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Founded in 1952, the National Bank for Economic and Social Development (BNDES) is a financial entity fully owned by the Brazilian government. It is in the process of redefining its priorities and its role going forward. New operational policies (OPs) published on January 5, 2017, mark an important milestone. This report aims to contribute to the improvement of BNDES OPs and, more generally, provide a medium- to long-term view of BNDES' role in the Brazilian economy. It provides a conceptual framework to establish BNDES as a development bank that aims to offset market failures that impose a wedge between private and social rates of return and limit access to term finance. The framework differentiates credit-constraining factors from the presence of externalities. The former might justify facilitating access to long-term financing; only the latter might justify subsidies. The paper then applies the framework and methodology to BNDES' operations and finds that BNDES has in the past provided financing to many firms that have access to alternative sources and subsidies beyond what could be reasonable in economic terms. The paper provides recommendations to establish BNDES as a more effective and focused development bank, less dependent on the government for funding, and less subject to interference by improving its governance.

Access to Finance --- Competition Policy --- Competitiveness and Competition Policy --- Finance and Development --- Finance and Financial Sector Development --- Financial Management --- Governance --- Non Bank Financial Institutions --- Private Sector Development --- State-Owned Enterprises