Long Term Interest Rates are referred to in Portuguese as TJLP. This rate was created in October 31st, 1994 and is defined as the basic cost of public loans – especially those granted by the BNDES, the Brazilian state-owned Social Development bank. Its main purpose is stimulating investments in the infra-structure and consumption markets, asides from aiding in the inversion of the cash-generation curve – until 1994, short-term investments paying larger profits were favored.
The TJLP is set by the CMN – Conselho Monetário Nacional (Nacional Monetary Counsil, in lose translation) until the last work day of the quarter that immediately precedes the quarter when it’s in effect. It’s valid for long term loans, and it’ll only vary once every three months.
TJLP calculations involve two basic components:
1. It works as an inflation goal mechanism, being calculated pro-rata for the next 12 months. It also follows the annual goal set by the CMN.
2. It works as a risk premium. It incorporates a real international interest rate and a Brazil risk component inside a medium to long term perspective.
The TJLP applies mainly to the passive BNDES contracts with the FAT – Fundo de Amparo ao Trabalhador (or Worker Sheltering Fund, in lose translation), Fundo de Participação PIS/PASEP (or Social Welfare Initiatives Participation Fund, in lose translation), and to the Fundo de Marinha Mercante – FMM (or Merchant Marine Fund, in lose translation). It’s also used in long term loans granted by the BNDES. Since interest rates are much lower than those offered by private institutions, companies prefer to ask for BNDES loans, especially for industrial and job generation activities and projects.