Brazil announces US$ 1 billion credit line for rural exporters

Starting in May, rural exporters in Brazil will have access to a new dollar-denominated credit line to modernize their production. With resources from the National Development Bank (BNDES), loans will have fixed interest rates of 7.59% per year plus the exchange rate variation.

With $1 billion available, the credit line will finance the purchase of equipment for the agriculture and livestock sector. Items that can be financed include agricultural machinery, irrigation systems, silos, storage structures, and solar energy systems. Those who commit illegal deforestation will not have access to the credit line.

The creation of the credit line was announced on Tuesday (April 25) by acting president Geraldo Alckmin and BNDES president Aloizio Mercadante. According to Mercadante, there will be an official launch during the International Agricultural Technology Fair (Agrishow), which takes place from May 1 to 5 in Ribeirão Preto, São Paulo.

“Exporters in agriculture who have amounts quoted in dollars to receive will be able to utilize this line of credit to purchase machinery, equipment, tractors, harvesters, irrigation instruments, and storage,” explained Mercadante. “The only thing that cannot be done is illegal deforestation. We monitor the properties, and those who illegally deforest will not have access to the line.”

According to acting vice president Geraldo Alckmin, the new line is a low-risk option for exporting agribusiness. “For those who export agricultural commodities, the possibility of being financed in dollars is much cheaper. All we want is cheaper credit to boost growth and attract investment,” said Alckmin.

In addition to BNDES, partner institutions such as Banco do Brasil, the country’s leading supplier of rural credit, will be able to operate the credit line.

Low-interest rates

The credit line will work as follows: the exporter will contract a debt in reais indexed to the dollar. However, those who sell abroad have receivables in US dollars, which reduces the exposure risk to changes in the exchange rate because the receivables are also indexed to foreign currencies.

“If he [the exporter] loses on one end, he gains on the other. For example, if the real depreciates (and the dollar rises), the profitability of the export improves, but the debt becomes more expensive. On the other hand, if the real appreciates (and the dollar falls), the opposite happens,” explained Mercadante.

The credit line will have interest rates below the Long-Term Interest Rate (TLP). Formed by an average of long-term public bond market rates corrected for inflation, the TLP is currently around 19% annually. However, according to Mercadante, the effective interest rates could be lower because the installments are indexed to the exchange rate.

“The [interest rate for the new line] drops from 19% to 7.5% per year. But since the index is the exchange rate and the company has an exchange export, it drops from 19% to 3% per year. I think it is one of the most creative things we could do in this very high interest rate scenario,” highlighted the BNDES president. According to Mercadante, the government plans to extend the model to exporting industries and services.

Source: O Presente Rural

To read the original news report, see: https://opresenterural.com.br/exportadores-rurais-terao-linha-de-credito-de-us-1-bilhao/

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