This is an archived article that was published on sltrib.com in 2016, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

Brazilians rarely do things small.

They boast Latin America's biggest economy but also own its worst recession, a seemingly bottomless corruption scandal and a government allegedly so practiced at disguising budget shortfalls that President Dilma Rousseff was ordered to step aside early Thursday morning.

She'll now face an impeachment trial in the Senate; few analysts expect she'll be back.

But Brazil's corruption sleuths never sleep. So perhaps it's no surprise that even as Vice President Michel Temer prepares to take over, the so-called Car Wash probe into a rolling graft and kickback scheme — which already has tainted much of Brazil's senior political establishment and pillaged the state oil giant Petrobras — now threatens to engulf the government's most important financial institution, as well.

This week, federal investigators detained former finance minister Guido Mantega for questioning about alleged malfeasance at the state-owned National Social Development Bank, popularly known by its initials Bndes.

The feds were looking into accusations by imprisoned construction mogul Marcelo Odebrecht that Mantega had pressured him and other contractors to make campaign donations to political allies in exchange for subsidized loans from the development bank.

Administration officials even leaned on the builder during routine business meetings to bankroll government-friendly candidates, Odebrecht reportedly told prosecutors.

Mantega denied the charges. Bndes president Luciano Coutinho countered that the bank awarded its coveted subsidized loans strictly on technical and financial criteria.

More than sketchy lending is at stake. The cloud over the development bank is further evidence of how unchecked political ambitions have enrolled the nation's most revered institutions to advance a partisan agenda on the taxpayer's nickel.

The damage is clear at Petrobras, which went from energy juggernaut to investor deadbeat in a decade thanks to "systemic corruption," in the words of federal judge Sergio Moro, who presides over the Car Wash case.

Now one of the caretaker government's top priorities will have to be restoring confidence in country's biggest lender, as well.

With their easy money and often less-than-transparent lending policies, state-owned development banks are tempting targets for ruling parties and their cronies.

The banks are meant to stimulate economic growth by using state money for financing projects that might not otherwise get built.

The prize is especially great at Bndes, which in 2010 dispersed loans valued at $101 billion — more than three times the total amount provided by the World Bank and about 20 percent higher than that of China Development Bank. The bank lent the equivalent of around $33 billion last year, when the economy was in recession.

It wasn't all hype when former president Luiz Inacio Lula da Silva in 2012 extolled it as "the world's biggest development bank."

Though Bndes's default rate is much lower than that of private banks, critics argued that the bank frequently favored "national champions," companies cherry picked to promote Brazil's enterprise at home and abroad.

In fact, the nest egg went to big borrowers who simply helped themselves to subsidized loans when they could have raised money in the private credit market.

Sixty percent of Bndes loans during President Lula's Administration (2003 to 2011) went to clients reporting annual earnings of $130 million or more, economist Sergio Lazzarini, who teaches at Sao Paulo's Insper university, found.

Much has been written about how such state-driven economic "dirigisme" distorted Brazil's economy: To finance the bank's subsidized loans, the government borrowed on the markets at much higher rates, thereby driving up public debt.

That, in turn, helped keep Brazil's private lending rates sky high. Monica de Bolle, a senior fellow at Peterson Institute of International Economics, recently estimated that subsidies on Bndes loans will cost Brazil around $33 billion through 2020.

What's newer, and potentially more troubling, are the allegations that the government used subsidized credit to push a partisan agenda. Crossing campaign finance records with Bndes lending, Lazzarini and his colleagues found that companies who helped elect politicians to office from 2002 to 2009 got a sweetener from the Bndes: an average of $28 million in loans for every winning candidate they bankrolled. However, companies that backed political losers saw their loans shrink by $24 million on average.

Suspicions grew under the Lula government, which lent lavishly from Bndes's coffers to build public works in allied countries, such as Cuba and Angola, often on secret terms. The outcry over such murky deals prompted the bank to open its books on foreign operations.

But not even the bank's toughest critics had foreseen the sort of political quid pro quo that Odebrecht is now telling prosecutors about. "I never imagined the government using loans to bargain for political donations," Lazzarini told me.

The incoming caretaker government has many emergencies to tend, but fixing the Bndes will be crucial to mending Brazil's tattered credibility.

Reforms would include streamlining the bank, restoring its mission as a lender to key development projects, reducing wasteful loan subsidies, and awarding loans on technical, instead of political, grounds. "Development banks need to go in early, take initial risks on a venture and then hand over operations to the private sector," said de Bolle.

As unlikely as it may sound, smaller may well be better for the new Brazil.