Home Corruption How Maria Silvia defection of BNDES can affect the reforms agenda

How Maria Silvia defection of BNDES can affect the reforms agenda

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Maria Silvia Bastos resigned as the head of Brazil’s state development bank, BNDES, amid a corruption scandal engulfing both the institution and Brazilian President Michel Temer.

The BNDES in a statement cited personal reasons for Bastos’ decision, without elaborating.

Brazil’s currency and the Ibovespa stock index trimmed dramatically gains.

Paulo Rabello Castro, an economist in charge of the national statistics agency, IBGE, is to take over the helm of the bank next week, Temer’s office said.

Bastos’ resignation is a setback for Temer, who is caught in a corruption scandal that has undermined his ability to pass reforms aimed at restoring public finances.

The case involves the world’s largest meatpacker, JBS SA, which for years benefited from BNDES’ financial support that is now under investigation by police.

The operations took place before Bastos’ tenure.

Bastos, dubbed “Iron Lady” by local media for her previous job heading a steel company, has faced criticism for allegedly holding back loan disbursements in general.

She had been tasked with overhauling the state bank that, during her predecessor’s tenure, ballooned in size and came to disburse more funds than the World Bank.

Bastos took over in May last year and lending by the BNDES dropped 28 percent in the 12 months through last month.

The bank has attributed the drawdown to Brazil’s two-year recession.

Bastos’ departure is a concern for Temer, because she was viewed as a crucial member of his economic team, said Sergio Lazzarini, a professor at the Insper business school in Sao Paulo and coauthor of Reinventing State Capitalism that focuses on BNDES’ role.

“When you start losing that technical team, it’s very bad,” Lazzarini said. “For Brazil, what would be ideal to navigate this political crisis would be technical stability.”

Bastos was one of Temer’s only female appointees and the highest-ranking one.

Temer thanked Bastos for her service in a separate statement.

Meanwhile, JBS on Friday said brothers Joesley and Wesley Batista, who own the company and are ensnared in the corruption scandal, have resigned from their board posts.

Joesley resigned as chairman of the board and was replaced by board member Tarek Farahat.

Wesley resigned as vice chairman of the board and was replaced by his father, Jose Batista Sobrinho, the company said in a securities filing.

In other developments, Brazil’s credit outlook was cut by Moody’s Investors Service, which said the corruption scandal ensnaring Temer poses a rising threat to the recovery of Latin America’s largest economy.

Moody’s reduced the nation’s outlook to negative from stable and kept its rating at two levels below investment grade at “Ba2,” according to a statement on Friday.

Fitch Ratings and S&P Global ranks Brazil at the same level.

“The political crisis that erupted in Brazil last week seems likely to undermine the government’s reform agenda and stall passage of future reforms, including social security,” Moody’s said in the statement. “This is likely to negatively impact investor confidence and lead to increased market volatility.”