Development Bank, Law and Innovation Financing in a New Brazilian Economy

Abstract

This paper examines new ways of direct state intervention in Brazil's financial environment, which has a prevailing development bank (state-owned financial institution) – BNDES (National Economic and Social Development Bank). The main purpose of the article is to describe the new role and legal tools developed by BNDES to finance innovation and start up companies. The analysis shows that not only the financing of innovation has become paramount within the BNDES agenda, but also that this activity has been associated with a new rationale for intervention. Instead of taking the place of the financial market, BNDES tries to leverage the financial sector, mainly its venture capital sector. Particularly, it will examine four kinds of legal tools, which have been developed by BNDES since the beginning of the nineties to spur innovative companies. The legal tools are: (i) equity participations; (ii) credit contracts; (iii) indirect participation in private venture capital funds; and (iv) contract based on non-reimbursable resources. These legal tools not only represent a new contractual paradigm within BNDES financial operations, but also indicate a new way of public intervention. The paper claims that in financing a Brazilian knowledge based economy, BNDES has abandoned its top-down intervention strategy, adopting an iterative and dynamic kind of governance.

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