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Written by Marcella Ayers
BRASILIA (Reuters) – Brazil’s government is expected to announce on Monday new measures to support foreigners with currency hedging of investments in sustainable development, while avoiding currency and fiscal risks for the Treasury. Two people familiar with the plan said.
The plan includes a new channel for about $2 billion in foreign exchange derivatives contracted with the Inter-American Development Bank (IDB) and distributed in Brazil by the central bank, the person said, speaking on condition of anonymity to discuss the confidential plan. Those concerned stated that they wished to do so.
The initiative, which leverages the IDB’s triple-A credit rating to promote long-term, low-cost currency derivatives to encourage foreign investment in Brazil’s “green” development initiatives, will be announced by presidential decree. is.
Brazil’s Ministry of Finance, central bank and IDB all declined to comment.
Brazil’s central bank plans to enter into a comprehensive derivatives agreement with the IDB to implement the program, sources said.
In the same executive order, the government will also give the central bank long-term rollover authority for its $100 billion swap inventory to strengthen liquidity and reduce currency volatility, one of the people said. .
Sources said the central bank’s green light for long-term rollovers of swaps was deemed “structural” and “very important” as market liquidity is limited for periods beyond five years. He said that
These adjustments could make Brazil’s swaps market more dynamic, extending its duration by up to 15 years and having a significant impact on the financing of infrastructure projects, the person said. added.
Monday’s foreign exchange measures will also include other measures to protect the currency, including an IDB-backed structured project finance liquidity line for green investments, the sources said.
The goal is to support projects that generate revenue in Brazilian reals and need to maintain debt service coverage in strong currencies, such as solar power plants financed in US dollars. The new liquidity line will help such projects meet their financial commitments amid sharp currency fluctuations.
“This will save the project and allow more patient capital to take on more risks,” the second person said.
Long-term currency hedging has long been a problem in Brazil, scaring some foreign investors away from Latin America’s largest economy.
The government of President Luiz Inácio Lula da Silva has seized on the issue in an attempt to position Brazil as a major player in climate change and boost foreign investment in areas such as renewable energy and sustainable infrastructure. We are working on this.
In November, Brazil raised $2 billion in the first “green” bonds on the international market, using a framework whose construction was also supported by the IDB.
Finance Minister Fernando Haddad first outlined the currency hedging efforts in an interview with Reuters in October.
Foreign direct investment (FDI) into the country in 2023 fell by 17% to $62 billion.
(Reporting by Marcela Ayers in Brasilia; Editing by Brad Haines and Matthew Lewis)
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