Alberto Faro and Felipe Baracat

On April 15th, the Ministry of Economy, through the Special Bureau for Foreign Trade and International Affairs (Secint), published Resolution No. 02/2020 of the Committee on Foreign Financing (Cofiex), to amend Cofiex Resolution No. 4/2019, which deals with procedures for taking out financing with multilateral banks.

The measure is important because the financing of national and regional projects via the receipt of loans from international bodies has been seen as an alternative to confront the scarcity of funds in Brazil, especially public funds.

To give an idea, from 2014 to 2018, the volume of transactions of the CAF - Development Bank of Latin America for Brazil was US$ 7.2 billion, including financing to public banks, such as BNB and BNDES, and to states and municipalities. In 2019 alone, the CAF executive board approved lines of credit for Brazilian projects totalling US$516 million, and CAF's portfolio in Brazil currently exceeds US$1.7 billion. Fonplata - Fundo de Desenvolvimento da Bacia do Prata today has seven projects in Brazil and 13 others waiting for approval by the Brazilian government. They amount to more than US$ 200 million, which may be doubled by the year 2020.

The changes proposed by the government come at a good time, as a way to fight the covid-19 pandemic and the economic and fiscal difficulties that Brazil will face in the coming months. States and municipalities will need to have alternatives to finance policies to contain the crisis, and certainly external funding with multilateral bodies will be an important tool. At Machado Meyer, we are already assisting Brazilian entities in structuring some transactions with the specific purpose of financing projects related to the covid-19 pandemic, and the tendency is for this type of transaction to multiply in the coming months.

The objective of the changes, in force while the state of public calamity continues, is to speed up and simplify various procedures, such as evaluation and authorization of public sector projects to accelerate the raising of funds from multilateral bodies abroad by states and municipalities, public banks, and development agencies. The provisions of Resolution No. 02/2020 apply to projects using external financing guaranteed by the Federal Government.

During the term of Resolution No. 02/2020, Cofiex must review the projects and decide on approval thereof within 10 days from the receipt of each application. Previously, Cofiex decided on projects only three times per year. The criteria for review and requirements for approval have also been relaxed so as to focus on two issues: capacity for payment and technical suitability of the project.

With regard to the former, an important change is the possibility of approving projects of states and municipalities with payment capacity rated at levels C and D, considering that currently only ten states are in bands A and B. The measure favors states with major outbreaks of the disease or very affected by the crisis, such as Minas Gerais and Rio de Janeiro, which face a deep fiscal crisis, the only ones with level D, and another 14 states with level C.

The approval of the Minister of Economy for projects to restructure existing debts or improve revenue management is also waived. Before the entry into force of Resolution No. 02/2020, such authorization was necessary.

Cofiex also allowed the restructuring of transactions contracted by including more activities, provided that they contribute to the fight against covid-19 or to the softening of the situation of public calamity in Brazil. New applications must be based on a technical report and legal opinion, but will be admitted only in exceptional situations where there is a surplus of project funds.

It is worth remembering that the measures are extraordinary and will only be in force as long as the state of public calamity lasts.

Applications should be sent to the Executive Bureau of Cofiex, in the form of a letter of inquiry, via the Integrated Management System (SIGS) ( of the Ministry of Economy, according to the specifications and requirements stated in the system.