(Bloomberg) -- Brazil’s lower house of Congress passed a bill curtailing subsidized lending practices that had drained public coffers and stoked inflation, boosting President Michel Temer’s reform agenda.
The Chamber of Deputies voted on Thursday in favor of legislation that phases out below-market loans from state development bank BNDES and creates the new TLP rate. Legislators rejected two amendments, and next Tuesday will vote on three others that may alter the bill. The Senate must vote on the bill before it expires on Sept. 7.
The bill’s approval marks a breakthrough for the Temer administration, which had been on the defensive for months over a corruption scandal. Investors now believe Congress could be open to approving other aspects of Temer’s market-friendly reform plans, which include a controversial proposal to cut government spending on pensions and sell the country’s largest power utility. The real strengthened against the U.S. dollar after the base text of the bill passed on Thursday.
"What we’re doing with this measure is revolutionary, as much for public accounts as for long-term investment in Brazil," said Darcisio Perondi, the government’s deputy leader in the lower house.
Brazil’s central bank chief, Ilan Goldfajn, has lobbied dozens of lawmakers in recent weeks to support the bill, arguing that the TLP would strengthen monetary policy, drive borrowing costs lower, and stimulate long-term private financing. The government has been reducing the weight of the BNDES, which came to disburse more loans than the World Bank at interest rates several percentage points below market.
Temer has worked to reignite his economic policy agenda after surviving a congressional vote that could have put him on trial for corruption. The president faces a long list of challenges, including lackluster confidence levels, tepid growth and unemployment levels near record highs.
Detractors of the proposal, including the influential Sao Paulo industry group Fiesp, argue that the change would reduce investment and hurt company financing at a critical moment for the Brazilian economy. Gross domestic product is expected to grow just 0.34 percent this year after back-to-back years of recession.