of capital in the long run and its social gains, assuming more investing responsibilities
• Keynes suggests socializing investment through State participation, potentially reaching two-thirds or three-quarters of total investment, improving long-term, private sector economic performance, outputs and employment.
• Although Keynes did not specify any coordination, his theory supports SFIs, and DBs, for long-term funding.
• Keynes says for mature monetary economies need public investment institution to socializing investment attributed to DBs.

Purpose of Development Banks

• The justifications coincide with SFIs but DBs' operation are more significant.
• Credit is a key of financial intermediation justifies State intervention but the scope is disputed among economic schools of thought.

Views Regarding the Role of SFIs

• Conventional (pro-market)
  • SFIs are justified by market imperfections, like asymmetry of information leading to the private sectors non action
  • SFIs would be a “second-best” solution to compliment actions and market failures by having flexible interest rate to prevent distortion and non rationalization
• Unconventional theory defends SFIs beyond market failures, which says
  • Essential due to uncertainty leading to complementing institutions in mitigating pro cyclical action and guiding private choices by being non transitory
  • Since 2007/2008 SFIs have given countercyclical action, providing liquidity to minimumize downturn because of financial institutions preference to liquidity

A Public Policy Arm

• The SFI promotes it through structural transformation by following government guidelines, differentiating the product by cost, term, and operationality for orientation, being executors of government policies
• This form depends on development level, the institution, structural, legal, macroeconomic, and political framework, they are proactive with a mission to encourage new technologies.
• It is not market failure it is development but SFIs must have vision of transformation and be provided with a mission that coordinates it to have unprecendented action to economic change by working together
• They facilitate the State to engage in a economic structure that is aligned with it by having influence and expansion that empowers state of trust by reinfocing sustainable environment where SFIs can be at all levels and be influential with outside sources.
• DB's role should be more stratetic, to ensure long-term funding by acting in coordination with policies in order to minimize fragility and act as a counter cyclical, maintaining aggerate demand with focus depending on autonomy.
• SFIs in the peripheral are action driven to develop productive structure to be private
• The performance as an economic policy should be understood as expanding the structure which improves trade balances
• Reduce public to give more for DBs to get more capital by macroeconimcal context
• Fiscal policy is pro cyclical due to narrowed economy generated budget
• integrated peripheral economy can not due to attracting capital, inflatoin, high interest for the the ecnomoy volatility.

Brazil, the Experience of the BNDES

• The market does not promote stability needing capitalism institutions to promote progress
• In Brazil (1940s) financing and funding reached the top due to State economics
• National Bank for Economic Development later becoming National Bank for Economic and Social Development (1952) to change production for internal and external financial resources
• To view the bndes opporation there are 3 periods to illustrat variability
  • Start to 1970 after second oil shock
  • (1980-1990) consolidate economics
  • (1980) politics return
• It was proved that bndes influenced gross capital in consolidation, and the period to 2002 was the lowest, and the most recent (2015) had a quick increase, reducing industrialization due to trade freedom in 2010.
• (1952-1980) and financial support BNDE was a role model that filled gap of outside capatial and Brazilian processing done through foriegin and direct with multiple set ups.
• The bank also aided investors and was a contributor with economic studies implemented by State.
• International intent was defined to make the processing promoted(1952-1980), it had long-term planning (by 1980s it had reached 2.0% of GDP, which was very low, so economics needed to be dynamic which resulted and labour increased to 4.4% and gross 7.3%

Debt Crises to Economics

• Crises led to state deficit to reduce budget with new rules.
• Trade openness was attempted via credit from (190) to help with administration from the bank.

Monitor Stabilzation

• State sector was to have minimum rules that faced difficulty surviving.
• As such they began economic policies:
  • To make Financial (Proer)
  • Decrease Bank Activity (Proes)
  • To strength (Proef)

Bank Goals

• Central was to have efficient government and in turn the banking sector helped that stability that help trade and production.
• Economics were not balanced so with help the world balance became more organized.
• the milestone post credit was to use help Lulz to better the economy and after the 2000's it helped with the liquidity and capital which had great impact.
  • Program was to help with the market (PAC) with little cordinate from the BNDES
• Macroeconomics was low impacting structure and in 2003 new attempts helped with industrial policies.
• After that things normalized, and the governemtn used SFI to have a well economy like agriculture and housing. The last section (2009) had 3 stages
  • Support - Counter
  • Discontinaution
  • Resumption in whihc it help stop the crisis to a high extent and give investment.
• But it contributed toward the growth to improve that.

Conclusions

• Theoritical discussion says development banks have to better the enviroment

• In turn SFI will have to cut difference and be state of the art to raise GDP/capita

• SFI +DB and policies will help reduce the crisis and growth

• They also act as financial supporters to insure that agents have trust and continuous stability.

• Its shown that the performacne has coordinated to a a good effect in relation to economics which lowered costs and the restruture to help economy in 1990.

• It will be possible through strong planning that act along will other structures that will help the economy during problems.

Key points to consider

• The best action to make sure capital attracton and to control and have fiscal
• But the best action is is is State tool kit. it is important ot be big not like Minssk.
• Governmetn should be bridge to aligh straegty.
• Therefore the State to act is more of a business men that acts on all sectors.