Put André Jerusalem – 21/5/2020

Approved on May 22, 2020, PEC 10/2020 (also known as the “War Budget PEC”) instituted the so-called “Extraordinary Fiscal, Financial and Contracting Regime to Confront the National Public Calamity Resulting from the Pandemic”.

Among the topics addressed in said PEC, one of those that may have the greatest impacts are those addressed in articles 8 and 9, namely, the possibility of the Central Bank of Brazil (“Bacen”) acquire not only public securities issued by the National Treasury, but also securities issued by private entities. According to the approved text, the Central Bank may acquire the following securities on the secondary market, as long as they have rating equal to or greater than BB- according to at least one of the three main risk agencies: (i) non-convertible debentures; (ii) real estate credit notes, (iii) real estate receivables certificates, (iv) agribusiness receivables certificates, (v) commercial notes, and (vi) bank credit notes.

One of the reasons for the publication of PEC 10/2020 is to circumvent a constitutional prohibition, provided for in the first paragraph of article 164 of the Federal Constitution, which deals with the prohibition of the Central Bank lending money to non-financial institutions.

These measures became known as “quantitative easing” after the 2008 crisis, because despite being controversial, they aim to inject liquidity into the market without the knowledge, or lack of appetite, of private investors. It should be noted that this injection of liquidity is also being used by other central banks around the world, notably the FED (United States Federal Reserve) and the European Central Bank.

Finally, we highlight that the guidelines adopted in the PEC must be subject to specific regulation to be issued by Bacen, as established in article 9.