Sovereign Fund of Brazil

Country: Brazil

Established: 2009

US$ Billion: 8.6

Origin: Non-commodity

Brazil with its growing foreign currency reserves at around $US 195.3 billion is planning to develop its own Sovereign Wealth Fund. Brazil will sell treasury bonds to finance its new sovereign wealth fund, bypassing a legislative hurdle that had limited its cash supply.

The Fundo Soberano do Brasil is intended to defend Brazil from future financial crises and assist Brazilian firms to increase trade and expand abroad. The bond issue will allow Brazil's government to put 14.2 billion reals ($5.9 billion), or 0.5% of gross domestic product, into the fund by January 2009.

The fund will also act as a anti-cyclical mechanism to help investments in Brazil as well. In addition, the fund would most likely focus on corporate debt instruments rather than equity stakes in firms.

News and Updates

Brazil Forms Sovereign Wealth Fund Advisory Board
WSJ reports, "Moving forward with the administration of its recently created sovereign wealth fund, Brazil's government on Monday established a special advisory board to supervise the fund's investment decisions, according to a presidential decree published in the country's federal register. Under the decree, the board will be headed by the country's Finance Minister, Guido Mantega, and will also include Planning Minister Paulo Bernardo and the president of the country's central bank, Henrique Meirelles. Votes from only two of the board's three members will be necessary, however, to ratify decisions on the fund's investments. The board will meet regularly on a quarterly basis, though extraordinary board meetings can be called by its president.

Among its responsibilities, the board will approve investment return targets, ratify the fund's budgeting decisions, and create a technical consulting committee."
read more: Dow Jones - WSJ

Brazil May Tap Wealth Fund Next Year, Bernardo Says
Bloomberg reports, "Brazil may tap its 15.8 billion real ($8.6 billion) sovereign wealth fund next year to help finance spending without widening the budget deficit, Planning and Budget Minister Paulo Bernardo said.

Tax collections may lag behind an expected economic recovery in 2010 because some companies have ways to postpone taxes on earnings until the following year, Bernardo said during an interview in Brasilia. Tax revenue fell 1.9 percent in the first half of 2009 from a year earlier.

'If tax collection is not as good, we will use the sovereign fund,' Bernardo said. 'I don’t think we will need the sovereign wealth fund this year. Next year, we may.'

Drawing on the fund will allow President Luiz Inacio Lula da Silva’s administration, amid an election year, to avoid cuts to spending should economic growth or tax revenue falter. Lula’s administration will also have room to extend tax breaks granted this year to boost the recovery if needed."
read more: Bloomberg

Brazil plans to keep sovereign wealth fund-Mantega
The article states, "Brazil is not planning on tapping its recently-created sovereign wealth fund this year despite a fall in government revenues, Finance Minister Guido Mantega said on Monday.

'I'd rather not use it. It is one additional resource that we have to ensure a solid primary (budget) surplus,' the minister told investors in New York.

He said the resources of the wealth fund will not be used this year as the government already reduced its primary fiscal target. The fund could be tapped in 2010, however, if necessary be, the added."
read more: Reuters

Finance Minister: No recession peril for Brazil in first quarter
The article states, "Mantega said the government is discussing other countermeasures against the crisis, and may resort to the country's Sovereign Wealth Fund, if necessary, to help stimulate investments and minimize negative incoming impacts."
read more: Xinhua

Brazil Finance Minister Expects Congress To Approve Sovereign Fund Soon
According to the Dow Jones, "Brazil's government has proposed the creation of a sovereign wealth fund of between $10 billion and $20 billion to receive surplus revenue from Brazilian exports. However, the model for the fund must still be approved by the country's congress. "We see the bill approved in coming months so that we'll set up the fund with resources we've already saved in the treasury," Mantega told reporters on the sidelines of a conference on sovereign wealth funds in Santiago. The fund could also later receive resources from the revenue from Brazil's recently discovered pre-salt oil reserves, he added. Brazil last year revealed the discovery of offshore oil reserves estimated at between 5 billion and 8 billion barrels in a pre-salt geological region oil off the country's southeastern coast. The area is seen going into production after 2010."
read more: Dow Jones

Increasing Budget Surplus to help finance New SWF
According to Thomson Reuters, “Brazil will increase its primary budget surplus by at least 0.5 percent of gross domestic product to help finance a new sovereign wealth fund, Finance Minister Guido Mantega said on Friday.

Speaking a day after Brazil won its second investment-grade credit rating, Mantega said the fund would start off with 13 billion reals ($8 billion) in assets, all in reals, though at a later date the government could also buy dollars for the fund.

Mantega also said the additional savings from the increased primary surplus will help in the battle against inflation, easing pressure on the central bank to raise interest rates.”
read more: Thomson Reuters

By the end of June, Brazil might finally have a SWF
According to Bloomberg, “Brazil's Finance Minister Guido Mantega said the country may create a sovereign wealth fund by the end of June in a bid to secure higher returns on growing cash holdings. 'The sovereign fund is a more efficient way to use the excess dollars that come to Brazil,' Mantega said in an interview in Brasilia today. Asked whether the fund may be started before the second half of the year, he said 'yes.'

Mantega declined to say whether the government will use cash from the central bank's international reserves or Treasury funds. The fund may start with as much as $10 billion, Mantega said in November."
read more: Bloomberg

Possible Sovereign Wealth Fund to deal with growing foreign reserves
Brazil might create a sovereign wealth fund with the primary aim of intervening in foreign exchange markets to counter the appreciation of Brazil's currency.

According to Brazilian Finance Minister, Guido Mantega "it will have the function of reducing the offer of dollars in the market and helping the real to appreciate less," he told the Financial Times.


Banco Central do Brasil
Brazil Ministry of Finance

1. All figures quoted are from official sources, or, where the institutions concerned do not issue statistics of their holdings, from other publicly available sources.

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