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Multinational Companies Bring Billions in Loans to Branches in Brazil

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Data from the Central Bank’s Direct Investment in the Country (IDP) in 2018 indicate that the largest inflow of these funds last year was driven by bailouts to companies, according to analysts.

The difficulties faced by the Brazilian economy meant that multinationals were able to use a billion dollar bailout of their parent companies (or Brazilian branch offices abroad) last year. In 2018, money that came from outside to help companies, called intercompany loans, quintupled: from US $ 6.2 billion in 2017 to US $ 32.3 billion.

This type of loan tends to increase in times when it is necessary to help a struggling business or when companies need to have access to cheaper credit to prepare for an investment opportunity.

Data from the Central Bank’s Direct Investment in the Country (IDP) in 2018 indicate that the largest inflow of these funds last year was driven by bailouts to companies, according to analysts. This was mainly due to the difficulties that the industry and the service sector face, with the country’s slow recovery and repressed domestic demand.

In that period, while the intercompany loan was increasing, equity participation  resources including purchases, mergers or expansion of companies in Brazil  fell 12.5%, going from US $ 64 billion to US $ 56 billion in one year. The foreign investments in capital participation of the companies are, in the end, contributions in production. Although this increase is not effective, the investor makes a contribution in expansion or merger of a company so that the production grows , evaluates Fabio SilveiraMacrosector consulting.

Intercompany operations can grow both in times of crisis and boom in the economy. Before the recession, interest rates in Brazil were high and companies took cheaper credit out there to grow. In recent years, there has been a greater movement of resources to keep what is already installed in the country than for new projects, explains the president of the Brazilian Society of Business Studies (Sobeet), Luis Afonso Lima.

He recalls that the crisis and the need for market repositioning help explain the decline in the activity of some foreign companies in Brazil, with some of them even leaving the country. Recently, the US pharmacy chain CVS and the French retailer Fnac the national market and the American network Walmart sold 80% of its business in Brazil.

Affected by the slowdown in the market and still having to deal with high idleness, the industry received more than two-thirds of the proceeds from intercompany operations in 2018. The industry is usually the main destination for this money, followed by the services sector, but its loans were lower.

International companies are not giving up on Brazil, but the foreign investor works with a yellow sign, says economist Mauro Rochlin of the Getulio Vargas Foundation (FGV).