Financier of the Year: Luciano Coutinho – Development banker to the rescue

By Mery Galanternick

RIO DE JANEIRO — When Luciano Coutinho stepped into his post as head of Brazil’s national development bank in 2007, he never imagined that a year later both he and the bank would play a pivotal role in helping the country withstand the pressures of the global financial crisis.
Credit worldwide had evaporated in the wake of the Wall Street meltdown, yet the National Economic and Social Development Bank, known as BNDES, was sitting atop massive resources. Coutinho and his staff focused on funding large-scale industrial and infrastructure projects that would boost consumption and employment. Loans jumped more than 50 percent in his first year, from $33 billion to $50.5 billion in 2008, and another 35 percent, to a record $68.6 billion, in 2009. As a result of this credit lifeline, Brazil was one of the last economies to slip into a recession and one of the first to recover.
“I felt rewarded and proud of winning that challenge,” Coutinho told Latin Trade in an interview at the bank headquarters.
Even before the crisis, BNDES was already the country’s principal provider of long-term — and low-interest — credit. In 2009, the bank financed huge acquisitions within Brazil that fueled consolidation in the telecommunications, meat, paper and ethanol industries. Funding last year outpaced that of both the World Bank and the Inter-American Development Bank. By the end of 2010, BNDES is expected to lend about $70 billion.
The bank performance is also tops. BNDES ranks first worldwide among financial institutions for return on assets — it posted a net income of almost $2 billion in the first half of 2010. It has the lowest rate of delinquencies as a percentage of total operations, at a mere 0.2 percent, compared with an average of 4 percent in the international banking system.
The job was a change for the 63-year-old economist. Born in the Northeastern state of Pernambuco, Coutinho moved to São Paulo when he was 17 to study economics at the University of São Paulo. He earned a doctorate in economics from Cornell University in the United States. He returned to Brazil to pursue a career in academia, teaching economics at Unicamp in São Paulo, from 1974 to 1986.
“As a professor I earned very little and was frequently struggling to make ends meet,” he recalled. His interest in industrial policy and the competitiveness of Brazilian companies brought him into close contact with political circles. The government beckoned. In 1985, he was tapped as secretary of Science and Technology by the administration of President José Sarney, a position he held through 1988.
He went on to found LCA Consultores, where most of his clients were private companies in the industrial sectors. He left behind a very successful business to run BNDES.
“I have been a non-orthodox economist,” said Coutinho, referring to economic policy that questions neo-classical theory that the free market will eventually solve all problems. His economic research has always been conducted with an eye to real problems and practical solutions, he said. “I moved from theory to practice using the network I had built in my academic life to the political life and to the network I made in the business side.”
An intimate understanding of the business world has helped him, he said. “I knew why and how strategic decisions were made.”
Under Coutinho, the bank has ventured into three new areas: environment; information technology; and small- and medium-sized companies. Acknowledging the challenges posed by global climate change, BNDES now mandates reductions in carbon emissions under the terms of its loan agreements.
On the technology side, Coutinho has multiplied the bank’s efforts to provide funds for start-up venture capital to stimulate research and development in Brazil. A BNDES partnership with IBM advanced the U.S. multinational’s decision to open its ninth R&D center in Brazil, he said.
BNDES has also been issuing low-interest revolving lines of credit to small- and medium-sized companies. Coutinho estimates that 250,000 companies will have participated in the low-cost loan program by the end of 2010.
As Brazil has taken on a wider role in the world, so has BNDES. The bank formally created an international division in 2008. Offices were opened last year in Montevideo and in London to support international activity. In May of 2010, BNDES established EXIM Brazil, a subsidiary devoted to foreign trade.
BNDES’s success in helping stave off a deeper recession has prompted many captains of industry, who have routinely criticized the bank — to sing Coutinho’s praises.
But some criticism has come from the official in charge of keeping tabs on inflation. Henrique Meirelles, president of Brazil’s central bank, told the Valor Economic newspaper in an interview that the bank’s record lending is aggravating inflation and creating difficulties in implementing monetary policy.
Coutinho sees it differently. “We’re helping to boost production through increased investments,” he said.
Luiz Gonzaga Belluzzo, chairman of the Palmeiras soccer club and an economic adviser to President Luiz Inácio Lula da Silva, is a prominent supporter. “Coutinho is one among the few people with a comprehensive knowledge of Brazil’s industrial sector,” he said.
Expecting to step down after the October presidential elections, Coutinho said he hopes the next leader of the bank will uphold his policies of fostering environmental sustainability, information technology innovation and a social agenda.
But the soft-spoken economist may well end up in another high-profile post. Financial and political analysts frequently mention him as a likely candidate for a Cabinet position in the next administration, regardless of who wins the presidency.
Coutinho has a longstanding friendship with the opposition candidate, José Serra from the Social Democratic Party. And the candidate favored by Lula, presidential chief of staff Dilma Rousseff of the Worker’s Party, is a former student of the economist.